Working towards peace and sustainability

What Does “Tax Reform” Mean to You? And What Would the Trump “Reform” Mean for All of Us?

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.