Real Tax Reform Must Prioritize Middle Class

By Congressman Dan Lipinski

“Stop raising my taxes!”  This is a constant refrain I hear from constituents.  While federal taxes have not been going up, many other taxes that hit the middle class have risen.  And even though the economy has been growing and the stock market has hit record highs, far too many hard-working middle-class Americans haven’t seen growth in their take-home pay.  Clearly, the middle class needs help.

In Washington, Congress is working on tax reform for the first time since 1986.  It's far past time that we reform the tax code by making it simpler, closing loopholes, and lowering rates.  There is general agreement about this. But what should tax reform look like? 

Tax reform should be done in a bipartisan manner.  President Trump and Republicans in Congress have stated that they want to work with Democrats on tax reform.  To that end, as a leader of the Blue Dog Democrat Coalition, I have met with Treasury Secretary Steve Mnuchin, the President‘s Chief Economic Advisor Gary Cohn, and Chairman of the House Ways and Means Committee Kevin Brady.  In these meetings I have made my priorities for bipartisan tax reform clear.

Our top priority in tax reform should be making changes that help the middle class.  This includes lower tax rates for the middle class, tax relief for small businesses that encourages investment and helps create middle-class jobs, and investment in our nation’s infrastructure. 

First, Congress should lower rates in the brackets that directly affect the middle class, while also protecting exemptions and deductions that are vital to the middle-class American dream.  Home ownership, education, retirement, and growing a family are priorities that are supported by current provisions in the tax code and these should not be undermined for the middle class.  One proposal is to expand the standard deduction, which would provide many in the middle class with a lower tax rate and a simpler tax return process.  I think this is a worthy idea, but we need to be sure to maintain those provisions for those whose family structure or life events would make the standard deduction unworkable. 

Tax reform should also help small businesses, which create about two-thirds of all new jobs in our nation and account for more than half of all jobs.  I have been a strong supporter of small businesses and easing the tax burden on these job producers can help the economy grow and create new jobs.  But we have to put in place strong rules so that tax advantages designed for small businesses aren’t abused by others, including Wall Street.  This is going to be difficult and I will be carefully looking at this provision when the bill is released.

Tax reform also presents a chance to tackle our aging infrastructure and fix the Highway Trust Fund, which provides federal funding for road and transit projects.  For decades, there has been a bipartisan consensus that “users pay” for federal transportation projects, so charging people who use the roads in various ways has been the method of filling the trust fund.  In recent years, though, other federal money has been shifted into the Highway Trust Fund because revenue from user fees has been falling.  Tax reform is the right time to fix this.  When the FAST Act was passed two years ago, I helped get a provision in the bill that says if we get increased revenue in the Highway Trust Fund then federal funding of transportation will automatically increase.  That means if we get more revenue in the trust fund through tax reform, we will immediately get more money locally for our roads and public transit.

Finally, it is critical to remember that with tax reform there is no such thing as a free lunch.  Lowering tax rates comes with a cost because we shouldn’t continue to just add to our country’s debt.  Our national debt just crested $20 trillion, and if we increase that with this tax bill we will see rising interest rates that will hurt individuals borrowing money and will result in decreased economic growth.  Economic growth resulting from tax cuts may counter some lost revenue, but we have to close various loopholes and special tax breaks in the law in order to honestly offset the costs of tax reform.

Tax reform is hard work and it requires a great deal of trade-offs and compromise.  I am hopeful that Congress will produce a bipartisan tax reform bill that helps the middle class see more take-home pay, a simpler process for doing their taxes, and an economy that results in middle class more jobs.  So as the Republicans release their initial plan for tax reform, I’ll read the legislation carefully and continue to work hard to make the bill prioritize the middle class.