Inaccuracies Pile Up During Speaker Ryan’s Town Hall Meeting

On Monday, House Speaker Paul Ryan participated in a live-broadcast town hall meeting in his district in Wisconsin where he discussed tax reform, among other issues. One could credit Ryan for holding such a meeting, which many of his colleagues have avoided lately, and certainly the image of a town hall meeting conjures up an image of democracy as it is supposed to work. But, sadly, anyone wishing to learn about the rationale for Ryan’s ideas on taxes would be disappointed given that nearly everything he said on the topic was inaccurate or misleading. Here’s a sample.

“…one of the challenges we had with health care reform, particularly in the Senate, is we had to use the Senate rules to write that bill. And all the health care reform items that we want to put in the health care reform bill we couldn’t because of these Senate rules… Tax reform’s different. The entire tax cut bill, the entire tax reform bill can go into one bill through the House and the Senate. So procedurally it makes it much easier.”

This is quite misleading. They may be different from health legislation, but the tax proposals discussed by Republicans could raise even more procedural problems. The Senate rules he is referring to (the rules allowing a “reconciliation” bill to be passed with just 51 Senate votes) bar such a bill from increasing the federal budget deficit outside the “budget window,” which includes the next ten years. If the bill only changes tax policy, this would be nearly impossible without some outrageous gimmicks to manipulate the procedural rules. ITEP found the tax proposals released by the Trump administration in April would cost $4.8 trillion over ten years.

Some Republican Senators and House members have suggested that they simply extend the budget window to 25 years and then enact deficit-increasing tax cuts that expire at the end of that period. They might not be able to achieve their goal of enacting deep tax cuts that are permanent, but under this scheme they might enact deep tax cuts that last longer than any of them will be in office. This would follow the letter of the Senate rules but would obviously violate their spirit, given that they were designed to allow Congress to get the federal budget under control.

The other alternative, of course, is that Congress would cut entitlement and other social safety net programs to offset the cost of their tax plan. That would mean programs that working people rely on would be slashed to finance tax cuts that mostly go to the richest one percent.

“If we keep taxing our job creators, our businesses, at much, much higher tax rates than our foreign competitors tax theirs, we’re going to lose. We’re going to lose in global competition.”

American corporations are more profitable than ever. As the tax expert Kimberly Clausing explained in recent testimony before the House Ways and Mean Committee, “By any broad measure, our nation’s businesses are incredibly successful. Corporate profits are a higher share of GDP than they have been at any time in history, whether one considers corporate profits in before-tax or after-tax terms. Profits in the last 15 years have been about 50 percent higher than they were in the closing decades of the prior century.”

Even if corporate taxes did affect the ability of companies to compete, it is difficult to see how our companies would be at a disadvantage compared to those of other countries. The latest data from the OECD show that the total amount of corporate income tax revenue collected by the federal government is equal to 2.2 percent of economic output in the U.S. compared to an average 2.9 percent in other OECD countries.

“Their [an American business’s] tax rate — they’re a corporation, small business, 35 percent. You know what the Canadian tax rate is? Fifteen percent. Eight out of 10 businesses in America file their taxes as people, as individuals. We call them, like, Subchapter S corporations, LLCs. Their top effective tax rate is 44.6 percent. Canadians are at 15 percent. The Irish at 12.5 percent. China, 25 percent.”

While the statutory corporate tax rate in the U.S. is 35 percent, few American corporations actually pay that much because of the many special breaks and loopholes they enjoy in the current rules.

A recent study from ITEP examines a particularly profitable group of corporations – the Fortune 500 corporations that were profitable each year from 2008 through 2015. Even among these super-profitable companies, there were several with effective tax rates that were close to zero or below zero for the eight-year period.

As for other types of companies like S corporations and LLCs (companies with profits that are subject to the personal income tax but not the corporate income tax), only the few richest owners of these companies pay rates anywhere near what Ryan is talking about. Most owners of these companies are in lower income tax brackets and therefore do not benefit from Trump’s proposal to lower the top rate to 15 percent for income from these businesses. ITEP estimated that 79 percent of the benefits of this break would go to the richest one percent of taxpayers.

“And so what’s happening is we’re losing American businesses. The biggest business we had in Wisconsin, publicly traded, was Johnson Controls. The thermostat here is probably a Johnson Controls thermostat. They are now an Irish company. Their worldwide tax rate is 12.5 percent. They’re not an American company anymore. We’re losing businesses left and right. And this is among the reasons why we have to have fundamental tax reform.”

Johnson Controls is not an Irish corporation. It is an American corporation using an obvious loophole in the tax code to characterize itself as a foreign company for tax purposes. Ryan and Republicans have refused to close the loophole allowing these so-called “inversions.” The loophole allows an American corporation (Johnson Controls in this case) to merge with a smaller foreign corporation (Tyco in this case) and then claim that the resulting entity is a foreign one for tax purposes, even though the shareholders of Johnson Controls never gave up control of the company and the business is still mainly managed in the U.S. (Tyco itself used this scheme several years ago so that it would be considered a foreign company for tax purposes.)

Straight-forward legislation has been introduced several times to ensure that this blatant abuse of the rules no longer provides companies with any tax advantage.

“I mean, Aaron Rodgers, who deserves every salary, is not the highest tax rate payer in this state. You know who it is? It’s a single mom getting $24,000 grand in benefits with two kids who will lose 80 cents on the dollar if she goes and takes a job.”

Ryan is talking about his oft-stated idea that because some benefits for low-income people phase out at certain income levels, this creates something like a high tax rate on their wages. For example, if a program offers low-income people benefits that are reduced by 30 cents for each dollar earned in excess of $25,000, that would be like taxing away each dollar of earnings at 30 percent for households that makes more than $25,000 but less than enough to have the benefits phased out completely.

Ryan asserts that some low-income people face tax rates that, when you include how benefits programs are phased out, reach 80 percent. But the Center on Budget and Policy Priorities has pointed out that this is based on some extremely rare cases of households receiving an unusual collection of benefits that very few families receive in real life, and assumes their income is in a very specific range. For most low-income families, the effects would be nothing like what he describes.

Keep in mind that even Ryan does not argue that the rules make anyone worse off if they work more hours. Ryan simply claims that allowing people to take home less of their earnings will always result in fewer hours worked. But Ryan’s own solution is to dramatically cut such programs, which would definitely make these households worse off. The latest budget from Speaker Ryan and the House GOP, which would make these draconian cuts, would not be very comforting to the single mother that Ryan describes.

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