This is the fourth installment of the ‘Things you should know’ series by contributor Indy V. Sybull. It is written to be short, in-depth, and irreverent, and no offense is intended. Enjoy!
Ah, taxes! One of life’s two great inevitabilities, and cutting taxes, especially to the upper of the upper crust, is one of the modern Republican Party’s raisons d’etre. On November 2 , 2017, after losing the fight to repeal Obamacare and with the Muslim Ban 3.0 stuck in the courts, the Republicans introduced their tax plan. Two weeks later, the House of Representatives (from where all revenue bills must originate) approved on an almost straight party line H.R. 1: “The Tax Cuts and Jobs Act”.
This little package of goodies for the one percent claims it will kickstart the economy by letting the millionaires and billionaires have more money to invest and hire more workers. Lower corporate rates would bring in the billions of dollars parked offshore, and the middle class will get a tax cut. But what about the deficit, Mr. Ryan and friends? Glad you asked, they’d say. With more money flowing around, tax revenues would flow to the Treasury like the mighty Mississippi.
Does this Republican Nirvana adds up? Does lowering taxes on the richest of the rich really mean that they’ll use that money to invest and hire more people? How about those pesky social programs? Well sit back, dear readers and buckle up – this primer is going to be a bumpy ride.
The Low Points of the Trump Tax Scam
Your friendly correspondent does not like to resort to ad hominem attacks, but this time Trump really deserves to be pilloried, and thus I hereby declare that H.R. 1– “The Tax Cuts and Jobs Act” of 2017– shall be christened the Trump Tax Scam. There are simply too many things to dislike about this badly disguised wolf in sheep’s clothing, so
we will have to settle on pointing out the worst of the worst.
- The Tax Scam Abolishes the Alternative Minimum Tax. What is that, you ask yourself. Back in the 60’s Congress was noticing that the very rich were using every huge amounts of tax deductions to effectively paying nothing in taxes. So an Alternative Minimum Tax was adopted to make sure the wealthy paid their fair share. Although he has not released his own taxes, we know from what we were able to piece together from his 1979 tax returns that Donald J. Trump would greatly benefit with the abolition of the Alternative Minimum Tax. It goes without saying that this money adds up. The nonpartisan Tax Policy Center estimates that the Alternative Minimum Tax will account for over $350 billion in revenue from 2017 to 2025 – money that will either add to the deficit or come out as deep cuts to the federal budget.
- Raises the standard deduction, but eliminates the itemized deductions. The Trump Tax Scam raises the standard deduction from 6,350 to 12,000 for a single filer. Nice, right? Wrong! Most itemized deductions are gone. For example those students repaying their loans cannot claim a deduction on interest paid in their taxes. Medical expense deductions? Gone. The Child Tax Credit? Buh bye! Deductions for income earned as a scholarship for graduate students? See ya, I sure don’t wanna be ya. Teachers buying school supplies and deduct them? Don’t even think about it, you moocher! So yeah, thank you for the higher standard deduction, Mr. Trump. But like his University and charities, when you look closer, it is really a shell game that ends up hurting those he ostensibly claims he is helping.
- Eliminates the State and Local Tax Deduction. This is where the naked pettiness of the Tax Scam comes to light. Currently, you can deduct your state and local taxes from your federal income taxes. Under the Tax Scam, this is gone except in the case of some property taxes. Of the 18 states where between 30% and 50% of the taxpayers claim the state and local tax exemption, fifteen went for Hillary Clinton. This means that these states are being penalized for not being obsequious enough to President Trump.Many on the right claim that this is a way to reduce big government in the states. It is rich though, that the defenders of states’ rights are forcing states to adopt policies they think best. One of the arguments that the states that benefit are bloated bureaucracies is misleading as most of these states show better records in social indicators, like health and education.
- Reduces Business Taxes. This is probably the strongest argument in favor of the Trump Tax Scam. The United States has one of the highest business tax rates in the world. However, what Republicans fail to point out, is that there are a myriad of deductions that greatly reduce the effective rate from the 35% that businesses are ostensibly charged.Of course, there is more than meets the eye in the Trump Tax Scam. For example capital expenditures can be written off for the next five years, meaning a lower tax rate for capital intensive companies like in the tech or pharmaceutical sectors. Another set of goodies for the barons of industry is making corporate tax rates territorial.
