Judy Taylor, Researcher
Donald Trump campaigned on the promise of tax relief for middle class Americans and bragged that the benefits of the GOP’s tax reform bill would go to the middle class, not high earners. Surprise: that isn’t what happened. The long-term Republican goal of reducing taxes for the wealthy justified by its “trickle down” theory, combined with the force of Trump’s billionaire cabinet, resulted in the Tax Cuts and Jobs Act of 2017 that benefits wealthy individuals and corporations, largely ignores the middle class, and hugely increases the federal deficit. Corporate benefits will trickle down—to investors and shareholders. But that’s not all. Now the administration is floating the idea of large cut to taxes on investment income worth $100 billion over ten years. Guess who will benefit?
There is some light at the end of the tunnel—some polls suggest that voters are increasingly aware of the deep inequities of tax “reform,” and that the same Republicans in Congress who voted huge tax breaks to billionaires are also responsible for increases in health care costs to ordinary Americans.
This was Trump’s campaign manifesto:
“TAX REFORM THAT WILL MAKE AMERICA GREAT AGAIN! The Goals Of Donald J. Trump’s Tax Plan: Too few Americans are working, too many jobs have been shipped overseas, and too many middle class families cannot make ends meet. This tax plan directly meets these challenges with four simple goals: 1. [is] Tax relief for middle class Americans.”
Trump as president continued to insist that the developing Republicans tax reform plan would “By eliminating tax breaks and special interest loopholes that primarily benefit the wealthy, our framework [ensure] that the benefits of tax reform go to the middle class, not to the highest earners,” Oct. 11  in Harrisburg, Pa. A political non-profit that supported Paul Ryan, R-Wis., has even launched what it calls the Middle Class Growth Initiative to fund campaign-style ads to build support for the tax plan in key districts.
Surprise! The Tax Cuts and Jobs Act of 2017
Reality from the CBO, which broke down the billions of dollars in annual changes to spending and tax revenue by income group, up to people making more than $1 million. It found that while the rich as a group benefit each year (as do people making more than $75,000, on aggregate) the desperately poor, earning $10,000 or less a year, lose out consistently — and by 2021, people earning $40,000 a year or less start losing out as well.
According to the Tax Policy Center, the “law will reduce federal revenues by significant amounts, even after allowing for the modest impact on economic growth. It will make the distribution of after-tax income more unequal, raise federal debt, and impose burdens on future generations.”
David Cole of the ACLU wrote in the New York Review, the “tax bill, cynically sold as a break for working families, will hasten [ the collapse of the middle class]. By 2027, according to the Tax Policy Center, 90 percent of its benefits will accrue to the richest 20 percent of Americans. It drastically cuts the corporate tax rate from 35 percent to 20 percent, and according to an April 2018 Congressional Budget Office report, it is likely to increase the federal deficit by $1.8 trillion over the next ten years, forcing reductions in safety-net programs such as Social Security. All of this ensures that the already unconscionable gulf between rich and poor in the US will grow even wider.”
Trickle down theory will work, but just for the wealthy,
Corporate tax cuts will trickle down to shareholders and investors, and therefore be a boost to older, wealthier retirees who make their money from investment earnings rather than wages. Younger people, and people who must work for a living, will eventually see their tax cuts expire and will have to deal with consequences if the national deficit grows.
As predicted, wealthy individuals and corporations are benefiting. According to a recent analysis by Politico, some of the biggest winners from President Donald Trump’s new tax law are corporate executives who have reaped gains as their companies buy back a record amount of stock, a practice that rewards shareholders by boosting the value of existing shares. “It is going to be a parade of eye-popping numbers,” said Pat McGurn, the head of strategic research and analysis at Institutional Shareholder Services, a shareholder advisory firm.
Since the tax cuts were enacted, Oracle Corp. CEO Safra Catz has sold $250 million worth of shares in her company — the largest executive payday this year.
