Trump Tax Plan Would Deal Long-Term Blow to Working- and Middle-Class Americans
The tax plan now under consideration by Congress is remarkable for its consistency: a raft of provisions that disproportionately benefit corporations and wealthy Americans and do little for poor, working and middle-class people.
Exposing the wrongdoing of those in power has never been more important. Support Truthout's independent, investigative journalism by making a donation!The tax plan now under consideration by Congress is remarkable for its consistency: a raft of provisions that disproportionately benefit corporations and wealthy Americans and do little for poor, working- and middle-class people. On the front end, there are straightforward giveaways like the corporate tax rate cut and repeal of the estate tax. On the tail end, there's the damage that the tax cuts will do when public revenues have plunged and the deficit hawks step in, claiming there's no choice but to slash federal spending even further. In the middle, there are empty promises to poor, working- and middle- class Americans. The result could be an acceleration in the worsening economic inequality that has been taking shape for decades.
Tax Cuts for BillionairesIn response to a climate of growing economic inequality, in which the wealthiest individuals have left everyone else further and further behind, the Trump tax plan would double down on solidifying wealth at the top. By one estimate from the Institute on Taxation and Economic Policy (ITEP), based on an initial version of the Trump plan, more than two-thirds of the proposed tax cuts would go to the richest 1 percent of Americans. That means people who earn at least $615,800 a year would enjoy an average tax cut of $90,610 each. The average tax cut for the 1 percent is bigger than the amount the vast majority of Americans earn in a year. Meanwhile, middle earners -- those who earn between $41,000 and $66,000 a year -- would see an average tax cut ranging from about $400 according to ITEP's early estimates, or about $1,100 according to the Trump plan's own estimates. Either way, that's just an average -- some taxpayers in this income group would actually owe more in taxes under the Trump plan.
The average tax cut for the 1 percent is bigger than the amount the vast majority of Americans earn in a year.
Squeezing the Middle Class and the PoorUnder the Trump tax plan, some middle- and upper-class Americans could actually pay more in taxes. Taxpayers with incomes from $111,100 to $615,800 would be most likely to pay more in taxes than they do under the current system. But according to the initial estimates from the ITEP study, one in seven taxpayers in the middle of the income distribution -- with incomes from $41,000 to $66,000 -- could also pay more. One reason is the proposed changes to the state and local tax deduction, which would now only apply to property tax, not state or local income tax. This tenet of current tax law allows taxpayers to forego paying federal taxes on the taxes they pay to state and local governments. This way, state and local governments are not punished for levying adequate taxes to cover locally funded services -- like many roads, K-12 schools, and more. The deduction recognizes that few people are able to choose where they live based on local and state tax rates, and so avoids punishing those who live in areas with relatively high taxes. The trick is that this deduction is popular among middle- and upper-income households. With the new limits, many of them could end up paying more in federal taxes.
The estate tax will be phased out gradually -- thus saving face, given how much this tax cut for wealthy heirs will actually cost the nation.
Hoarders, Corporate EditionThe biggest single tax giveaway in the Trump proposal is a cut in the corporate tax rate. Corporate tax rate discussions are often hijacked by misleading claims about how high or low the corporate tax rate in the United States is now, and what the consequences for US competition are. However, the most relevant facts are these: The corporate tax rate is officially 35 percent; almost no corporation actually pays that much, thanks to a complex system of loopholes and deductions; and many profitable corporations actually manage to pay nothing at all in federal income taxes. In a study of 258 profitable Fortune 500 corporations, the average effective tax rate -- what the corporations actually paid to the federal government -- was about 21.2 percent from 2008 to 2015.
The poor can expect a tax cut of about $80 a year. This is hardly the stuff of ending poverty.
A Downward Spiral of InequalityIt's conventional wisdom that nobody likes paying taxes -- but in reality, Americans are strongly supportive of a government role in many parts of our society, including education, health care, job training and national security. Paying taxes may not be fun, but it's the key to a program of aggressive public investment in the kind of society we all want. And there lies the final failure of this tax plan: It would constitute a massive loss of federal revenue to the tune of at least $1.5 trillion over 10 years -- and quite possibly even more. A revenue loss that extreme leads down a clear path to a future where the federal government's role in education, job creation, health care, the environment and other areas will be called into question as unaffordable.
This tax plan would constitute a massive loss of federal revenue to the tune of at least $1.5 trillion over 10 years -- and quite possibly even more.
The Politics of Tax ReformMuch of the political analysis on the Trump tax plan's chances of passage understandably focuses on whether the Republican Party will stick together and get it done. Those analyses are worthwhile, but they miss an important lesson of politics in the era of Trump and the possibilities for resistance. If this tax plan passes in whole or in part, it will be for two reasons: First, because powerful and highly organized special interests, who stand to gain from the plan's passage, have brought their full resources to bear; and second, that false representations of the Trump plan have muddied the waters enough to effectively mute public resistance. If the tax plan fails, it may be due to a lack of cohesion among Republicans -- but, just as likely, it may be a result of civic action and a shared understanding of the plan's real winners and losers. Just as confusion can lead to inaction, understanding can spur action.
It's up to all of us to show our legislators that we know the score, and that we plan to hold them accountable.
Syndicated from Truthout Stories.