- The Territorial Business Tax. This low point is so low, it needs its own special section. What is a territorial tax? A territorial tax allows companies to only be taxed on profits made in the United States. This means that any profits made outside the United States are tax free. Companies argue that they’re being taxed offshore, so why pay taxes on their profits once they enter the United States.The federal tax system already provides enormous tax breaks for offshore profits. The biggest is the rule allowing American corporations to defer paying U.S. taxes on most offshore profits until they officially bring those profits to the United States, which in some cases does not happen for years, if ever. A territorial system would provide an even greater break because corporations would never owe U.S. taxes on these profits.
- Repeals the Estate Tax. You have to give it to Republicans. When it comes to branding, they’re world champs. The Estate Tax has been rebranded as the “death tax”, and despite the fact that the wealthiest of the wealthy are the only ones who pay estate taxes, Republicans have made it deeply popular to get rid of it.On September 28, 2017 President Trump, went to Indianapolis to promote his Tax Scam. In a tirade that had as much similarity with the truth as between your correspondent and wrestler-slash-actor John Cena, Trump claimed that repealing the death tax would protect millions of small businesses and farms from the IRS, alleging that farms and small businesses will be saved from having to hold fire sales to pay the estate tax once the owner died. The facts are, according to the Tax Policy Center, that in 2017 only 80 farms and small, closely held businesses would have to pay the estate tax– many times less than the millions that Trump claimed.Finally, repealing the estate tax would, according to The Center for American Progress, reduce the incentive of the wealthy to bequeath their fortunes to charity. The Congressional Budget Office estimates that the repeal of the estate tax would reduce charitable giving by estates between 16% and 28%.
- Repeals Obamacare. Here we go again, America! The Tax Scam is another attempt to get rid of Obamacare. I’m telling you, if Trump and his cronies spent 1/10th of the effort trying to fix the problems with the Affordable Care Act instead of trying to kill it, we would have affordable healthcare for every single American man, woman, and child! The Senate version of the Trump tax scam tacked removing the Obamacare individual mandate, basically killing the Affordable Care Act. One of the Senators who blocked Obamacare repeal, Alaska’s Lisa Murkowski has said it’s all right with her – putting the Affordable Care Act in a battle of life and death, yet again.
Does Tax Relief for the Wealthy Really Help the Economy?
One of the biggest selling points that proponents of the Trump Tax Plan is that lowering taxes for the wealthy will free capital that will mean more investment and more jobs. The facts are that this is mostly wishful thinking. When Kansas Governor Sam Brownback slashed the tax rates for the wealthy and corporations, instead of providing a shot of adrenaline to heart of the Kansas economy, it left huge budget deficits and the Kansas education system woefully underfunded. Instead of creating millions of jobs, Kansas economic growth and small business creation has lagged behind the national average.
Economic data from the 1990’s and 2000’s have shown that there is no correlation between lower taxes and economic growth. One of the strongest growth spurts in the American economy was during the Clinton Administration after he increased taxes in 1993. The American job market grew at an average of 2.4% between 1994 and 2000. When George W. Bush reduced taxes to the wealthy and capital gains, the US job growth went down to an anemic 0.6% between 2001 and 2007. Obama raised taxes to the wealthy in 2013, and the US job market once again grew at 2.2% in the two years after enacting those increases.
How about reducing taxes to corporations? If the Republican plan is adopted even with the 20% business tax rate, the Tax Scam will not create jobs. Instead, it may actually kill jobs, because by only taxing profits in the United States, it means that it will be worth for Apple to only build its iPhones in Shanghai and handle its customer service only in Dublin, Johannesburg, Manila, and Mumbai as any profits made offshore will not be taxed.
The final point is that instead of growing the pie, tax cuts for the wealthy have to be paid somehow as the deficit math is becoming more dire. The targets: Medicaid, Medicaid, Social Security, food stamps, education, and the myriad of programs that keep low-income families from complete destitution. So the wealthy get a nice Christmas gift, while the poor get a lump of coal mined by those newly-employed West Virginia coal miners.
How does the Trump Tax Plan affect the Middle Class?
Trump Tax Scam will give the middle class rotten lemons. The first victim is Medicare, which will get an immediate $25 billion dollar cut in 2018 if the Tax Scam is adopted. Add to that the increase in premiums on healthcare, and the picture gets uglier. With the destruction of the individual mandate, what made the Affordable Care Act “affordable”, spreading the risk by having healthy people that require few health services pay in to offset the more expensive, sicker ones is gone. With few healthy people paying into, health insurance companies would have to raise rates on employer-provided plans and unsubsidized health plans in the individual, forcing a death spiral and taking a larger bite of middle class paychecks.
