How large is it?
Most reporters and commentators characterize the GOP/Trump tax cut legislation as a $1.5 trillion bill. That’s not remotely accurate and seriously underestimates the magnitude and severity of the recently passed law. According to the latest Congressional Budget Office analysis, the ten-year effect of the legislation is a net $3.9 trillion tax reduction (more than 2 ½ times what is being reported) even after you subtract the elimination of $1.3 trillion of corporate deductions from the total of $5.2 trillion in total tax cuts.
Who Benefits?
The tax reductions overwhelmingly benefit mega-wealthy families and corporations. Many of our most well-off citizens will annually pocket tens of thousands of dollars and some even millions while everyone else receives meager tax breaks. Initially, according to the Tax Policy Center the top 1% of families by income will receive 60% of the benefits leaving a smaller pie to be divided by everyone else. Lamentably, the smallish tax cuts which do help middle and low income families in 2018 (inflated to be in time for the 2018 elections) diminish over time until they are eliminated. Ten years from now 83% of the cuts will go to the top 1% and, incredibly, over 60% will go to the ultra-rich, the top 1/10 of 1% (1 out of every 1000 families). Conversely, 53% of American families will suffer a tax increase–a classic case of bait and switch. In contrast, the corporation cuts are permanent.
Do the wealthy really need such a large tax break so that they can buy another mansion, a bigger yacht or jet, throw another party, buy another designer outfit, or pad their bank accounts while tens of millions of families living paycheck to paycheck receive a pittance or get taxed? Republican mega-rich donors must think so because they drove the whole perverted process by which the tax bill was passed.
Who Pays?
Middle and low income families. The $3.9 trillion net tax cuts in the GOP bill are paid for by;
- borrowing $1.5 trillion (since upgraded by the government to $2.3 trillion) or more by increasing the federal debt–a burden on our economy and our children in years to come;
- raising $2.1 trillion in taxes on mostly middle-class and working-class families by eliminating the personal exemption, changing the inflation measure, capping state and local tax deductions (which primarily affects the upper-middle class in blue states), and some other miscellaneous deductions; and
- cutting $314 billion from health care by eliminating the mandated Obamacare contributions which will have the added harm of increasing premiums by 10% and dropping 4-9million people from medical care.
Thus, this tax cut bill is a much more massive shift of the tax burden from the wealthy to the middle-class and low income families than reported–essentially borrowing from the future, taxing the working classes, and cutting needed services to finance an unnecessary tax cut for the wealthy who are already living high on the hog and receiving an unprecedented share of post-tax income.
What Happens to Inequality?
This country is currently suffering from dangerously high levels of inequality not witnessed since the Gilded Age and the Roaring Twenties–the latter period followed by the Great Depression of 1930’s caused primarily by the failure to pass down to workers enough wages to sustain demand. A multitude of research has shown that high levels of inequality stunt economic growth and opportunity. At present, the top 1% own 40% of US wealth which is more than the combined wealth of the bottom 90% and receive almost 20% of yearly income which is about twice as much as the share of the bottom 50% of families. The GOP/Trump tax plan will make this bad situation much worse.
Was There Any Bi-partisan Support?
Not one Democratic senator or member of Congress voted for the GOP/Trump tax plan, so broad support is absent. Because the GOP congressional leaders rushed the drafting of the bill behind closed doors flouting normal procedure with no public hearings, there are many errors and hidden rip-offs creating fertile soil for gaming the tax code by such methods as turning individuals into corporations. Last minute loopholes and outright looting were obtained by lobbyists such as the pass-through write-off for real estate trusts which benefit real-estate moguls such as President Trump and his family. The real cost of the bill may turn out to be much higher and borrowing could exceed $2 trillion.
How Extensive is the Collateral Damage?
Severe. Existing budget rules, unless changed (good luck), mandate large and growing cuts to Medicare due to the increased deficit–$25 billion in 2018 and over $400 billion in the next ten years. GOP’ers are already using the existence of a larger deficit to refuse to fund health services for 9 million children under the CHIP program, insisting on public health cuts for millions of other children and calling for cuts to Medicare, Medicaid, Social Security, and medical and basic research. Republican leaders and President Trump are also proposing wide-spread reductions in other public services. For example, the proposed GOP budgets reduce federal funds for public schools while the GOP tax bill gives wealthy private school parents a significant tax break–in effect subsidizing private schools at the expense of the public school sector. This is consistent with many Republican politicians and the President’s expressed hostility to public education and encouragement of privatization of our public schools.
