Enough of the GOP’s proposed tax changes so obviously tilt toward the rich (e.g. repeal the alternative minimum tax, create a 25 percent pass-through rate) that you may have figured out the “middle-class tax cut” is more like “a corporate and rich guy tax cut.” Now we know exactly how much the rich gain.
The Center on Budget and Policy Priorities examined the Joint Committee on Taxation (JCT) report on the plan’s distributional effects (who wins). It adjusted the JCT’s numbers to account for the repeal of the estate tax:
Households with annual incomes over $1 million would see their after-tax incomes increase by 3.2 percent, 16 times the percentage increase for any income group in the bottom half of the income distribution. . . . (The disparity in average tax cuts measured in dollars would be even larger.)
About 45 percent of cost of the bill’s tax cuts would go to households with incomes above $500,000 (fewer than 1 percent of filers). About 38 percent of the bill’s cost would go to tax cuts for households with incomes over $1 million (about 3 out of every 1,000 filers).
There are also some losers, many of whom don’t seem to fit the definition of “rich”: “Specifically, the JCT estimates of the individual and business provisions show tax increases for filers with incomes between $20,000 and $40,000 from 2023 to 2025; filers with incomes between $20,000 and $30,000 in 2027; and filers with incomes between $200,000 and $1 million in 2023.” These are averages and therefore do not account for some disparities, such as those hit by the repeal of the state and local tax deduction or elimination of the deduction for medical expenses in excess of 10 percent of income (e.g. people with severe disabilities, nursing-home residents at the end of life).
What’s already clear from the JCT tables, however, is that the tax increases that some filers face under the plan would pay for tax cuts that would be, on net, extremely skewed to the very wealthy and profitable corporations. And that’s before accounting for how these tax cuts would swell federal budget deficits. By increasing deficits, tax cuts would create pressure to cut programs that primarily benefit low- and middle-income families, making their true distributional impacts even more skewed than the JCT tables show.
In other words, non-rich people can get smacked twice — once by certain tax plan provisions and second by the cuts in Medicaid and Medicare needed to pay for the cuts that primarily benefit corporations and the rich.
In another study, the Institute on Taxation and Economic Policy finds:
The middle 20 percent of income-earners in America, the group that is quite literally the “middle-class,” would receive 10 percent of the benefits in the U.S. in 2018 and just 8 percent of the benefits in 2027. In other words, in 2027 the middle fifth of Americans would receive only one sixth of the benefits received by the richest one percent of Americans. …
The richest one percent of Americans would enjoy an average tax cut of $48,580 in 2018, and this average tax cut would rise to $64,720 in 2027. The middle fifth of income-earners would receive an average tax cut of $750 in 2018, which would fall to $460 in 2027. . . . [T]he richest one percent receive an average tax cut equal to about two and a half percent of their income in 2018 and 2027. The middle fifth of income-earners receive a break equal to 1.4 percent of their income in 2018, falling to just 0.6 percent of their income in 2027.
It does not have to come out this way, despite what Treasury Secretary Steven Mnuchin says. If $1 trillion of the $1.5 trillion cost of the plan is attributable to corporate tax breaks and $200 billion goes out the door for rich heirs, there isn’t a lot of room for cutting taxes for middle- and lower-income Americans. If, instead, corporate tax reform was revenue-neutral, there would be $1 trillion in breaks (assuming added debt of $1.5 trillion) to hand out. Candidly, however, using income tax cuts to help middle- and lower-class Americans is incredibly ineffective. That, in part, is due to the large percentage of filers who pay no income tax and to the code’s current progressivity. If you really wanted to benefit the non-rich, you increase the earned income tax credit and/or refund part or all of employees’ Social Security tax for those below a certain income threshold.
You see, the ordinary American pays more in Social Security tax than in income tax. The Tax Policy Centerfound in 2016 that “44 percent of households will pay no federal income tax this year. … But 60 percent of those households have members who work and will thus pay Social Security and Medicare payroll taxes.” Put differently, “Overall, almost two-thirds of households will pay more payroll tax than income tax … while only one in five will pay more income tax.”
In sum, the argument that the GOP tax bill is all about the middle class is nonsense. You could construct tax reform that benefited middle- and lower-income Americans, keeping taxes on the rich and corporations even. You could forget about individual income tax cuts altogether, instead looking to cut payroll taxes. Voters should ask GOP lawmakers why instead they chose the one method that benefits the rich and corporations. The honest answer would be that they wanted to benefit the rich and corporations.
Nov 5, 2017
The Original Sin of the GOP Tax Plan
How did a proposal to simplify the tax code become such a mess? Blame its first principles.
