It’s August, and Congress is in recess, with most members spending their break trying to convince voters to let them keep their jobs after November’s midterm elections. Typically, this re-election hustle involves touting their successes since they were last on the ballot, as well as promises for what will get done if re-elected. And, as Politico recently reported, hyperniche tax cuts have become the hottest trend among lawmakers looking for a boost.
Hyperniche tax cuts have become the hottest trend among lawmakers looking for a boost.
By “hyperniche,” I mean tax cuts specifically designed to benefit a very, very small subsection of Americans. Many of them are modeled, at least in naming convention, on the “No Taxes on Tips” and “No Taxes on Overtime” campaign promises from President Donald Trump. But while they may seem like a good idea for pandering politicos, the reality is that these policies run the risk of hastening the collapse of an already shaky revenue base, leaving all Americans much worse off.
The rundown of various proposals Politico has gathered are both impressive in their creativity and eyeroll-inducing in their blatantness. And, lest I be accused of favoritism, that goes for suggested tax breaks from both Democrats and Republicans alike.
There’s a proposal to let police officers keep their first $100,000 in earnings free from income tax; the “No Taxes on Utility Bills Act” to allow for a deduction for state taxes on utility bills; the “No Tax on Border Patrol Agent Overtime Act” to let Border Patrol officers benefit from the “no taxes on tips” provisions of the so-called “One Big Beautiful Bill;” and the bipartisan “No Tax on Overtime for All Workers Act” that wants to do the same for all employees, cutting through the fine print currently in place.
Notably, per Politico, the members pushing these ultra-targeted tax breaks are getting side-eyed from all sides:
Conservatives are dismayed at their party abandoning the mantra of lowering rates while widening the tax base in favor of what many see as little more than earmarks that clutter the tax code. Progressives worry the proposals will sponge up scarce dollars they’d rather spend on priorities like expanding health coverage. And deficit hawks across the political spectrum don’t want to further shrink the tax base when the government is running a $2 trillion deficit.
The skepticism is warranted. My colleague Zeeshan Aleem previously wrote about Democrats eyeing a White House run in 2028 calling for sweeping middle-class tax cuts. While the notion of placing affordability front and center is understandable, as is the knee-jerk reflex to prioritize the middle class, the timing couldn’t be worse for major tax cuts. As Aleem noted, considering the GOP’s efforts to slash the social safety net and provide tax cuts for the wealthy, the proposed exemptions “would effectively make it impossible to fund social democracy — and help Americans who are the most vulnerable to the affordability crisis.”
The push to emulate Trump’s “tax code via catchy slogan” method makes a bad idea even more untenable. Further whittling away at the revenue base, when more investments from the federal government are needed, not fewer, is counterproductive. And while many of these proposals would benefit a limited number of people, any attempt to end those deductions will automatically be viewed as a tax hike. With more than half of Americans consistently sure that their taxes are too high, there will always be some subset that would happily benefit from yet another carve-out thrown their way.
While some of these tax breaks might find their way into the annual government funding bills that Congress is attempting to pass, almost none of them are likely to pass before the midterms.
Punchbowl News recently highlighted how odd it is that two stand-alone tax and trade bills managed to make their way out of the Senate, given that at the start of such processes, “lawmakers line up with competing demands until the whole effort collapses.” The GOP’s attempt to pass a third reconciliation bill was floundering even before lawmakers left town, and a likely stopgap bill extending the deadline for a shutdown until December would forgo the chance for attaching the provisions to a must-pass bill.
The push to emulate Trump’s “tax code via catchy slogan” method makes a bad idea even more untenable.
This is for the best. There are targeted tax breaks that make sense, like deductions for installing solar panels at home. These are incentives meant to change behaviors for the good of our broader society. Adding another slew of half-baked, usually temporary exemptions to the already complicated tax code with no related policy goal would be a mistake. After all, there’s not even ample evidence that voters are all that impressed with the tax cuts that the GOP passed last year.
Accordingly, the fear of being “pro-taxes” that’s paralyzed Democrats for decades must be overcome. The message these bills produce overall is that taxes are a problem that must be solved. Instead, the focus should be on shifting the burden of paying for the services the federal government provides away from the poor and middle class back to the wealthy where it belongs. Forget hyperniche tax breaks: bring on the hyperniche tax hikes on superyachts, third vacation homes and massive capital gains that would yield way more substantial benefits.
The post Congress is obsessing over hyperniche tax cuts. That’s a mistake. appeared first on MS NOW.