Will There Be Enough Growth to Offset the Increased Debt?
Nope, or minimal at best. GOP arguments that that the tax cuts for the wealthy pay for themselves by causing higher economic growth which will increase tax revenues to pay for a substantial portion of the larger deficit have been debunked by almost every reputable economist and the federal financial advisors who forecast minimal growth from the cuts. Furthermore, if there turns out to be greater revenues from greater growth, they are necessary to pay for current Medicare, Medicaid, and Social Security future obligations. To divert them to the un-needy wealthy now means cuts in these programs later.
Was There A Reversal of Settled Tax Policy?
The GOP tax bill violates elementary standards of good policy by creating different classes of winners and losers. For example, for the first time in our history, tax legislation overwhelmingly favors those who earn through capital over those who earn from wages.
Does the GOP Rationale for the Tax Bill Withstand Scrutiny?
No. The major selling point of the GOP is the assertion that reducing the corporate rate will substantially increase growth and workers will receive sizable benefits from that growth. That contention is also disputed by the vast majority of economists, the official scoring reports and the history of tax cuts and tax increases. Bush II cut taxes and subsequent growth was weak; Clinton raised taxes and subsequent growth was spectacular which flies in the face of the GOP theory.
The GOP’s specific argument that wages will rise significantly because giving corporations more cash and lower taxes will cause them to invest, which will increase productivity, which will then be shared with their employees, doesn’t hold water. According to recent reports such as the one by the Economic Policy Institute each assumption is false. Corporations currently are awash with cash, corporate profits as a percentage of GDP are at their peak, the corporate tax share of federal revenues has plummeted (the wage share has skyrocketed) and yet large-scale investment hasn’t occurred. No surprise there. Investments are made based on projected demand. Availability of cash and tax rates play a small part in those decisions. More importantly, productivity gains during the past decades have not been shared with workers.
Instead, the increased profits for most firms have been used to buy back shares to raise stock prices, balloon executive pay, and increase distributions to shareholders. That same overall pattern occurred when billions of dollars were repatriated in 2004. A repatriation holiday allowed corporations to bring back billions of overseas profits at a lower rate. The 15 companies that brought the most profits back to the U.S. used them to buy back shares instead of boosting investment, and actually ended up cutting jobs and slightly lowering their research and development spending. Why would corporate behavior change this time around? Experts say it won’t. Even the most optimistic predictions suggest that only a small percentage of any increased cash or profits from corporate tax cuts will be given to wage earners.
For individuals, one of GOP’s more discredited arguments is that the super-wealthy pay the lion’s share of taxes so if taxes are cut they will have to receive most of the benefits. That’s nonsense. It’s true that the rich pay a large percentage of income taxes because, unlike most families, their before tax incomes have grown substantially during the past decades. However, the canard that these rich families pay almost all of federal taxes is demonstrably false. Income taxes constitute less than half of federal taxes. Payroll taxes are a third. The wealthy pay no payroll taxes on income just over $100k which means for mega-earners most of their income is exempt from payroll taxes. Corporate taxes were at record low levels in 2016 at only nine percent of federal tax receipts. There was no shortage of ways to ease the tax burden on the middle class without providing the rich with a windfall, if that’s what the GOP and the president wanted.
Were There Much Better Ways to Stimulate Economic Growth and Increase Wages?
Failure to bolster demand by sharing profits with workers is the most likely reason for low investment. Worker’s wages have been essentially flat for decades.
If the goal was to increase wages, the tax plan could have just given wage earners a larger share of the tax breaks directly, reduce their payroll taxes, or invest in rebuilding the US. Growth strategies which aim at increasing demand or direct investment result in much higher growth than trickle down measures.
Particularly galling is the lost opportunity to re-build America. If we are going to borrow over a $1 trillion, wouldn’t it have been fairer and much more productive to invest it in fixing our roads, bridges, ports, fire and flood protection, airports, schools, and power grids instead of giving an unneeded windfall to the rich? In fact, the GOP could have chosen to invest in infrastructure without increasing the debt by just closing the corporate loopholes agreed to in the bill and not giving a whopping tax cut to the richest Americans. The economic payoff from building infrastructure is multiples higher than tax cuts skewed to the ultra-wealthy and corporations, with the added benefit of creating jobs and improving the health and safety of the nation. Unfortunately, any proposed GOP/Trump infrastructure plan for 2018 will be woefully short of funds because of the heavy debt borrowing to finance tax cuts for the rich.
Were Corporations Taxes Higher Than Other Countries?
