Why GOP faces challenge selling tax cuts to younger voters

Millennials are a key demographic for politicians. They are the biggest group of taxpayers, home buyers, and – soon – voters.

So how is tax reform, Republicans’ signature policy, playing with this pivotal generation?

It isn’t. Even more than most Americans, Millennials by and large view the proposed reforms as a giveaway to businesses and the rich. But unlike most Americans, they are on a fast track out of student poverty and low-income, entry-level jobs to middle-class status and beyond.

This trajectory offers Republicans an opportunity to win them over, if tax cuts can be promoted as a boon for the middle class and a path to faster economic growth and more plentiful good-paying jobs over the next decade.

It looks like an uphill climb. That’s partly because of the mixed nature of the tax proposals coming out of Washington, which in some ways blend new burdens alongside financial relief for young or middle-class households. It’s also because of attitudes among Millennials themselves. Many 20- and 30-somethings are skeptical of Republicans’ small-government ethos. They also define success differently than previous generations, pollsters say.

“It’s about doing something meaningful,” says John Della Volpe, polling director at the Institute of Politics at the Harvard Kennedy School, which released a poll on Millennials last week. “Of course, that requires a certain level of economic success.”

So far, economic success has proved surprisingly elusive for many Millennials. Despite being the best-educated generation in history, they are earning 20 percent less than their baby boomer parents did at a similar age when adjusted for inflation, according to a 2016 analysis by Young Invincibles, a research and advocacy group in Washington.

'More student debt than ever before'

“They’re graduating with more student debt than ever before,” says Colin Seeberger, strategic campaigns director for Young Invincibles. “They’re being asked to do so much more with so much less.”

Their tax returns reflect this. In 2013, young people filed a third of all tax returns but only earned a sixth of all income, according to the Internal Revenue Service as reported by the Tax Foundation. Low income was particularly acute among 18- to 25-year-olds, who only earned 4 percent of all income, presumably because many of them were still in college or graduate school.

The Republican tax plans, beyond promising at least modest tax relief to most Americans, are built on the premise that tax cuts will fuel faster growth in the economy and in jobs. With economists disagreeing over how big any boost would be, the nation’s newest voters are skeptical. By a 56 to 28 percent margin, voters ages 18 to 34 said Democrats would do a better job of handling taxes, according to a Quinnipiac University national poll released last week.

Skeptical of trickle-down theory

“My understanding of trickle-down economics is that it is ineffective,” says Grace Kingsbery, a young math teacher at a public charter school in Chelsea, Mass. “I’m not sure even that that kind of tax break will really motivate corporations to invest more heavily in their workforce or in the infrastructure … I think there is a great concern, though, if you reduce the tax base by so much that down the road, and not even that long, within five to 10 years, other programs are greatly going to suffer.” [Editor's note: The spelling of Ms. Kingsbery's name was corrected.]

As Republicans seek to appeal to Ms. Kingsbery and her peers, a key test will be the Affordable Care Act. Millennials have been slow to sign up for the national program. By repealing the individual mandate, which would eliminate the penalty people pay if they don’t sign up, the GOP plans are appealing to young and healthy Millennials, who would no longer be forced to buy health insurance.

These moves cheer the conservative Millennial Policy Center, which published in July its own market-based plan to replace Obamacare. The more liberal Young Invincibles is working to convince Millennials that the act and the health mandate are worth saving.

Politically, young Americans seem to be leaning toward the liberal view. Coming of age during the financial crisis, and seeing what their parents had to go through in the Great Recession, Millennials are not averse to government intervention, says Mr. Della Volpe of Harvard. In a Harvard Institute of Politics poll, for example, two-thirds of likely voters ages 18 to 29 said they would rather see Democrats control the House and the Senate.

“This generation is definitely rejecting the conventional wisdom that young people don’t need health care and that they’re not interested in receiving it,” says Mr. Seeberger of Young Invincibles.

Polls show hurdle for GOP

Republicans face a tough job selling their tax plan to these voters. The Quinnipiac poll found that 78 percent of young voters said the tax plans would primarily benefit the wealthy. That was the highest margin of any slice of the electorate shown in the polling results, except for African-Americans and Democrats themselves.

“I’m still not happy about loopholes for corporations,” says Grant Lyon, a professional comedian and Millennial small business owner in Los Angeles. “I’m even less happy about the new tax plan, because it is essentially a tax plan for the rich and for corporations. I mean it does not help anybody else, and the frustrating thing is that the Republican Party is trying to sell it as a tax cut for the middle class.”

That concern resonates widely among younger households, because so many of them have high career hopes that remain only partially fulfilled. Many Millennial households earn more than $25,400 (above the poorest fifth of Americans), but less than $49,600, which is the starting point for the middle class. For people in this income group, the GOP tax plans offer only a modest cut. On average, they would see an initial reduction of about $300 per year in their tax bills under the Senate plan ($310 in the House), according to the Tax Policy Center, a research group in Washington.

Tax plans with costs as well as benefits 

If Republicans want to reach out to this pivotal generation, which will represent the largest share of eligible voters next year, their tax plan doesn’t reflect it. In almost every area, the goodies the GOP offers with one hand, it threatens to take away with the other.

Take Republicans’ near-doubling of the standard deduction. That should be a winner for young taxpayers who don’t itemize, putting hundreds or even thousands of dollars in their pockets. Other young families stand to gain from an expanded child tax credit.

But the GOP plans also call for the elimination of personal exemptions, which erases a chunk of the gains from both of those provisions.

Some of the provisions of the House bill seemed aimed at punishing Millennials still in school. One measure – taxing the tuition waivers that schools give graduate students – prompted protests on dozens of campuses around the nation.

Another House provision would eliminate the $2,500 deduction for interest paid on federal student loans. “That’s what most of my friends have been the most outraged by,” says Jen Ferguson, a recent law-school graduate in Boston. “We’ve had a lot of conversations about it.”

The Senate bill does not include either provision. 

The importance of timing

What distinguishes Millennials from other low-income Americans is that their college and advanced degrees are likely to push them into the middle class and beyond at a fairly rapid pace. That’s why the timing of the tax provisions is also important for these young taxpayers. Ten years into the House plan, the cuts dwindle for all but the top fifth of Americans. Still, because of their move into the middle-class, Millennials would see their average tax cut increase modestly to about $360. Under the Senate plan, the tax cuts will have already disappeared in 10 years unless Congress would at some point vote to extend them.

One of Millennials’ biggest economic challenges is housing affordability. Although a House provision disallowing interest deductions on mortgages above $500,000 might cause high-end home prices to cool a bit, the impact on Millennials will probably be limited because they tend to buy cheaper entry-level homes, Skylar Olsen, a senior economist at real-estate marketplace Zillow, writes in an email. “Provisions such as changes to education and health deductions will have much more sweeping consequences” for the typical Millennial.

One area where Millennials might see gains under the GOP plans is entrepreneurship. Young people aren’t forming new businesses at the rate of previous generations. By reducing tax rates for small business to 9 percent on the first $75,000 of taxable income, the House bill would encourage more entrepreneurship, writes Justin Dent, executive director of Generation Financial Knowledge Development, in an op-ed.

“Two-thirds of millennials have thought of starting their own business, but three-quarters of respondents said the current tax code is unfriendly to small business growth,” Mr. Dent writes.

– Staffer contributed to this article.