The new tax bill released by the House GOP on Thursday would permanently slash the corporate tax rate from 35 percent to 20 percent, reduce the number of individual income tax brackets, and repeal a host of taxes paid by the richest households, including those inheriting estates worth millions of dollars.
So far, it sounds like the most predictable Republican plan imaginable.
But anybody who heard House Speaker Paul Ryan’s repeated promises to cut taxes and simplify the tax code might be surprised that, for millions of people making less than $100,000, taxes would go up, and for many small businesses, filing would be more complicated. Perhaps most importantly, the plan adds trillions in debt over 20 years, making it nearly useless as a blueprint for the Senate. That’s because the Senate will likely try to pass the bill under a procedure known as reconciliation, which requires only a simple majority of votes but prohibits any law from adding at all to deficits after 10 years.
“This is not what I would call a tax-simplification plan,” said Howard Gleckman, an economist at the nonpartisan Tax Policy Center. “It raises taxes idiosyncratically on large families in rich states. And it makes life hard for some of the very small businesses it’s trying to help.”
As an example, Gleckman points to the plan’s treatment of what are called “pass-through” taxes paid by small businesses. The GOP plan lowers the rate for these taxes, but includes several rules to prevent rich individuals from classifying themselves as dummy companies in order to pay less in taxes thanks to the new rate. Gleckman worries that these anti-abuse measures will backfire: Rich people will just hire smart lawyers to handle all the new paperwork, while the maze of caveats will make life hell for small businesses. Indeed, the National Federation of Independent Business, the lobby for the nation’s small businesses, said on Thursday that it was “unable to support” the bill as released, due to concerns about the pass-through provisions.
How did a plan to simplify the tax code become such a mess? Blame the first principles of the proposal.
Before the last major tax reform in 1986, Ronald Reagan’s Treasury Department set out to pass an economically rational, deficit-neutral, bipartisan bill. The modern Republican Party, however, is starting from a principle that isn’t bipartisan, deficit-neutral, or economically rational at all: that, with corporate profits and the stock market at all-time highs, America’s largest corporations deserve a $2 trillion tax cut.
“This is the tax plan’s original sin,” said Michael Linden, an economist at the left-leaning Roosevelt Institute. “Once you cut the tax rate for large corporations by more than a third, you have to cut tax rates for smaller businesses so that they don’t feel disadvantaged.”
But those two measures alone cost more than $2.5 trillion over the course of 10 years, which is too much to appease deficit-hawk Republicans. So the authors had to gin up government revenue elsewhere to compensate. That explains the proposed repeal of some popular and virtuous benefits, like the tax credit for adopting children and deductions for student-loan interest and medical expenses.
“Why would you want to raise the bottom tax rate from 10 percent to 12 percent? Why would you want to make it harder to deduct medical expenses? Well, you have to make these choices if you start from the premise that the business community deserves a nearly $3 trillion tax cut,” Linden said. The insistence on slashing corporate tax rates is driven not only by a corporate donor class expecting a business stimulus from Republicans but also by an intellectual inertia that has set in, beginning in the early Reagan years. This is the dictum that lower tax rates are a panacea for all economic problems and even necessary when (as anybody can see from this stock market) there aren’t many problems in the first place.
The Republican tax plan does have a few things going for it. For example, it makes sports stadiums ineligible for tax-exempt bonds and moderately increases the child tax credit. Also, braving the ire of lobbyists, the authors of the bill also kill some sacred cows. For example, the law caps the mortgage-interest deduction at $500,000 of debt and caps the state and local tax deduction.
But, curiously, it’s mostly tax benefits for upper-middle-income earners that are slated for repeal. The rich are spared. For example, the infamous carried-interest loophole, which is a boon for those working in the private-equity industry, would be preserved, while the Alternative Minimum Tax (which cost Donald Trump $31 million in 2005) would be eliminated. The estate tax, which applies to the inheritance of estates worth more than $5 million, would be phased out and then permanently junked.
And while the plan creates a new tax bracket for all earned income over $1 million, every million-dollar earner would still be guaranteed a tax cut. That’s because the second-highest tax rate, on income between $400,000 and $1 million (which, by definition, includes income earned by every million-dollar household), would be cut by about five percentage points. Somebody earning $2 million a year could save about $30,000 on taxes from this change alone.
But again, it is all about first principles. Tax cuts for the rich and America’s largest corporations take up so much space in the bill that there’s little room to help poor and middle-class families. So if the plan looks messy, that’s only because finding a way to pass a $2.5 trillion corporate tax cut on a party-line vote is, well, a mess.
