President Trump and his allies in Congress are
pressing for a revision of the tax code that will benefit the rich and powerful.
Paraphrasing an old country song, “They’d get the gold mine and the rest of us would
get the shaft.” We at Peaceworks urge our fellow citizens to speak in one voice
against this heist and do so now.
“Reform.”
That word has such a positive ring; improving on things; rooting out
corruption. So, every time politicians want to change the tax code, they are
always seeking “tax reform.” But, as you surely know, the devil is in the
details.
If
tax reform means coming up with a fairer way to raise revenues, we’re all for
it. The current proposals Congress is considering, however, make the system
less fair, by giving the overwhelming majority of the tax cuts to the very well
to do and to large corporations, while giving at best very modest tax breaks to
most of us, and actually raising taxes on millions of middle class families. The
Tax Policy Center estimates that, after ten years, 45 million households will be paying more, including 36 million low and middle-income families.
Besides
making the system less fair, the proposals before Congress are based upon
flawed economic theories and are likely to do harm to the economy. Branded as
“voodoo economics” in 1980 by George Bush senior, the trickle-down approach has
failed repeatedly to produce the sort of economic growth or jobs that Trump is
promising.
Even
worse, these so-called “reform” measures are dangerous Trojan horses. They will
not only make the rich richer, aggravating the inequality that already has
ballooned dramatically over the past several decades. They provide such huge cuts
to business and the wealthy that the proposed elimination of “loopholes” doesn’t
come close to paying for them.
Thus,
if enacted, the tax cuts would significantly exacerbate the deficit. This
would, before long, be used as a rationale for cutting spending on programs
that benefit the populace at large. Everything from environmental protection to
education, infrastructure and bedrock programs like Social Security and
Medicare are likely to be on the chopping block. It is also possible that, due
to a 2010 Pay-As-You-Go statute, the “tax reform” would trigger mandatory
spending reductions of up to $150 billion each year.
Today
the Trump administration and the GOP majorities in both the House and the
Senate are aiming to dramatically cut taxes for those who can most readily
afford them, while penalizing many low-income workers, students and others.
While their plans differ regarding some of the details—and some are still being
negotiated—the big picture is clear. Here are a few examples:
Benefitting
Mainly Corporations and Businesses: According
to figures from the Joint Committee on Taxation, fully 75 percent of net tax cuts will go to wealthy corporations and businesses passing through earnings to
their owners at a reduced rate of taxation. Moreover, the proposals have been
crafted to retain benefits for businesses, while allowing cuts to individuals
to expire, so that middle income households will be hurt more as time goes by.
Trump
and company aim to cut the highest corporate tax rate from 35 percent to 20
percent—a cut of $1.5 trillion over a decade—and offer a “one-time” repatriation
of profits from overseas at a bargain-basement tax rate of just 12 percent,
costing us hundreds of billions more (This would reduce tax obligations from
$750 billion to $293 billion).
While
they claim that lower taxes are essential to keep business here, the effective corporate tax rate in the U.S. is right about the same as the average for G-7
countries. With corporate profits in our country at an all-time high, they seem
to be doing fine without needing these huge tax breaks. Corporate lobbyists
have already succeeded in shifting most of the tax burden to households. Back
in 1952 corporate income tax accounted for 32 percent of Federal revenue. By
2013 that had shrunk to just 10 percent.
Another
major break for businesses is the reduction of the marginal tax rate on
pass-through income from 39.4 percent to 25 percent. This would benefit
partnerships, S corporations and sole proprietorships, including real estate
businesses including those of Donald Trump and Jared Kushner.
The Rich Would
Get Richer: In ten years the Tax Policy Center estimates
that nearly one-half (47%) of all tax cuts to households will be going to the
top one percent, who will be benefiting, on average by approximately $62,000 a year per taxpayer.
Tax
cuts primarily for the wealthy must be viewed in context, recognizing that for nearly
four decades almost all of the economic gains have gone to those at the top,
while the most workers’ real wages have been flat, or even shrinking. This
trend, which started in the early ’80s under Reagan, has multiple causes, but
the tax cuts of that era, as well as those that came during the first term of
George W. Bush, overwhelmingly benefited the well-heeled and were major factors
in increasing inequality.
The
U.S. has one of the most skewed wealth distributions of any developed nation. The
top one percent holds more than 40 percent of our combined wealth, and the top
10 percent of the population holds nearly three-quarters. Meanwhile, the bottom
60 percent—likely including most reading this—owns less than five percent of
all assets. Such inequality is a hardship for those barely making ends meet,
and it also leads to a weakened macro-economy; drowning in debt and without
sufficient aggregate demand.
Estate Tax
Repeal: Only the richest among us pay this tax. It
only kicks in for inheritances greater than $11 million for a couple or $5.5
million for an individual, which means 99.8 percent of estates are exempt.
Trump’s children, and those of his wealthy cabinet members, would benefit from this handsomely. Retaining the estate tax is important, because it puts on the
brakes, at least somewhat, on the creation of vast, intergenerational fortunes.
Alternative
Minimum Tax (AMT) Repeal:
The AMT keeps high income individuals from taking so many deductions
they get away nearly tax free. While Trump has refused to release any of his
tax returns, a partial tax return from 2005 was leaked to the media. Based upon
this we know that, if not for the AMT, Trump would have paid 85 percent less
that year ($5.3 million rather than $36.5 million). If the wealthy don’t pay
the AMT, the rest of us will have to pay more.
Impact on
Students:
There are dozens of other changes that would be made in the code if some
version of the bills currently before Congress passes. One of the more
egregious set of changes is those that will affect college students and former
students who have outstanding student loans. These include the elimination of the deduction—up to $2,500 per year—for interest paid on student loans. Over
the term of these loans this will likely cost the borrowers many thousands of
dollars.
Other
provisions would adversely impact primarily graduate students. This includes
the elimination of the exclusion from taxation of income received while working
as a graduate teaching assistant when the teaching is considered an educational
requirement. Another is the proposal to treat as taxable income tuition that is
waived for graduate students. This same provision would hurt families whose
children of faculty and staff who are presently allowed to attend school for
free or at a reduced charge at many schools, including Mizzou.
Additional
Concerns:
There are many other concerns, from
changes in tax brackets that benefit the wealthy to the elimination of the
personal exemption, to the elimination of numerous current deductions (medical
expense, moving, etc.), that will hurt working families, while benefits go to
corporations and other businesses.
It
seems that the administration and their Congressional allies are counting on
much of the population not looking closely at what’s in these bills and
accepting their big lie—repeated over and over—that this is primarily a “middle
class tax cut.” It’s up to us to make it clear just what is in these bills and
how they would impact all of us.
We
need to help our fellow citizens to see that, while these bills are complex,
the bottom line is that we are staring down a massive give-away to the wealthy,
who least need “tax relief.” Moreover, increasing the deficit by cutting taxes
leads inexorably to further cuts in essential programs, doing grievous harm to
middle and low-income citizens.
We
encourage all Peaceworks members and supporters to please learn more and,
whatever your perspective on this is, to please make your voice heard,
including communicating your concerns to Congress.
