Tax plan: What’s the impact in the Berkshires?
This story has been modified to correct the edition of Jon Bakija's book that recently was released.
PITTSFIELD — Berkshire County residents are in line to be among those who would personally feel the impact of the proposed GOP/Trump tax plan — "The Tax Cuts and Jobs Act" — and if approved, it's likely going to hurt in ways that may surprise.
The new tax plan, which lowers the corporate tax rate, eliminates tax deductions and modestly lowers income tax rates, is being billed by Republicans as a stimulus for the national economy, while detractors are calling it another version of "trickle-down" economics.
On Thursday, the Republican-led Senate issued their own version of a new tax code — a harsher version of the House plan. The House proposal, for example, nearly eliminates the state and local income-tax deduction — a measure that barred the federal government from taxing money residents spent on state and local income, sales and property taxes — but still would allow people to deduct property taxes capped at $10,000. The Senate's version kills the write-off entirely.
In both versions of the Republican tax proposal, the average Berkshire County household would see an initial savings of about $1,010 per tax bill, according to an analysis by the Tax Policy Center. But economists estimate that savings could be anywhere from $110 for the lowest-income earners to almost $3,000.
The GOP tax breaks are expected to add significantly to the national deficit: estimates range between $1.5 trillion to more than $3 trillion.
To help compensate for the cuts in tax revenue, the government will have to make public service cuts, economists said — and that's how the tax plan could be most harmful to Berkshire County.
Rural Berkshire County — with its slow-growing economy, limited affordable housing options and a shrinking/aging population — depends more than other areas of the state on government programs that, through his 2018 budget proposal, Trump has vowed to ax or reduce, such as food stamps, Social Security disability insurance, federal pensions, education, agriculture, rural economic development and single family housing direct loans, and Community Development Block Grants, among other social programs.
"This matters a lot for the Berkshires: The way the tax cut is designed, most of the benefits are going to people at the top of the income distribution, most of the direct benefits," said Jon Bakija, a Williams College economics professor and chairman of the political economy program. "About half the direct benefits are going to the richest 1 percent of the population and the rest is spread out over the rest of the population.
"This tax cut is going to lose a lot of revenue. If we cut revenue a lot, that makes it more likely we're going to have to cut Medicaid, Medicare and Social Security, and people in Berkshire County depend a lot on those things."
Berkshire County has the second-highest concentration of residents who use Medicare benefits in the state; for every 1,000 residents, 238 are on Medicare. The only place where the concentration is higher is on Cape Cod, according to HealthGrove.com. Hospice costs 10.4 percent more in the Berkshires than the national average, and outpatient services here are priced at a rate 4.7 percent higher than the U.S. average.
The area's economy is buoyed by the health care and education industries — employing nearly a third of the area's workforce — which would face already proposed cuts in Trump's budget made more imperative if the GOP plan is approved.
"This is going to lead to deep cuts in Medicaid, higher education funding and research, and other important things for the state economy overall," said Noah Berger, president of the Massachusetts Budget and Policy Center.
"The health care cuts would affect people's lives, definitely, in the Berkshires," Berger added noting that not only does the area's older population require more medical attention, but Berkshire County's leading industry is health care. The health care and social services sector employs more than 11,000 people in Berkshire County, according to the U.S. Census.
It's worth noting that very few people think the plan, as is, will be approved by Congress because of the between $1.5 trillion and $3 trillion addition to the deficit over 10 years and the disproportionate benefits to the wealthy, economists said.
"A majority of people are not supportive of a cut in the corporate tax rate; that may be why people don't like" the plan, said Bakija, whose book "Taxing Ourselves: A Citizen's Guide to the Debate Over Taxes" just came out in its fifth edition. "It could be because these (proposed tax) incentives are supposed to, and they might, lead to an investment in business and equipment and higher wages, but it could also be because people don't believe those arguments and that's why it's not polling well."
For Massachusetts residents, and for people in other states that have a state income tax, one of the biggest changes proposed is the elimination of the state and local tax deduction. Right now, the federal government can't tax residents on money they are already spending on local and state taxes, the GOP plan would make these taxes available to be taxed by the feds.
In 2015, the most recent year for which data is available from the IRS, Massachusetts taxpayers deducted $11.9 billion paid in state and local taxes from federally taxable income.
In Western Massachusetts, 31 percent of tax returns filed in 2014, the most recent information available from the Tax Policy Center, included deductions for state and local taxes. These deductions saved more than $1 billion in Massachusetts' first district, aka Western Massachusetts, from being federally taxed. Over 90 percent of the 347,000 Western Massachusetts households claiming the state and local tax deduction earned under $200,000 that year.
Elliott Morss, a global finance consultant and former Harvard professor now living in the Berkshires, said that Republicans had planned to use money saved through the repeal of the Affordable Care Act to pay for the tax-cut proposal without making deep cuts to other government departments.
"By not passing a repeal of ObamaCare, it cost them a trillion, and (the GOP) was expecting to use that money to finance the tax cuts," said Morss, who has a website with local and international economic analysis at morssglobalfinance.com.
Meanwhile, New England housing organizations, including the Citizens Housing And Planning Association, have come out against the tax plan claiming that it significantly weakens the low income housing tax credit as well as eliminates or reduces other affordable housing construction and maintenance incentives. Fewer than 10 percent of the housing in Berkshire County is deemed affordable, according to a 2014 analysis by the Massachusetts Housing Partnership, yet 50 percent of households in the county need this type of housing.
"This tax proposal would reduce private investment in affordable housing, worsen our regional housing crisis and set up massive future budget cuts," said Rachel Heller, CEO of the Citizens Housing and Planning Association in Massachusetts in a statement. "We need our federal representatives to reject these provisions and pursue real tax reform."
U.S. Rep. Richard Neal, D-Springfield, ranking member of the House Ways and Means Committee, has been vociferous in his denunciation of the tax plan.
Neal, who is taking part in the Congressional "mark-up," or negotiations on the tax plan, said the GOP is proposing another way for the "rich to get richer."
In his opening statement before negotiations on Nov. 6, Neal called the plan a "bad deal for millions of Americans," before suggesting the plan be scrapped and Republicans and Democrats work on a new proposal.
This "puts the wealthy and well-connected first, while forcing millions of American families to watch as their taxes go up. That's simply not what the American people asked us to do and it is not something that the Democrats on this Committee can support. ...Our country cannot afford to only care about deficits and debt when Democrats are in the Oval Office. We must break this cycle," said Neal.
Kristin Palpini can be reached at email@example.com and @kristinpalpini on Twitter.
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