A New York Times editorial summarizes it this way: stock buybacks have reached new heights (increasing the value of stockholders’ portfolios); investments are flat lining; real wages are declining; and the budget deficit will surpass the highs of the 2008 great recession.
Billionaires and Corporations Reward their Republican Supporters
While Republicans aren’t finding that their tax “reform” bill resonates with voters in the way they’d hoped, they are experiencing a windfall of another sort. As the NYT reports, wealthy Republican donors, frustrated by Republicans’ failure to repeal the Affordable Care Act had threatened to sit out the 2018 campaign. Appeased by passage of tax “reform,” they’re now turning on the cash spigot for the “super PAC” Congressional Leadership Fund. The Fund, flush with big checks from a handful of deep-pocketed donors, is the party’s best hope of a defense against an electoral defeat in November.
Trump’s administration evidently doesn’t believe that these rewards for the rich are enough, and is floating the idea of another tax cut – a plan that would cut federal taxes on investment income, a change that independent analysts say would overwhelmingly benefit the wealthiest Americans.
An analysis earlier this year by the Penn Wharton Budget Model found the proposed cut would reduce tax revenue by more than $100 billion over 10 years. Sixty-three percent of that money would flow to the pockets of the top 0.1 percent of income earners, those who had adjusted gross incomes of at least $7.31 million in 2015, according to the Internal Revenue Service.
But according to a NYT editorial, One potential sticking point is that Mr. Mnuchin’s proposal may not be, strictly speaking, legal. Congress has never authorized the Treasury Department to interpret tax law in the bizarre way the secretary is advocating. And the last time such a possibility was floated, in 1992, President George Bush’s Justice Department shot it down with extreme prejudice. The department’s Office of Legal Counsel went so far as to issue a 23-page opinion laying out in excruciating detail why the Treasury Department does not have the legal authority to index capital gains for inflation by means of regulation.
However, as the editorial points out…
But the Trump administration isn’t one to fret about legal niceties when pursuing its pet projects. It much prefers to plow forward and let the court challenges shake out as they will. You win some. (Think travel ban, eventually, after multiple revisions.) You lose some. (Snatching migrant kids from their families at the border.) But as the adage goes, it’s easier to ask for forgiveness than permission. Mnuchin may well figure that the risk is worth the potential gain for himself, his wealthy friends and, more broadly, members of the Republican Party’s donor class who might very well show their gratitude by channeling some of their tax savings into party coffers. Besides, a case like this could take a while to wend its way through the courts, and who knows how many millions could be saved in the meantime.
Recent polling tells us, too, that support for increasing taxes on the wealthy is high, as it has been for many years now. Sixty-two percent of Americans believe that the rich pay less than their fair share in taxes, according to Gallup. Last year, the Public Religion Research Institute found that 72 percent of Americans—including 74 percent of white working-class Americans and 58 percent of Republicans—support hiking taxes on those making $250,000 or more a year.
And the Democratic pollster, Democracy Corps, reports that their recent data “showed that respondents were moved by the message that short-term deals and tax cuts benefiting the richest Americans are endangering the future, especially the future of programs like Social Security and Medicaid. Republicans were also shown to be vulnerable to attacks that say they’ve failed to deliver on promises of better, cheaper health care.
Finally, take heart from the Patriotic Millionaires, a group of millionaires dedicated to decreasing the influence of money in politics. According to Vox, it is planning to endorse candidates for the first time, in the 2018 midterm elections. The only requirements: The candidates it backs have to be running against an incumbent who voted for the Republican tax cuts, and they’ve got to be able to talk about taxes in a way that doesn’t put voters to sleep.
There are caveats, of course. The first is that most Americans aren’t paying terribly close attention to policy reporting at the New York Times or anywhere else. This is a safe bet at all times. And second, Democrats will have to campaign to make clear to voters that the Republicans in Congress voting to decrease taxes for their billionaire allies are also “playing politics with health care costs.”