Facing a contentious primary and tough path to reelection, Republican Sen. Dean Heller has put most of his chips in on the Republican-backed effort to overhaul the tax code.
The final tax bill — which is scheduled for a final round of approval in the House and Senate next week after a conference committee announced an agreement over a final version of the bill on Friday — would significantly cut corporate and individual tax rates, and give Republicans their first major legislative victory of President Donald Trump’s tenure in office.
Heller has made the tax bill a focal point of his campaign over the last several months — engaging in Twitter spats with potential Democratic opponent Rep. Jacky Rosen over the bill, citing it in fundraising emails and bragging about writing the legislation on social media.
In a press release sent out on Dec. 6, Heller’s campaign laid out four main benefits that the tax bill portended for individual Nevadans.
“The fact is the Senate plan that passed last week would boost middle class incomes by $2,500; repeals Obamacare’s individual mandate, which would provide tax relief for 90,000 Nevadans; adds 8,300 jobs in Nevada; and doubles the child tax credit thanks to Sen. Heller,” it stated.
Those numbers seemed oddly specific, especially for a tax bill that’s been primarily scrutinized on how it would affect the U.S. economy as a whole, so The Nevada Independent decided to fact check the claims.
Income & Jobs
Heller’s claims on the Nevada-specific jobs and income changes originate from a November report by the nonpartisan, conservative-leaning Tax Foundation. The group analyzed the initial version of the tax bill released in the House in November, and ran the results through the foundation’s “Taxes and Growth” economic model to see effects on the overall economy and estimated impacts on individual states.
As for Nevada, the think tank estimated the House bill would add an additional 8,001 jobs over a ten year period, and estimated $2,106 gain in after-tax income over the same timeframe for “middle class families.”
That’s slightly lower than the numbers used by the Heller campaign, which is likely due to the fact that the nonprofit modified their estimates after discovering their initial model contained an error that artifically increased their expected growth in GDP.
The Tax Foundation’s report is one of only a handful to estimate the bill’s impact state-by-state, and is somewhat of an outlier when it comes to projecting positive economic effects. The nonprofit estimated that the bill would lead to a 3.9 percent increase in GDP over a 10-year period and a 3.1 percent increase in wages.
Those estimates are much higher than those issued by other economic think tanks — the Penn Wharton School of Business estimated that the bill would lead to a 0.3 to 0.8 increase in GDP by 2027, while by 2040 the increase would lead to a GDP bump between 0.2 and 1.2 percent larger than the current GDP.
A report by Moody’s Analytics analyzing both the Senate and House versions of the tax legislation found that neither plan would “meaningfully improve economic growth,” given that short-term boosts in tax cuts would shortly give way to rising inflation and higher interest rates.
“The economic benefit of the lower tax rates on business investment is washed out by the higher interest rates, and the economy ends up no bigger than it would have been without the tax cuts,” the credit agency wrote.
Similar analysis came from a report of the nonpartisan Tax Policy Center which analyzed the House version of the bill shortly after it passed in November. The foundation found that the House tax bill would boost GDP by 0.6 percent in 2018, while raising it by 0.3 percent by 2027, while the Senate version of the legislation would raise the GDP by 0.7 percent in 2018 and have little effect by 2027.
The Joint Committee on Taxation — a nonpartisan congressional committee which scores tax legislation — estimated the bill would result in a 0.7 increase in GDP over a 10-year window.
Although none of the other analyses of the tax bill delve into state-specific effects of the tax bill, it’s worth noting that the macroeconomic effects estimated by the Tax Foundation — the basis of the income raise and jobs number cited by Heller — are a good deal higher than both official congressional estimates and those made by other economic experts.
Additionally, the Tax Foundation numbers cited by the Heller campaign were based on the version of the bill passed by the House in November, and doesn’t account for the variety of changes made to the bill in the meantime. Plus, the tax bill won’t take effect in a vacuum — growth in GDP over the next decade will be dependent on many more market pressures than one change in the tax code, so projected effects are difficult to nail down.
