Republicans will start grappling this week with their political miscalculations in focusing their tax-cut plan on corporate and wealthy taxpayers while proposing to eliminate tax breaks that help families and struggling Americans. Look for some of them to start backtracking. The $1.5 trillion proposal released last week would slash taxes for most corporations and more affluent Americans. It also would end the tax credit for adoptions, the write-offs for unusually high medical expenses and incentives to encourage tests to develop drugs for rare diseases.
This had little to do with the merits of these provisions but rather were part of a frantic process to offset the cost of the business and investor-oriented cuts. But the backlash against ending the family-friendly write-offs has already started and is likely to force the House Ways and Means Committee to reverse most of these proposals and cut back a little on the high-end cuts.
Polls show that the overall measure is unpopular with the public and Republicans from high-tax states have objected to the plan’s proposal to eliminate the existing deduction for state and local taxes. If they defect, House Republican leaders can ill afford to lose any supporters of the other write-offs. The politics of tax cuts are always convoluted, but this year’s effort has been complicated by the Republicans’ crazy-quilt maneuvers to salvage a disappointing political year by quickly passing a huge tax cut. The Ways and Means Committee held no real hearings before beginning its work this week.
Current law provides a $13,500 tax credit for expenses incurred in adoptions, which can cost three times more than that. It’s used by only 60,000 families a year but draws support from social conservatives, who say that it prevents abortions, and by liberals who claim that it keeps children out of the troubled foster care system.
Taxpayers can now deduct medical expenses exceeding 10 percent of their incomes. The Republican tax-cut sponsors say that eliminating deductions like this one simplifies the internal revenue code and that taxpayers who lose some benefits will enjoy others like a doubling of the standard deduction. But that’s not enough to compensate people saddled with the cost of catastrophic medical problems or the burden of caring for special-needs children or parents with Alzheimer’s disease. Their stories would be extensively aired if there were hearings on the bill, which helps explain the Republicans’ haste.
Drug companies are at present allowed to deduct expenses incurred in tests to develop drugs to treat rare diseases, known as orphan drugs. The rationale is that Pharma companies need favorable tax treatment for these medicines because there wouldn’t be enough patients to make them profitable otherwise. The proposal to eliminate this tax break stands in sharp contrast to the normal devotion of congressional Republicans to the interests of the drug industry. Last month, for example, the Washington Post and CBS News exposed how lawmakers, led by Rep. Marsha Blackburn of Tennessee, weakened regulation and enforcement of laws governing distribution of opioid painkillers, which have caused an epidemic of drug abuse and deaths across the U.S.
If Republicans reverse the preliminary decisions on these write-offs, it won’t have a big revenue impact. But it would show how the GOP has planted political land mines in its tax bill in a frenzy to pass something big.