GOP tax plan offers costly table scraps for the middle class
Even before the House Republicans released their tax plan on Thursday, polls showed that Americans weren’t happy with its primary goal — lowering the corporate tax rate. Most people just don’t see that as a pressing issue or economically beneficial. Even a majority of Republicans polled by the Pew Research Center this summer supported either raising corporate taxes or keeping the rates the same. So it’s no surprise that House leaders have instead touted their plan as a “middle class tax cut,” a truly misleading label when the financial benefits skew so overwhelmingly to large companies and the wealthy.
Whatever help might be offered to families earning less than $100,000 by such proposals as increasing the standard deduction or an expanding the child tax credit, for example, are likely to be offset by the loss of other tax benefits — most notably the limit on local and state tax deductions and the cap on mortgage interest deductions. Both hit states like Maryland hard. While a $500,000 mortgage may sound like a princely sum (and it is in much of the country), in areas of high property values such as Maryland’s Montgomery County, it is not. Even by some fairly generous accounting, middle class families probably won’t see much net benefit under various possible scenarios. The non-profit, non-partisan Tax Foundation estimates that “Kavya and Nick” who earn $85,000 a year might see a $1,072 benefit while “Olivia and Richard” who earn $1 million might see $59,130, which, even on a percentage basis, is about eight times better than their middle class brethren (a 9.09 percent after tax income boost for the rich compared to 1.44 percent for the not).
But wait, it gets worse. Those tax cuts would expire in a decade; reducing the corporate tax rate from 35 percent to 20 percent would be permanent — at a cost of $1.5 trillion over the next 10 years alone. The counter argument from the White House is that reducing corporate tax rates would yield benefits to workers, presumably in the form of wage growth. But that’s a dubious claim, at best, given that corporate profits are fairly robust right now, yet wages are stagnating. The most recent U.S. Department of Labor jobs report released on Friday showed hourly wages rising just 2.4 percent over the last 12 months, a period of high corporate profits (perhaps the best in 13 years) and record stock valuations.
To add insult to injury, the tax plan does not contain one of Donald Trump’s more notable tax promises from the presidential campaign — a so-called “hair cut” for hedge fund managers by closing the carried interest loophole that significantly lowers their income tax rate. It does, however, repeal the federal estate tax (raising the exemption from $5 million to $10 million and phasing it out entirely by 2024) which means the ultra-rich can meet their maker knowing their heirs can maintain their financial dynasties without having to pay taxes, not even capital gains on stocks held by their patriarchs for decades. Nice for trust fund kids, but bad for the principle of egalitarianism and unlikely to boost the economy in any substantial way.
Sadly, tax policy can be a rather dry business, and in the weeks ahead, you can bet that the loudest voices will be the well-paid lobbyists who always come out in force when it’s time to rewrite the code. Yet it’s average Americans who need to be heard from, an opportunity that’s so far been denied them by a secretive process and a lot of disinformation from the proposal’s biggest supporters and, in some cases, critics as well. Will the House plan boost the economy? Do we even need an expensive, deficit-expanding boost that skews so heavily toward the rich given the current low-unemployment, high-earnings environment? Or is this mostly about getting a much-needed “win” for an unpopular president and a Republican brand hurting from the Obamacare repeal fiasco and the administration’s continuing inability to get meaningful legislation through Congress?
Tinkering with the corporate tax rate isn’t necessarily a bad idea, but slashing it so substantially and at such a high cost simply isn’t justified and shouldn’t be sold to the American people as something it isn’t. Describing the Republican plan a middle class tax cut requires ignoring about 95 percent of its effect. The danger is that too many in Congress may be willing to do just that if the public decides that table scraps, no matter how costly in the long-term, are good enough.
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