House Speaker Paul Ryan and Senate leaders announce their framework for Tax Reform. (Photo: Speaker.Gov)
Published October 5, 2017
Mark Trahant / Trahant Reports
The Senate has given up on destroying Medicaid and much of the health care system and is now focused on restructuring the federal tax system (and destroying entitlement programs in the process).
Here is what Speaker Paul Ryan said Sunday on CBS’ Face the Nation: “We’re going to double that standard deduction. We’re going to make it so he can fill out his taxes on a postcard. We’re going to lower his taxes. That’s really important. So he has more tax-home pay. But there’s another component to this is, look at this machine shop, this business pays about a 40 percent tax rate but it competes with companies all around the world who pay an average 22 and a half percent on their taxes.”
The GOP Framework begins with this set of principles: “President Trump has laid out four principles for tax reform: First, make the tax code simple, fair and easy to understand. Second, give American workers a pay raise by allowing them to keep more of their hard-earned paychecks. Third, make America the jobs magnet of the world by leveling the playing field for American businesses and workers. Finally, bring back trillions of dollars that are currently kept off-shore to reinvest in the American economy.”
So how does Indian Country fit into that framework? Indians don’t pay taxes, remember? Actually if you Google that phrase it returns 2.17 million hits. It’s still a myth that will not fade away. But the larger issue of tax reform and its impact on Indian Country is still a complicated question, one that starts with the definition of “taxes.” Most so-called middle-income wage earners pay income taxes. Roughly one-third of all wage earners do not pay income taxes — and that would include a lot of tribal citizens, especially those living in their tribal nations. There are nearly 150 million tax returns filed every year and 36 million end up paying no tax at all. Another 16 million had taxable income but didn’t pay anything because of tax credits, deductions and other adjustments.
And, many of Indian Country’s working class especially benefit from one such credit, the Earned Income Tax Credit. This is a hugely successful policy that returns cash money to some 7 million family incomes; a paid bonus of sorts for working.
“Numerous studies show that working-family tax credits boost work effort,” according to The Center for Budget and Policy Priorities. “The EITC expansions of the 1990s contributed as much to the subsequent increases in work among single mothers and female heads of households as the welfare changes of that period, extensive research has found. Women who benefited from those EITC expansions also experienced higher wage growth in subsequent years than otherwise-similar women who didn’t benefit. And, by boosting the employment and earnings of working-age women, the EITC boosts the size of the Social Security retirement benefits they ultimately will receive.
In addition, the research shows that by boosting the employment of single mothers, the EITC reduces the number of female-headed households receiving cash welfare assistance.”
So far, at least, there is no plan to end the Earned Income Tax Credit. However the House Budget Committee has proposed that the IRS require more proof from taxpayers and audit homes with an error. (Auditing the poor seems a long way from the Willie Horton philosophy of tax collection, or bank robbing, and that’s the idea you go where the money is.)
It turns out there is a lot of data on tax collection by county. So I looked at the counties with significant a Native American population and there is some fascinating data from the Internal Revenue Service, based on 2015 tax returns.
In Oglala Lakota County, for example, some 2,010 taxpayers out of 3,980 collected an average of $3,020. The bulk of that was collected by families earning less than $25,000. And the average tax bill was $7,170. The county is comprised almost entirely of Native Americans and the Pine Ridge Reservation.
The Earned Income Tax Credit is also critical to many Navajo families. In Apache County, Arizona, that includes a large portion of the Navajo Nation, some 27,172 take advantage of the Earned Income Tax Credit. And, like Pine Ridge, most are in the under $25,000 category, but the amounts are significantly more, an average return of a little more than $4,000.
In the Bethel Census Area of Alaska there are similar numbers. Nearly 2,400 people claimed the Earned Income Tax Credit and most of the workers earned under $25,000 and averaged a refundable return of $2,738.
My point here is that this is the one policy that is essential to Indian Country because it benefits so many people who have jobs but who barely earn a living wage. Any changes to this tax credit should be opposed vigorously.
It’s also important to remember that most tribal citizens pay a higher percentage of our income toward payroll taxes, instead of income taxes. A report by the Congressional Joint Committee on Taxation says that the 80 million tax filers making $40,000 or less will collectively pay no federal income tax and many will even receive cash payments from the IRS in 2015. But they will pay $121 billion in Social Security and Medicare payroll taxes (including the employer share, which most economists believe falls on workers).
So that will be another important factor to watch as the debate heats up. Rarely does the payroll taxes — Medicare, Social Security, etc. — sneak into the larger debate about taxes. But it should be about the total taxation, not just income taxes.
And one other unique characteristic of Indian Country tax data is that the amount paid to state and local governments is significantly lower than the general population. In most states tribal members living on their home tribal nation pay zero in state and local taxes. This will be important to remember when Congress debates the deduction of state and local taxes. (A big deal for people living in high tax states such as California or New York, but less so in low tax states and where the sales tax is the primary method to fund state government.)
Congress has a complicated road ahead before it can even pass a tax bill. The plan is for both houses to enact a budget resolution, setting out the priorities for tax reform. This is a document that basically sets limits on spending (so the committees will still decide how to spend money for Indian programs, but will be limited by their budget ceiling). This will not be easy. The House and Senate will need Republicans to stick together on fiscal issues ranging from the border wall to how large federal programs should be cut back.
Basically the same tension that existed during the health care debate will play out between so-called moderates and the more strident anti-government wing of the Republican party.
If a budget is passed, the Senate can start take up tax reform and need only 50-votes to pass the legislation. Remember, if.
Speaker Ryan talked about fixing the business rate. The Republican mantra is that U.S. companies pay more than their global competitors. (Funny: This same argument doesn’t come up with health care where a company like Boeing spends a lot on its employee health care while the French Airbus can rely on its national health care system to save money.) But there is one last issue to watch: Don’t just believe any number that is posted as a tax rate. There may be a tax with 40 percent tax rate, but if the deductions and credits add up, the effective tax rate could be 20 percent. So that’s the number to watch and ask about, how much is that effective tax rate?
One final point: It’s interesting that so much of the discourse is about companies wanting to pay lower taxes as an incentive to create more jobs. Yet many technology companies are moving to the higher tax land called Canada. “As America closes its borders, Canada is playing the longer, smarter game,” Richard Florida and Joshua Gans wrote in Politico this week. “Canada, more than any other place, is uniquely positioned to benefit from Trump’s anti-immigrant posture … If he keeps up his anti-immigration push, the United States’ polite neighbor to the north could soon be eating Americans’ lunch.”
It’s not always about the taxes.
Mark Trahant is the Charles R. Johnson Endowed Professor of Journalism at the University of North Dakota. He is an independent journalist and a member of The Shoshone-Bannock Tribes. On Twitter @TrahantReports