Next on the chopping block, middle class families. The standard deduction is increased, but the Child Tax Credit is cut over time. By tying it to a slower rate of adjustment to inflation, the Child Tax Credit gets smaller as time goes by. A smaller tax credit, added with eliminating the tax deduction for businesses that provide employer-sponsored child care– a program that candidate Trump and First Daughter Ivanka had pledged to expand– means that middle class families will be facing higher child rearing costs.
But wait, there’s more. There’s nothing in the Tax Scam to expand the Child and Dependent Care Tax Credit. While working families have to make do with a credit of up to $1,050 for a single child and $2,100 for two or more children, average childcare costs are $10,000 a year. And there are still millions of families living paycheck to paycheck who will get nothing under the Tax Scam. This coming from the party of “family values.”
Next up in our Tax Scam House of Horrors, higher education, the path for millions of Americans to a stable middle class lifestyle. The code word here is simplification, which means cutting money from middle class students and giving it to millionaires and billionaires. First on the chopping block are tax credits. The Trump Tax Scam cuts the American Opportunity Tax Credit (AOTC) and the Lifetime Opportunity Tax Credit. Those two credits provide relief to students in qualifying undergraduate and graduate programs respectively. The House tax plan will shut out part time students from the AOTC and slash the Lifetime Opportunity Tax Credit in half the first year, eliminating it completely after the second.
Next up, deductions and exclusions. The House plan eliminates the $2,500 deduction in student loan interest payments, the $5,250 deduction in education benefits paid by employers, and the income reduction to tuition offered by institutions to graduate students and their families that are university employees. So graduate students who work for their university will now be taxed on income received from their institution as offsets against their tuition bill and cannot claim their student loan interest payments in their taxes. For example, a graduate student making $27,000 a year, currently pays nothing. Under the Tax Scam, that poor graduate student better buy ramen soup in bulk as he will owe Uncle Sam $1,476. Trump really meant it when he said he loved the uneducated.
Finally, and just because if we continue it will make this article six times as large as it currently is, the Trump Tax Scam will slash a tax benefit that allows families to deduct high medical expenses from income. So apart from health care premium hikes with the destruction of the individual mandates, we now get the double whammy that a family with a very sick member cannot claim a deduction on their income for costly medical treatments. Currently, taxpayers can deduct medical expenses that exceed 10% of their Adjusted Gross Income. This benefit helps taxpayers that undergo expensive surgeries, have steep medical expenses due to chronic conditions or disabilities, or must pay for treatments that are not completely covered by their healthcare plan. Under the House tax plan, this deduction is gone, meaning that a married couple with two children making $95,000 a year, paying for a $46,000 specialized procedure would currently owe Uncle Sam $1,833. Under the Trump Tax Scam, they would instead be owing $4,672, more than double.
The Indy V. Sybull Take:
What’s not to hate about the Trump Tax Scam? The top 1% get a nice fat Christmas gift from Santa Trump. A married couple making $1.3 million in adjusted income, $1 million of it passive passthrough income (meaning that it is income derived as a partnership or a small corporation) currently would owe the IRS $423,463. Under the Trump Tax Scam, that same couple will $287,975, a nice reduction of over $135,000 in their taxes. Meanwhile, a married couple with three children making $110,000 with itemized deductions currently pay $5,085 to the IRS. Under the Trump Tax Scam, would pay $4,872 (a paltry savings of $213). After 2023 that same family would get a tax hike of $135, as it would pay $5,220 in taxes.
There is one big elephant in the room that few have ignored, the deficit and debt. At 108% of the GDP, the amount of debt this country owes is more than what it produces in a year. This is unsustainable and the Trump Tax Scam adds an additional $10 trillion in debt. A back of an envelope estimate that assumes US economic growth averaging the current 2.4% during the next ten years, would increase the debt to 128% of GDP. In other words, the advocates of fiscal responsibility have engaged in an apotheosis of debt spending to benefit their millionaire and billionaire benefactors, including the resident of the White House and his Cabinet Secretaries.
The Trump Tax Scam will probably prove unsustainable and the mismanaged United States economy might be headed for another crash. We have not seen this boom and bust cycle since the before the Great Depression. Although this flower-smelling bull has been poking fun at the stupidity of these tax proposals, this is no laughing matter. A debt-fueled crash might be harder to recover from, as there will be few macroeconomic and monetary tools available to fix the problem. This is the ticking time bomb lurking underneath Trump’s Tax Scam.
The opinions expressed in the section above are my own and do not reflect the policies or views of Indivisible, Indivisible Baltimore, or BMore Indivisible.