The GOP’s other argument made is that the US corporate tax rate of 35% was among the highest in the world and non-competitive. They contend that lowering it to 21% will attract investment from foreign companies or US companies threatening to leave. Actually, because of loopholes, our effective tax rate was 23%–already below the world average and thus competitive. Since most loopholes in the GOP tax bill weren’t changed, effective tax rates will plunge to 9% according to a UPenn-Wharton estimate, basically giving corporations a free ride. Since corporate taxes as a share of total taxes are already at historic lows, further lowering of their rates shifts that much more of the tax burden to the middle and working classes. Furthermore,, even if foreign corporations invest here, why would we think that these companies would act differently than domestic companies in allocating a decent share of profits to workers?
How Much Do Foreigners Benefit?
Corporate shareholders, most of them wealthy will do very well under this GOP/Trump tax bill. Unfortunately, a third of them are foreigners, mainly millionaires and billionaires, who according to the Tax Policy Center are slated to receive nearly $50 billion in 2019. That windfall is $5 billion more than the combined benefits to the middle and working class (the bottom 80% of families) in all the states that voted for President Trump. So the effect of the GOP tax plan is to borrow from the future and tax the middle and working classes in order to ship large amounts of cash out of the country. Make America Great, indeed?
Is This the Best Time for Massive Tax Cuts?
Finally, with unemployment low and a potential recession on the horizon this is not the time to add to the debt and disarm our ability to fight a downturn when it arrives.
LETTER TO CENTER FOR AMERICAN PROGRESS
Jacob, congrats on your new position. I follow your twitter account every day. I do have one important caveat to what you all are saying about the GOP/Trump tax cuts. Most of the current arguments against the bill characterize it as a $1.5 trillion tax cut. The tax bill is a much more massive shift than $1.5 trillion–that’s just what is being borrowed (and more recent government analysis not pegs that number at $2.3 trillion) and doesn’t include the net taxes of approximately $1 trillion on middle and working class families in the bill. These taxes are necessary to pay for the approximately $2.8 trillion which under EPI’s analysis is what the top 1% and corporations receive over the decade.
The argument that the country borrowed $1.5 trillion (now 50% more) which primarily benefits the wealthy—is not a bad argument and is somewhat resonating with the public. A more powerful indictment of the bill is that in addition to increasing the debt by $1.5 trillion to pay for a huge unneeded tax cut for the wealthiest families and corporations, the remaining 99% in the aggregate not only eventually lose any initial tax relief but are then forced to kick in another $1 trillion by having their taxes raised to pay for that windfall. Add to that point, the trillions of dollars in Medicaid, Medicare, Social Security, infrastructure, scientific and medical research, and support programs cuts proposed in Trump’s budget and by Republican leadership to offset the borrowing and you have a 1, 2, 3 knockout punch.
Below are emails to Josh Bivens at EPI and your CAP teammate, Seth Hanlon, which show the analysis. If I’m right someone should be broadcasting this argument because we are missing a very persuasive point. If I’m wrong, please let me know where. Either way, I’d respectfully request a response. I have also included some suggested talking points. Bill Honig
From: Bill Honig [mailto:billhonig@comcast.net]
Sent: Wednesday, February 28, 2018 9:13 AM
To: ‘lbivens@epi.org’
Subject: FW: Demand a budget that supports working families and older Americans
Josh, I am a big fan of your work at EPI and the institute in general. I do have one issue. Below you write: The reason that Donald Trump is going back on a key campaign promise―to protect Social Security, Medicare and Medicaid―is that he wants to pay for his $1.5 trillion tax handout, which mostly benefits the richest 1% and wealthy corporations. The tax bill is a much more massive shift than $1.5 trillion–that’s just what is being borrowed and doesn’t include the net taxes of approximately $1 trillion on middle and working class families in the bill which are necessary to pay for the approximately $2.8 trillion which under EPI’s analysis is what the top 1% and corporations receive over the decade.
Over the next decade the bill cuts taxes by $3.9 trillion, $2.8 of it going to the wealthiest 1% and corporations paid for by borrowing $1.5 trillion and raising $1 trillion of taxes from working and middle class families. According to the CBO there are $5.2 trillion cuts during the next decade. Corporate loophole closings of $1.3 leaves a net $3.9 trillion of tax relief. Extrapolating from your institutes findings approximately $2.8 trillion of that is split between the top 1% and corporations (initially 60% goes to the top 1% and by the end of the decade 83% is for our wealthiest families and corporations for an average of 71%). That leaves $1.1 trillion for individual cuts.