9/27/17 – Tax Plans
Here is a summary of the important current bills and policy proposals that could affect the U.S. economy, including growth, employment, prices, income, and income inequalities, and links to some notable websites that cover those issues. Two main policy proposals of the Trump Administration are the proposed Tax Reform and Budget Plan for 2018. Although it will take some time for these proposals to be finalized, it is important for Democrats to learn the details and get in touch with their representatives about those specific measures.
Links for daily and weekly economic news and analyses
- New York Times, Economy page
- CNN Money
- Conscience of a Liberal, Paul Krugman
- Economic Policy Institute
- Trump’s Tax Policy Proposal
Although the feasibility of Trump’s tax plan is questionable at this point, and many of the details of the proposed changes in the tax code are not yet revealed, there is no question that this is mainly a plan to provide huge tax cuts for very high-income households.
One of the key features of the Trump’s proposal is to make the tax code extremely regressive by reducing the tax brackets from 7 to 3. Under the present system, taxpayers fall into one of 7 brackets, depending on their taxable income: 10%, 15%, 25%, 28%, 33%, 35% or 39.6%. Trump’s revised proposal would reduce the brackets to three with rates of 10%, 25% and 35%. Although the one-page plan doesn’t spell out exactly where each tax bracket will fall, it is possible, for example, that some families who are in 15% tax bracket will be pushed up to the 25% bracket while other families may end up in the 10% bracket. While it is certain that very high income earning would benefit from the Trump’s tax plan, there could be a redistribution of tax payments within the middle-income families depending on which areas taxpayers live and the tax deductions they presently use.
Although Trump’s proposal to double the standard deduction would directly “benefit some lower- and moderate-income people, some middle-income earners may pay higher taxes under his plan with a repeal of the state and local tax deduction. In fact, Mnuchin indicated that he can’t make any guarantees that some middle-income earners won’t pay higher taxes. Given that most states with high state taxes are Democratic ones, Trump’s plan has some political implications. Last year, more than 43 million families claimed the deduction, saving them nearly $70 billion.
If higher-education credits that are part of the tax code today and head-of-household filing status is eliminated, many large families and single parents would be hurt by Trump’s plan.
“Schumer’s office pointed to a study written in October for the Tax Policy Center by Lily Batchelder, a professor of public policy at New York University, who was deputy director of the National Economic Council in 2014-2015. Under her analysis, more than half of America’s single parents and one-fifth of its families with children could see their federal income taxes increase under the Trump tax plan released during the campaign.
A chart from Batchelder’s report shows that even with an increase in the standard deduction, the elimination of personal and dependent exemptions would leave many with higher taxable incomes.”
The whole plan is aimed at an across-the-board tax break for corporations and already very rich families. The corporate tax rate would be cut from 35 percent to 15 percent. According to EPI.org, “It seems that this proposal will include companies that don’t pay through the corporate tax code, but for private businesses that pay through the income tax code (39.6 percent at the top) The plan would also repeal the estate tax, which would save an estimated $200 billion over a decade for individuals with estates worth more than $5.45 million.. So that means small businesses would see a big cut. There is no question that Trump himself would gain tens of millions since he pays taxes for his businesses through the income tax code”
If enacted, Trump’s Tax plan would increase the national debt greatly. “The Tax Policy Center (TPC) estimates that Trump’s plan would cost about $9.5 trillion over a decade. 35 percent of Trump’s tax cuts go to the top 1 percent of households during the first year of his tax plan (TPC estimates that as households making over $732,323 annually). This is more than the combined share that the 80 percent of us making under $142,601 a year can expect to see. By 2025, the top 1 percent will take about a 40 percent share of the tax cut – almost equivalent to the combined share that the bottom 90 percent will see. About half of the share going to the top 1 percent is going to just the top 0.1 percent – households making over $3,769,396 in the first year. Adding this loophole to their estimate, Citizens for Tax Justice found that Trump’s tax plan would cost $1.2 trillion more and increase tax breaks for high-income earners substantially”
REFERENCES AND LINKS FOR FURTHER READING
