House Republicans have finally unveiled their tax reform plan and overhaul of the federal tax code.
“The Tax Cuts and Jobs Act” is being promoted by the GOP as huge tax cut to the middle class, a point which many economists and tax experts have repeatedly pushed back against since details of what Republicans would include in the plan were slowly released over the past few weeks.
After President Donald Trump announced his administration’s tax plan, the “Unified Framework For Fixing Our Broken Tax Code,” in late September, analysis from the Brookings Tax Policy Center found the only group seeing the “massive” tax breaks that were promised for the middle class are wealthy Americans.
The Tax Policy Center concluded, among other things, in 2018 taxpayers in the top 1 percent, would receive roughly 53 percent of the total tax benefit and their after-tax income would increase an average of 8.5 percent. Meanwhile, taxpayers in the bottom 95 percent would see average after-tax incomes increase between 0.5 and 1.2 percent.
What Republicans have failed to address, however, is how their plan still remains to be a huge boon to the wealthiest Americans.
The GOP, however, will likely argue that their recent decision to maintain the top tax bracket (currently at 39.6 percent) will ensure millionaires won’t get a tax cut. Maintaining the 39.6 percent rate, however, does very little to change the distributional impact of the tax plan when compared to the Trump administration framework, which didn’t include a bracket on income over .
— Jeremy Slevin (@jeremyslevin) November 2, 2017
This is because of the massive tax cut awarded to corporations under the GOP tax plan, which will be slashed from 35 to 20 percent.
The administration and Republicans argue the more money in the hands of corporations equals higher wages and more jobs for American workers. Trump even went as far to suggest that a corporate tax cut would result in a middle class raise wage worth four thousand dollars or more, even though most economists no longer see tax cuts for corporations as a particularly effective way to spur economic growth..
It’s a claim based off of shoddy, non-peer reviewed research spearheaded by the head of the Council of Economic Advisers (CEA), Kevin Hassett, a conservative economist and author of the book “DOW 36,000.” Larry Summers, an economist and former U.S. Treasury Secretary under President Bill Clinton wrote a scathing take down of Hassett’s analysis, calling it “some combination of dishonest, incompetent and absurd.”
A corporate tax cut does, however, help wealthy foreign investors. Because roughly 35 percent of U.S. corporate stock is owned by foreign investors, slashing the corporate tax rate to 20 percent would translate to a tax cut for these investors worth $70 billion dollars, a cut three times the tax break households in the middle income quintile would get under Trump’s tax plan.
Republicans have also touted their special 25 percent rate for “small businesses” as a huge help to middle class Americans.
“Small business creates more jobs than any other thing in America,” said Rep. Kevin McCarthy (R-CA) during a press conference announcing the tax plan on Thursday. “In this bill, they’ll get lower taxes go to 25%. The lowest it’s been in 40 years.”
These “small businesses” however, are not the mom and pop shops Republicans would like you to believe them to be. Most small businesses already pay a 25 percent tax rate. Pass-throughs include partnerships and LLCs, which under the current tax code, are taxed according to the owner’s individual tax rate.
A special rate for pass-throughs would create a loophole that would effectively allow owners of these kinds of businesses to re-characterize their income to be taxed at 25 percent instead of 35 or 39.6 percent. Trump himself, through his ownership of the Trump Organization, owns more than 500 pass through business entities. This loophole would slash the tax rate on the profits from these businesses by more than a third.
Another provision in the tax plan the Trump administration and Republicans alike have pitched as a boon to the middle class and family farms especially is the elimination of the estate tax, which Rep. Kristi Noem (R-SD) described as the “most unfair tax in our tax code” during the roll-out of the House bill on Thursday.
The reality is, the estate tax is a 40 percent levy on assets that exceed estates worth over $5.49 million for an individual and $10.98 million for a married couple. This measure is only really utilized by America’s wealthiest plutocrats, affecting less than half of a percent of all estates today, according to IRS figures.
And as for the farmers, only 682 taxable estates — or just 13 percent of all taxable estates — reported having any farm assets at all in 2016. Half of the families worth enough to trigger the estate tax live in New York, California, Texas, Florida, or New Jersey. Almost none of them are farmers or small business owners.
Some Senate Republicans voiced their opposition to the House plan merely hours after it was announced. Sen. Jeff Flake (R-AZ) said Thursday on the Senate floor that if “we are going to do cuts, cuts, cuts, we are going to need to do wholesale reform.” Sen. Marco Rubio (R-FL), an outspoken advocate for an increased Child Tax Credit also spoke out against the House tax plan, tweeting the plan doesn’t do much to help working families.