The $3.9 trillion in total cuts is paid for, according to the CBO, by borrowing $1.5 trillion, raising individual taxes or eliminating individual deductions for $2.2 trillion (by eliminating the personal deduction, changing the inflation rate, eliminating state and local tax deduction—mainly hitting upper-middle class voters–, and eliminating miscellaneous deductions) and cutting Obamacare by $314 billion. If your subtract the $1.1 trillion cuts going to individuals from their increased taxes, that leaves a net increase in taxes to individuals (the 99%) of $1 trillion over the decade. In short, to pay for most of the $2.8 trillion tax cuts to our wealthiest families and corporations the country needs to borrow a trillion and a half dollars and tax the 99% of families another trillion.
The use of the $1.5 trillion which represents only the borrowing part of the bill to describe the magnitude of the cuts is highly misleading and masks the much more extensive cuts and the large shift in who pays. It should be obvious that the using the $1.5 trillion borrowing is not enough to pay for the $2.8 trillion cuts for the wealthiest 1% and necessitates an additional net $1 trillion subsidies over the decade from those lower on the income spectrum. This analysis does not include the additional cuts of trillions of dollars in Medicaid, Medicare, Social Security, infrastructure, scientific and medical research, and support programs proposed in Trump’s budget and by Republican leadership which the EPI newsletter chronicles.
Most of the present arguments against the GOP/Trump tax bill, including yours, characterize it as a $1.5 trillion tax cut which was borrowed and which primarily benefits the wealthy—not a bad argument. A more powerful indictment of the bill is that in addition to increasing the debt by $1.5 trillion to pay for a huge unneeded tax cut for the wealthiest families and corporations, the remaining 99% in the aggregate not only eventually lose any initial tax relief but are then forced to kick in another $1 trillion by having their taxes raised to pay for that windfall. Many Democratic congressional candidates I’ve talked to agree that the second is a more powerful argument and conveys the true disastrous effect of the tax bill.
Below is an email to Seth Hanlon of the Center for American Progress as part of an on-going discussion on this issue. Somebody has to step up and clarify this point. I’ve also attached and included a set of talking points which we are working on for candidates and would appreciate you feedback on their accuracy. If you have some time to call, please contact me at 415-383-8680. I also left a phone message for you. Bill Honig
Sent: Wednesday, February 21, 2018 8:38 PM
To: shanlon@americanprogress.org
Cc: Rebecca Vallas (rvallas@americanprogress.org); michael@thehubproject.org; chad@indivisible.org; Jason Bresler (Bresler@DCCC.ORG); Lyron Blum-Evitts (Blum-Evitts@dccc.org); lily.batchelder@nyu.edu
Subject: Rationale for not using the figure of $1.5 trillion for the cost of the tax cut
Why the GOP/Trump tax should not be described as a $1.5 trillion tax cut.
Seth, you are right that some of the tax cuts are neutralized by offsetting tax increases. But the net amount of $1.5 trillion for the decade which people are using which is equal to what is borrowed will not by itself pay for the large cuts to the extremely wealthy and thus will require an additional net $1 trillion subsidies from those lower on the income spectrum.
Using CBO figures there are $5.2 trillion of cuts for the next decade. In the corporate sector there is an off-setting $1.3 trillion of tax increases and loophole closings etc. so that leaves $3.9 trillion of cuts. It is legitimate to use the total net corporate figure because, even though some companies benefit and some lose, the corporate sector’s relief is lowered by $1.3 trillion. It is not fair to use the same logic for the individual sector because the benefits for individuals are highly skewed to rich families while the tax increases primarily hit the middle and working classes. This results in a pronounced shift of the tax burden from lower and middle income families to pay for the large amount of high income and corporate cuts which are substantially more than the $1.5 being borrowed.
Here is how I figured it. CBO figures state that the $3.9 trillion dollars in cuts are paid for by borrowing $1.5 trillion, raising individual taxes or eliminating individual deductions for $2.2 trillion (by eliminating the personal deduction, changing the inflation rate, eliminating state and local tax deduction—mainly hitting upper-middle class voters–, and eliminating miscellaneous deductions) and cutting Obamacare by $314 billion.
