Via Roberton Williams over at TaxVox, I see that House Majority Leader Eric Cantor has a surprising objection to President Obama’s American Jobs Act (AJA) and its pay-fors: it will hurt soup kitchens and Americans living in poverty. How? By taxing upper-income individuals, of course. Thank goodness compassionate conservatism isn’t dead.
As I noted earlier, the largest component of the revenue offsets for the AJA would limit the rate at which itemized deductions and specified above-the-line deductions and exclusions reduce tax liability for households with adjusted gross income above $200,000 ($250,000 for joint-filers). These tax expenditures increase in value with one’s marginal tax rate. The president’s proposal would cap the value at 28 percent, slightly reducing the benefit from 33 percent or 35 percent for these upper-income tax-filers. Cantor objects to the proposal on the grounds that it would further “tax charitable donations to soup kitchens, churches, and cancer research centers.”
Williams makes two excellent points: if the tax policy objective is a higher incentive to charitable giving, Cantor should 1) not object to restoring the top marginal tax rate to 39.6 percent, which he does, and 2) not support lowering the top marginal tax rate to 25 percent, which he also does. Indeed, the House Republican 2012 budget would cut both the corporate tax rate and top individual tax rate to 25 percent at a revenue loss of $2.0 trillion(some of which is theoretically offset by eliminating unspecified tax expenditures—perhaps perennial GOP targets such as the Earned Income Tax Credit), on top of continuing the regressive Bush-era tax cuts to the tune of $3.8 trillion.
But the Republican budget reveals much deeper hypocrisies when it comes to the interests of poor and working families than the marginal tax rate. Bob Greenstein of the Center on Budget and Policy Priorities estimated that two-thirds of the spending cuts in their budget come from programs for lower-income Americans. Food stamps are cut and federal spending on Medicaid—health care for the disabled, poor children, and poor seniors—is slashed in half over the next 20 years. Medicaid alone would be cut by $1.4 trillion this decade.
Broadly speaking, Cantor objects to a revenue offset that would only affect 2.2 percent of the population, according to the Tax Policy Center, most of whom earn at least tenfold the poverty threshold for a family of four. More critically for impoverished Americans, the $447 billion in near-term job creation would boost employment by 1.9 million jobs and reduce the unemployment rate by 1.0 percentage point next year, according to Mark Zandi of Moody’s Analytics. In 2010, the federal poverty threshold for a family of four was $22,113; a family with earned income at this level would receive a payroll tax cut of $686 under the American Jobs Act, but not under the House budget. Unemployment insurance kept 3.2 million Americans out of poverty last year; the American Jobs Act would extend emergency unemployment benefits, but the House budget would not. Soup kitchens aside, putting Americans back to work and strengthening, rather than eviscerating, the social safety net is the way to address rising poverty.
Cantor is correct that the tax incentive for charitable giving would decline, although only for 2.2 percent of households. Expressing this concern in the name of the poor is, however, irreconcilable with the budget he steered through the House of Representatives, which would represent a massive redistribution of wealth from low- and middle-income families to the so-called “job creators.”