GOP Tax Reform – What's in it for Appalachia?

Dec 5, 2017

In the early hours on Saturday, the Senate passed the GOP’s tax reform bill. The vote fell primarily along party lines, with all 48 Democrats voting against the bill, alongside the sole Republican Senator Bob Corker of Tennessee.

The final version of The Tax Cuts and Jobs Act was sent to Senate members only hours before the vote, provoking outrage among Democrats. Last minute negotiations, including some handwritten amendments on the margins of the document’s official printout, were added throughout the night leading up to the vote. Now, the bill is headed for reconciliations with the House’s own plan passed last month.

"It was a fantastic evening last night,” President Trump told the White House press pool on Saturday. “We passed the largest tax cuts in the history of our country and many other things along with it..”

According to the Congressional Budget Office, the new plan will add almost $1.5 trillion to the budget deficit over the next 10 years. Here’s the CBO’s full report.

For businesses, the bill reduces the corporate tax rate from a maximum of 35% to a flat 20% rate (25% for personal services corporations). (Source.)

So what does this all mean for the taxpayers of Appalachia?

According to the CBO’s analysis, individuals earning more than $30,000 a year will not benefit from the new GOP tax plan. The Appalachian Regional Commission’s report on Personal Income Rates (per capita) in Appalachia in 2015 estimated the median income per capita to be $38,953. This means that even Appalachian Kentucky, which had the lowest per capita income of $31,291 that year, would not see any tax cuts or advantages from the plan.

An analysis from The New York Times indicates that the legislation may impede local and state governments’ ability to levy their own taxes, which in turn would impact revenue funding for services such as health care, public safety, and public education. Various other provisions are also expected to impair social security safety net programs and programs designed to help lower-income groups gain access to higher education.

It appears changes to the tax code designed to limit the government’s reach and spending might have the most detrimental impact on Appalachia’s most vulnerable communities. For example, the permanent repeal of the individual mandate (a penalty for not acquiring health insurance coverage) will significantly reduce revenue funding for Obamacare. Almost every analysis of the new tax plan suggests that it will primarily benefit high-income earners and big corporations.

The tax plan follows the tenets of trickle-down economics, a theory that has yet to prove it actually works. Ronald Reagan and George W. Bush’s massive tax cuts for the rich are examples from most recent history. While failing to deliver expected economic growth, they deepened wealth disparities in the US. In 2012 Congressional Research Service published a report examining those very issues, concluding that: “There is not conclusive evidence... to substantiate a clear relationship between the 65-year steady reduction in the top tax rates and economic growth.” While the report didn’t find the theory of the tax cuts as a major economic driver to be reliable, it also found that “the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution.”

The GOP intends to deliver the bill to the President’s desk before the end of the year.