The repeal of the individual mandate — which Heller’s campaign has touted as a “Huuuuuuge Win!!” in a December fundraising email — has long been a political goal of Republicans and an object of worry for Democrats and health insurance exchange officials, who fear the loss of the mandate will lead to additional instability in insurance markets.
But the Heller campaign has cast the repeal of the mandate as a victory for individual Nevadans, often repeating that the repeal would provide tax relief for 90,000 Nevadans who would no longer pay a penalty for not purchasing health insurance.
That number moderately overshoots the mark of Nevadans who actually did have to pay the insurance mandate tax penalty in 2015, which came out to 72,590. That works out to 5.5 percent of Nevadans paying the penalty, above the national average of 4.5 percent of people who paid the penalty.
Heller’s office pointed to a 2014 set of IRS data that indicated 87,780 Nevadans paid the penalty for not obtaining health insurance. The IRS data indicated that nearly half of the people who reported paying the tax in 2014 (41,610) had incomes under $25,000.
But it’s unclear if that number will hold — the IRS sent letters to nearly 319,000 people in 2015 and 2016 stating that they have have unnecessarily paid the penalty when they should have qualified for a hardship exemption. Taxpayers are waived from paying the fine if the cheapest cost plan falls above 8 percent of their income, or for a variety of hardship exemptions.
Penalties for not having health insurance are based on income and the average cost of health-care premiums, and rises yearly based on inflation — the average penalty in 2017 was $708. In 2016, the penalty was $695 per person or 2.5 percent of his or her income, whichever is higher.
Regardless of the number, Heller is correct that tens of thousands of Nevadans will no longer have to pay a fine in lieu of purchasing a health insurance plan if the individual mandate is repealed. The Congressional Budget Office estimates that 13 million Americans would no longer have health insurance if the mandate is removed.
Child Tax Credit
In all of Heller’s promotion of the tax legislation, few provisions have been as highly touted as the introduced amendment to double the child tax credit — currently set at $1,000 per child, but decreases in value at higher income levels ($75,000 and higher for single filers and $110,000 for jointly-filed returns).
Heller and South Carolina Sen. Tim Scott introduced an amendment that would double the credit to $2,000 — higher that the proposed $1,650 included in the House’s version of the legislation.
Additional changes were made to the credit in the House & Senate conference committee, primarily to help win back the vote of Florida Sen. Marco Rubio, who had threatened to withhold his vote unless the credit was made more generous.
The final version of the bill includes the $2,000 per child tax credit, and raises the income cutoff to $400,000 (a decrease of $100,000 from the original Senate bill) but increases the refundable portion of the credit — the part that allows families with lower incomes that don’t pay taxes to receive a check from the government — from $1,100 to $1,400. The bill did lower the age threshold for tax credits recipients, not allowing children over 17 to be counted for the credit.
Heller has claimed that passing the Republican-led tax bill will lead to a bonanza of riches for Nevadans, including 8,300 new jobs, tax relief for 90,000 Nevadans, an increase in after-tax pay of $2,500 and a doubling of the child tax credit.
Heller’s campaign has obviously chosen to highlight the most favorable analysis of the tax bill currently available, but the Tax Foundation’s projections are head and shoulders higher than many other analysts, who predict a much smaller effect on GDP and corresponding macroeconomic changes. The statistics on the individual mandate tax are also moderately off when using the most recent data from the IRS, but Heller is generally correct that a good chunk of the state’s population won’t have to pay a tax penalty for not purchasing insurance if the individual mandate is repealed.
Finally, the bill does double the child tax credit from $1,000 to $2,000, a change suggested through an amendment co-sponsored by Heller.
Heller’s factual assertions on the tax bill are a mixed bag — his specific numbers related to the individual mandate, job growth and effect on incomes are generally rounded up from numbers cited by the sources from which they’re gleaned. That makes for a rosy assessment of the bill's effects, but many of his underlying points have validity and his numbers are not egregiously off the mark. We rate his statements Almost Abe.