EPI finds that initially 60% of the cuts go to the top 1% (individual and corporate ownership) which grows to 83% by the end of a decade. For purposes of argument let’s assume that we average those percentages so that over the decade 71% of the relief goes to the top wealthy families. 71% of $3.9 trillion is about $2.8 trillion for the top families and corporations (the remaining 99% of families receive $1.1 trillion) So, even after borrowing $1.5 trillion by increasing the debt to pay for a part of the $2.8 trillion provided to the wealthy, that still leaves a shortfall of $1.3 trillion which ends up being almost all paid for by the tax increases on working and middle class families. While $1.1 trillion of the $2.1 trillion tax increases on individuals can be legitimately netted out because that is the amount of cuts going to individuals ($3.9T total cuts minus $2.8 to the 1%), the remaining $1 trillion of tax increases is used to pay for most of the outstanding amount of the super-wealthy’s large tax cuts. This means that during the decade any tax relief for the 99% gets wiped out by these tax increases and in aggregate those families are in the hole for an additional $1 trillion dollars.
Since there were some assumptions, the actual numbers may be off a little but Isn’t this analysis substantially correct? Most of the present arguments against the GOP/Trump tax bill characterize it as a $1.5 trillion tax cut which was borrowed and which primarily benefits the wealthy—not a bad argument. A more powerful indictment of the bill is that in addition to increasing the debt by $1.5 trillion to pay for a huge unneeded tax cut for the wealthiest families and corporations, the remaining 99% in the aggregate not only eventually lose any initial tax relief but are then forced to kick in another $1 trillion by having their taxes raised to pay for that windfall.
GOP/Trump Bill Talking Points
The GOP/Trump tax bill is a ten-year $3.9 trillion tax cut which overwhelmingly benefits the top 1% of families and corporations. It is paid for by borrowing $1.5 trillion indebting your children, raising taxes on middle and working class families by $2.1 trillion and cutting medical services under Obamacare by $314 billion.
(The net tax increase to the bottom 99% of families is about $1 trillion over the decade after deducting what the EPI estimates is $1.1 trillion in tax cuts to those families during the same period—the top 1% get $2.8 trillion in tax cuts. Of course, some families in the 99% get more relief and some get more taxes. At the end of the decade the individual relief is phased out, the corporate cuts are permanent and most of the tax increases on individuals stay.)
Republicans argue that theirs is a “middle class” tax bill. Don’t believe it. For every dollar you get from the GOP/Trump tax bill, the super-wealthy (the top 1%) initially get $150 which grows to over $500 after a decade while over half of everyone else’s taxes go up. That’s not fair. It’s not right. Or to put it another way, the average tax cut for the top 1% is $150,000, the average cut for everyone else is around $900 skewed to richer families so that a family making between $40-50,000 receives just over $400.
Those that passed the tax bill made a choice to provide almost all the tax breaks to the super-wealthy. They could have cut your payroll taxes, not raised taxes on the middle and working classes, or invested in rebuilding America creating jobs, improving safety, and producing economic growth. Eliminating the tax breaks for the top 1% would have doubled your tax cuts.
The GOP/Trump tax cut bill is a much more massive shift of the tax burden from the wealthy to the middle-class and low income families than reported–essentially borrowing from the future, taxing the working classes, and cutting needed services to finance an unnecessary tax cut for the wealthy who are already living high on the hog and receiving an unprecedented share of post-tax income. Republicans in congress are already planning to drastically cut Medicaid, Medicare, and Social Security, medical and support services, rebuilding roads and bridges,and medical and scientific research to pay for their giveaway to the rich.
Donald Trump’s budget would cut more than a trillion dollars from Social Security, Medicare and Medicaid, and trillions more from education, food stamps, infrastructure spending and more. Tell Congress to reject a budget that hurts working families just to pay for tax cuts for the rich and corporations.
Supporters of the tax bill’s huge windfall to corporations claimed that the companies would share with their workers. They haven’t. Estimates are that so far $6 billion has gone to workers (mostly in the form on one-time bonuses which often replace normal wage increases) and $171 billion has gone to shareholders and buybacks—a mere 3% for workers and 97% for stockholders and executives. Two-thirds of stocks are owned by the top 1%; and 35% of shareholders are foreigners.
Don’t’ fall for the transparent “bait and switch” of the GOP/Trump tax bill. They threw you a bone of some initial tax cuts as a distraction to mask the huge windfall going to the ultra-wealthy and corporations. After ten years your cuts disappear, most of you will experience tax increases, while the corporate tax breaks are permanent.
Do the wealthy really need such a large tax break so that they can buy another mansion, a bigger yacht or jet, throw another party, buy another designer outfit, or pad their bank accounts while tens of millions of families living paycheck to paycheck receive a pittance or get taxed? Republican mega-rich donors must think so because they drove the whole perverted process by which the tax bill was passed.
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