The Republican tax plan is one of the worst pieces of legislation to ever pass through Washington. It is an overly complex bill that was rushed through Congress with little transparency. Few members of Congress have read the bill, and over the next few months, we will most certainly learn of typical congressional pork, pet projects and goodies that were inserted by individual members of Congress that benefit themselves and their top donors.
Comprehensive tax reform often results in clear winners and losers. However, it is hard to imagine a more blatant example of a law that is so clearly tilted toward the rich and powerful in the U.S. Virtually every non-partisan analysis of the impacts of the tax plan show it to be disproportionately favorable for large corporations, LLCs, hedge funds and the wealthiest Americans at the expense of lower and middle class citizens. In fact, the richest 1 percent of the population receives more than 50 percent of the benefits of the tax changes. Given that this is the only major legislative achievement this year, President Donald Trump and the Republicans must believe that the biggest problem facing Americans is that the rich are not rich enough.
Under the new law, the corporate tax rate of 35 percent is slashed to 21 percent, while most individuals see their income taxes cut 1-2 percent. Interestingly, the corporate tax cut is permanent, but the individual cuts expire in 2026. Making things tougher for individuals is that only $10,000 of state and local taxes can now be deducted. So the reality is that if you own a home and live in a state that has a state income tax, you are unlikely to receive a tax cut and may very well see your taxes increase.
The estate tax threshold is increased to $22 million, so rich families can keep more of their money. The carried interest benefit, which helps hedge fund managers pay personal income taxes at 20 percent while the rest of us pay far more, remains in place; in fact, this benefit is now extended to owners of all “pass through” businesses such as LLCs. President Trump’s various enterprises are set up as LLCs, so the Trump family does very well under the new tax plan. Finally, after failing to repeal and replace Obamacare, the Republicans eliminated the individual mandate, which will result in 13 million Americans losing health coverage. So we are seeing the first step in the repeal, but nothing to replace it. As fewer pay into the system, it will be left to those with coverage to pay the difference, which will result in rapidly rising increases in premiums.
The Republican tax plan is a raw deal for most Americans. It gives even more money to wealthy individuals and corporations that already have record profits in the misguided hope that some of the money will trickle down to workers and stimulate the economy. The plan is unlikely to succeed given how capitalism and basic economics work. However, it will add $1.5 trillion to the budget deficit over the next 10 years. This has led House Speaker Paul Ryan to openly admit that next year changes (i.e. cuts) will be made to Social Security and Medicare to try to address the rising deficits.
If the goal of the tax cuts were to help grow the middle class and address issues of income inequality, a far fairer and simpler tax plan could have been written. Congress could have cut FICA employment taxes that all workers pay to cover Social Security and Medicare from the current 7.65 percent to 4.65 percent. That would immediately give every worker a 3 percent raise. They could have then cut the corporate tax rate from 35 percent to 20 percent, but required all corporations that make more than $1 million in profit per year to pay 3 or 4 percent higher FICA taxes for employees. This would effectively force highly profitable firms to pay employees more, but it would have been more than paid for by the cut in the corporate tax rate. The bill would have been a win-win for businesses and workers and it would have been wildly popular. In addition, it could have been written in less than 10 pages so that every member of Congress could understand what they are actually voting on. Instead, we will be dealing with the monstrosity the Republicans devised for years to come.