Regardless of your credit rating or income, you likely find “free-money” offers inside your mailbox regularly. Perhaps a financial institution with a respectable-sounding name (like “New America Bank”) offers you a no-interest $24,000 cash advance that you could use to buy a new car, fix your house or splurge on a vacation.

These get-money-quick schemes sound tempting until you read the fine print and discover that you need to repay all of the free money within 12 months or the interest rate ramps up to an eye-popping level that would leave you much deeper in debt than you were before. Unless you are in desperate straits, or extremely short-sighted financially, you would rightfully feed such a solicitation to the paper shredder before even opening the envelope.

In many ways, the tax “reform” proposals currently being crafted by President Trump and members of Congress, resemble a careless, free-money scheme that will come at the expense of the country’s financial security and health. In the end, low- to-middle-income Americans will end up paying the “interest” for the scheme.

Even on the surface, the proposals being considered at the nation’s capital are shadier than the terms of the payday loan. While the details are still being worked out, Trump and Congress are promising “middle-class tax relief” by increasing the federal deficit over the next 10 years on top of the already-ginormous national debt. Historically, Congress and the President justify such increases in the deficit during times of extreme economic hardship – such as the Great Recession. So it’s baffling that the President and Congress want to “give away” so much money when the economy is doing so well and when the revenue could be better spent addressing long-term needs. The recently released tax “framework”  could add upwards of $2.2 trillion to the deficit. That saddles Americans with roughly $17,500 per household, according to the Committee for a Responsible Federal Budget.

Details are sketchy
Despite all of the promises from Congress, the details of the framework are still sketchy and are being drafted as the President and members of Congress pitch the unfinished plan to the American people. Indeed, unlike most free-money schemes, there is no fine print yet and we don’t know how much or whether the average American family will benefit should this plan become law.

But we do know that what has been proposed would benefit the wealthiest 1 percent of households and profitable corporations considerably more than average Americans.

In fact, a preliminary analysis from the nonpartisan Tax Policy Center estimates that more than half of the benefits in the first year would go to the top 1 percent of taxpayers, while 30 percent of the benefits will go to the top 0.1 percent. Meanwhile, the Center estimates that roughly one-quarter of Americans would pay higher taxes by 2027, including 30 percent of those with incomes between $50,000 and $150,000 and 60 percent of those making between $150,000 and $300,000.

Trump and members of Congress claim that these tax cuts will “pay for themselves” through the fabled “trickle-down effect” that will purportedly encourage corporations to invest in plants and equipment, increase wages and create more jobs. While that sounds like a great deal, decades of mainstream economic research long ago debunked the trickle-down approach of stimulating the economy.

In short, the money from trickle-down economics doesn’t trickle down. It tends to stay at the top, fortifying wealth for the wealthiest. While huge budget cuts might not happen immediately (2018 is an election year, after all), low- to middle-income Americans will inevitably pay the tab for tax relief in later years as political pressure intensifies to cut the resulting bloated deficit. It’s likely that these tax cuts will paid for via cuts to government spending on the programs that working families depend on most, including Social Security, Medicare, Medicaid, student loan programs and others. Congress has already taken steps to cut these programs through their budget resolution process.

Budget cuts are inevitable
In the short term, President Trump and members of Congress have been clear on the areas they want to cut, as evidenced in CCLP’s multi-part “A Better Budget” series. If Congress passes the kind of tax cuts that many members badly want, and President Trump approves the reforms, expect draconian cuts in programs that provide basic housing, food and other assistance, as well as health care for millions of low- to middle-income families.

On top of that, a growing national debt not only suppresses economic growth, it suppresses future personal income. For example, based on estimates from the nonpartisan Congressional Budget Office, average income in 30 years will be $5,000 less a year if the national debt continues to grow on its current trajectory rather than being put on a downward path. And this is based on what our debt is already projected to be under current law, before trillions more are added in debt-financed tax cuts, according to the Committee for a Responsible Federal Budget.

The tax-cut “framework” that the Trump administration proposed raises the standard deduction from $6,500 for individuals up to $12,000. Those who file as married couples will see their standard deduction go up from $13,000 to $24,000. The framework eliminates most current deductions — including health care, state and local tax deductions — but maintains deductions for mortgage interest and charitable contributions which could result in a net loss of deductions notwithstanding the increased standard deduction. And while the framework retains the Earned Income Tax Credit for low-income families, it reduces “refundable” tax credits that put money in the pockets of the lowest income earners.

The Colorado connection
What does this mean for Colorado? Since taxable income in Colorado is based on federal taxable income, the revenue generated by Colorado’s flat income tax could decline.  But it is also possible that if deductions are reduced, that figure could increase. Right now, it is too soon to know.

The bigger danger may be in the budget proposal.  Big cuts in federal programs would hurt Coloradans who struggle with food insecurity, need student loans or federal job training assistance, and rely on Medicaid for health care.  Exacerbating the problem, Colorado would not be able to replace lost federal funds to meet these needs with locally generated funds because of the taxation constraints in the state’s constitution.

While there would be winners and losers in reforming the tax code, most Americans will have to ask themselves if a humongous tax cut is worthwhile if their children will end up picking up the tab and earning less because of it.

Contact Congress!
Although pressure is mounting in Washington for Congress to approve a tax-reform plan, there’s still hope that Congress can avoid a fiscal catastrophe that will hurt Americans. Many “deficit hawks” — including conservative Republicans — are leery of raising the deficit and may reject a plan or approve it with the caveat that programs will be cut dramatically in the future.

We encourage Coloradans to make their concerns known to their Congressional representatives. Ask them to reject any changes to the tax code that disproportionately benefit the wealthiest Americans and forces future cuts to investments that could give all Coloradans the chance to thrive.

After all, there’s no such thing as “free-money.”

— By Bob Mook