GOP tax plan will take money from middle class and shovel it to the wealthy
This afternoon in Indianapolis, Pr*sident Donald Trump will deliver a speech outlining a long-awaited tax overhaul that, among other things, the White House and Republicans in general hope will reboot a regime that has failed to deliver on promises to its base and whose various shenanigans, gaffes, and missteps have generated a backlash that includes ever-lower approval ratings and eight Democratic election wins this year in Republican-controlled state legislative districts. Those wins suggest strong potential for a blowout Republican loss in the 2018 midterm elections that are just over 13 months away.
Whether the tax plan—called the “Unified Framework”—will help the GOP dig itself out of the hole it has created for itself will depend on who the plan’s winners and losers are, and how the media and propaganda apparatus of right-wing think tanks and lobbyists present this to the public. And, of course, how effectively Democrats fight the plan’s anti-progressive elements.
What’s needed in place of this gift to the 1 percent is progressive tax reform, elements of which both Hillary Clinton and Bernie Sanders proposed during the 2016 campaign. That, of course, is not what Republicans have in mind in the plan they have been working on behind the scenes for several months. Many details have not been announced or must still be worked out. Axios has posted a summary of the existing GOP framework here.
This is what stands out:
Corporate tax rate cut. The plan calls for cutting the current corporate income tax from 35 percent to 20 percent. It also would create a 25 percent tax for “pass through” businesses. These account for most of the nation’s business income and are currently taxed at individual rates. The corporate rate cut would, supporters claim, increase investment. But current investment in many areas of the economy are low not because of supposedly onerous taxes but because of a lack of strong consumer demand. A tax cut won’t fix that. Instead, many of those windfall billions will go where a good portion of corporate profits have been already going for years: into stock buybacks and increased compensation of top executives.
Lower taxes for the top tier, higher for the bottom. The framework proposes that the current top individual rate be reduced from 39.6 percent to 35 percent, with the lowest rate increased from 10 percent to 12 percent.
Doubling the standard deduction. Taxpayers can pick the standard deduction or they can itemize deductions, depending on which method allows them to pay the least taxes. This year the standard deduction is $6,350 for individuals, $9,350 for heads of households, and $12,700 for joint filers. If the tax plan’s doubling were approved, a married couple would only gain from itemizing deductions if their taxable income exceeded $24,000. The Urban-Brookings Tax Policy Center calculates that of the 45 million tax filers who itemize, 38 million—that’s 84 percent—would shift to the standard deduction if it were doubled.
Mortgage and charitable donations deductions remain intact: Specifics on other deductions are yet to come, but the mortgage deduction, which some more extreme “reformers” were talked down from eliminating, will continue to be part of the tax code under the Republican proposal. Both these deductions help more affluent Americans the most. About 20 percent of filers now take advantage of the mortgage deduction. With the standard deduction doubled, far fewer taxpayers would gain an advantage from itemizing and would thus not take them mortgage deduction. Critics say the tax plan could thus hurt the housing market. Sarah O’Brien reports:
Nonprofit groups and the homebuilding industry are concerned about what reduced utilization of those deductions would mean for homeownership and charitable giving.
“It marginalizes the mortgage interest deduction,” said J.P. Delmore, assistant vice president of government affairs at the National Association of Home Builders. “We’d see the effect where a small number of homeowners would benefit, and that’s not the direction anyone is looking to go with tax reform.” […]
“This is an emerging issue [lawmakers] don’t intend to create,” Delmore said. “But we hope there’s an opportunity to find a solution so that homeowners have a meaningful tax incentive that doesn’t involve being marginalized and benefiting only the wealthy.”
Cuts would cause a $1.5 trillion loss in federal revenue over a decade. Republicans would normally be demanding that this estimated revenue loss be made up for in advance with offsets—budget reductions in other government-funded programs. But in this case, they are arguing that the loss is nothing to worry about and doesn’t need offsets because the proposed tax cuts will spur economic growth by enough to cover it. Where have we heard that before?
Chye-Ching Huang and Joel Friedman at the center-left Center for Budget and Policy Priorities write:
Such a tax cut likely would ultimately hurt many Americans, because the resulting increase in deficits and debt would raise the pressure for cuts in programs that help low- and middle-income people or that produce long-term economic benefits. The majority of Americans could ultimately lose more from the program cuts than they would gain from the tax cuts.
News accounts indicate that some Senate Republicans are preparing to argue that the $1.5 trillion revenue loss should not be a concern. They appear prepared to contend that even though they haven’t yet drafted their tax-cut bill, it will generate so much additional economic growth over the next decade that the resulting higher tax revenues will offset most of the $1.5 trillion cost. They also argue that the more than $400 billion ten-year cost of extending a series of tax cuts that are due to expire or have already expired should be entirely disregarded, on the grounds that Congress would take the fiscally irresponsible step of extending these tax cuts anyway without paying for them. The justifications for dismissing the $1.5 trillion cost defy both evidence and logic.
[…] Trump’s tax cuts could total $6.7 to $8.3 trillion, $3 to $5 trillion of which may not be paid for by closing other tax loopholes and/or by limiting tax deductions. The resulting jump in the deficit threatens funding of Social Security, Medicare, Medicaid, public education and other vital services. This analysis is based on recent media reports identifying possible tax cuts under consideration by the “Big Six” of Trump Administration and Congressional negotiators, and on the tax-cutting priorities President Trump and House Republican leaders have emphasized in tax plans unveiled over the past year.“The idea that this plan would help average Americans instead of the wealthy and big corporations has been a hoax all along,” said Frank Clemente, executive director, Americans for Tax Fairness. “This isn’t ‘tax reform,’ it’s just a big giveaway to millionaires and corporations, and it won’t ‘trickle down’ to the rest of us. It won’t help small businesses, but it will help Wall Street hedge fund managers and real estate moguls like Donald Trump. This plan will not lead to robust job creation or economic growth, but its eye-popping cost will lead to deep cuts in Social Security, Medicaid, Medicare, and public education that will leave working families in the cold.”
Like so many Republican proposals, the Unified Framework is a snare and a delusion. It’s a gift to wealthy, and a lump of coal for most of the rest of us.
(Originally appeared at DailyKos.)