Trump Administration Vows ‘Biggest Tax Cut,’ ‘Largest’ Overhaul In History – http://www.npr.org/2017/04/26/525683530/4-questions-about-trumps-tax-plan
Proposal May Affect Every Income Bracket – http://www.cnbc.com/2017/04/27/how-trumps-new-tax-reform-proposal-may-affect-every-income-bracket.html
Trump Tax Plan: Relief for His Voters but Lots of Unknowns – http://hosted.ap.org/dynamic/stories/U/US_TRUMP_TAXES?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT
How Does Trump’s Tax Plan Help the Middle Class? ‘Honestly, We Don’t Know’ – https://www.bloomberg.com/politics/articles/2017-05-01/trump-s-tax-plan-seen-as-boon-for-rich-unclear-for-middle-class
How Trump’s Tax Plan Could Affect You – https://www.nytimes.com/interactive/2017/04/28/us/politics/trump-tax-affect-me.html?_r=0
Trump’s Official Tax Plan Blatantly Contradicts His Populist Rhetoric – http://www.epi.org/blog/trumps-official-tax-plan-blatantly-contradicts-his-populist-rhetoric/
A Reverse-Trump Tax Plan Delivers an Economic Miracle in Sweden
- Sweden sees high taxes as answer to globalization threats
- Income redistribution is key to economy success, minister says
Even Families Making $100K Won’t Be Better Off Under New Tax Plan – http://www.nbcnews.com/business/taxes/even-families-making-100k-won-t-be-better-under-new-n753941
Schumer’s Claim That ‘Millions Would Pay More’ Under Trump’s Tax Plan – https://www.washingtonpost.com/news/fact-checker/wp/2017/05/02/schumers-claim-that-millions-would-pay-more-under-trumps-tax-plan/?utm_term=.a88a3145836a
- Trump’s Budget Proposal for 2018
The Trump administration released a budget proposal for FY2018 in March, detailed below. That is different than the bipartisan budget that Congress negotiated on Sunday, April 30, to fund the government through September – the rest of FY2017 – to prevent a government shutdown.
- This proposal is Trump’s wish list and an expression of his political philosophy.
- Mostly follows the right-wing Heritage Foundation’s agenda of deregulation and increased defense spending
- Due by Oct. 1, the day when the government will run out of money.
- Without a strong resistance movement, the Republican Congress could vote for a lot of these proposals.
- Draconian Cuts in Environmental, State, Education Departments, to Health Spending and Services
- Many programs will either be decimated or eliminated completely
- EPA’s budget would be brought down to a 40-year low (more than a 30% cut).
- Ceases payments to the United Nations’ climate change programs for the Green Climate Fund. Stops funding for the Clean Power Plan.
- Huge cuts to the State Department, diplomatic programs that support peace (more than a 28% cut)
- Health and Human Services: a 16.2% cut
- National Institutes of Health spending: a 20% cut
- Labor Department: 20.7% cut
- Agriculture Department: 20.7% cut
- Double-digit cuts in education: reduces or eliminates 20 programs within the Department of Education
Cuts or Eliminates Funding for Arts, Humanities and Public Media
- Eliminates funding for the National Endowment for the Arts and PBS.
- These programs offer crucial support to the public education system, help veterans readjust to civilian life, and bring arts and culture to small communities.
Devastating Cuts to Programs that Help the Poor
- Cuts to programs such as Meals on Wheels, child care, and affordable housing
- Eliminates funds for Community Development
- Energy Assistance Program
- But his proposed budget eliminates programs that have helped these communities for years, and would deal a particular blow to Americans with the lowest incomes. Will have a negative impact in Massachusetts and Haverhill as well. If all those cuts were implemented, they would have extreme effects not only on cities, but on low-income households,”
Increase Defense Spending by $54 Billion
- Merits highly questionable!
- President Obama in his last annual State of the Union address Jan. 12, 2016. “The United States of America is the most powerful nation on earth. Period. It’s not even close. We spend more on our military than the next seven nations combined.”
- Could make America less safe (See Fortune Magazine)
REFERENCES AND LINKS FOR FURTHER READING
What Trump Cuts in His Budget – https://www.washingtonpost.com/graphics/politics/trump-presidential-budget-2018-proposal/?utm_term=.ab558c7fada7
How Trump’s Budget Would Impact Cities’ Poorest Residents – https://www.theatlantic.com/business/archive/2017/03/trump-budget-hud/519870/
Trump’s Defense Spending Increase Could Actually Make the U.S. Less Safe – http://fortune.com/2017/03/05/donald-trump-defense-spending-military-increase-national-security/
The People’s Budget’: Analysis of the Congressional Progressive Caucus Budget for Fiscal Year 2018. http://www.epi.org/publication/the-peoples-budget-analysis-of-the-congressional-progressive-caucus-budget-for-fiscal-year-2018/
The People’s Budget: Prosperity Not Austerity; Invest in America FY 2017 – https://cpc-grijalva.house.gov/the-peoples-budget-prosperity-not-austerity-invest-in-america-fy-2017/