Column: A guide to the billions in giveaways to special interests buried in the Senate tax bill
If anyone still doubted that the devil does his best work behind closed doors, the tax measure crafted almost entirely in secret by Senate Republicans last week should prove the point.
Some of the handouts to the wealthy are so obscure that it’s a safe bet that the 51 Republicans who voted for the bill have no idea that they’re in the measure. Others are painfully obvious. With the assistance of such assiduous Sherlocks as Kevin Drum and Edward Kleinbard, we’ll lay out some of the damage. But make no mistake: The 479-page Senate bill has so many nooks, crannies, and secret corridors that experts will be excavating it for weeks.
What’s beyond dispute is that the bill incorporates immense benefits for the wealthy, almost entirely at the expense of the middle- and working class; that’s the conclusion of conservative and progressive analysts alike, as well as government agencies such as the Congressional Budget Office. In the first year after enactment, almost every income stratum would get some tax cut; but by 2027, almost all the benefits would go to the top 1%, especially the top 0.1%. Some low-income households would see a tax increase.
Here are some of the key Easter eggs.
My pockets have been picked, and so have yours, by this theft of our revenues.
— Edward Kleinbard, USC
Oil & gas on a roll: Few industries would do as well out of the Senate bill as oil and gas producers. They benefit in two ways. First, the measure opens a portion of the Alaska National Wildlife Refuge, or ANWR, to drilling. Oil production in the pristine wildlife refuge long has been near the top of the industry’s wish list; it’s telling that this giveaway has been buried in a tax bill, which otherwise has nothing to do — and should have nothing to do — with environmental regulation. One saving grace is that drilling in ANWR is opposed by a sizable clique of Republicans in the House, which left ANWR drilling out of its tax bill. That means it could be dropped in conference committee negotiations before a final measure is readied for floor votes.
The industry also would pocket millions from a provision quietly inserted into the Senate bill by Sen. John Cornyn (R-Texas), to give an important tax break to investors in publicly traded master limited partnerships. These are investment structures widely used by businesses such as oil and gas pipelines — “a point,” Kleinbard writes, “that just might have been relevant to the senator from Texas.” The bill extends to master limited partnerships the 23% discount on tax rates awarded to “pass-through” businesses, which are those that are taxed at individual rates rather than the corporate rate.
In a commentary published in the Hill, Kleinbard, a former chief of staff to the congressional Joint Committee on Taxation who is now teaching tax law at USC, aptly asks: “How many senators knew that this provision was in the bill when they voted for it that night? Or knew what a master limited partnership even was? My pockets have been picked, and so have yours, by this theft of our revenues to line the pockets of existing investors in these arcane instruments.”
Public education gets throttled; private schools get a handout: Like the House tax cut measure, the Senate bill sharply reduces the deductibility of state and local taxes. In both measures, only property taxes are deductible, and only up to $10,000 a year. That’s likely to hurt public schools in states that partially fund K-12 education via income taxes, such as California.
But the Senate bill won’t hurt private K-12 schools. That’s because Sen. Ted Cruz (R-Texas) inserted a provision allowing tax-advantage 529 plans, which were designed to help families pay college and university tuition and fees, to be used for tuition and expenses at K-12 private schools, including religious schools. This is another overt giveaway to the wealthy, whose children increasingly are overrepresented in private school enrollments. Investment earnings on money placed in 529 plans currently are exempt from federal income tax if the funds are used to pay higher education expenses.
According to a study published this summer by researchers at Harvard and Stanford, enrollment rates of children from high-income families remained stable from 1968 to 2013 at 18% to 16%, while those of kids from middle- and low-income families dropped sharply, to about 8% from about 12% among families at the 50th percentile of income, and to less than 5% from 7% among families at the 20th percentile. The discrepancy was even larger among urban families.
Inherited wealth still rules: The Senate bill, like the House version, would double the exemption on the estate tax to $22.4 million (for couples), while preserving the tax rate of 40% on estates above that threshold. This may be the most glaring handout to the rich in the legislation. By definition, only families with inheritances over $11.2 million would see any benefit from the change. Don’t be fooled by GOP claims that the provision is designed to rescue family farms and small family businesses — those enterprises account for a minuscule number of estate tax payers. The estate tax affects only a few thousand people at most, all of them multimillionaires with an average nest egg of more than $30 million. Among the emblematic beneficiaries would be Donald Trump Jr. and his siblings Ivanka and Eric.
Social Security and Medicare go on the chopping block: As we explained last week, the tax cuts in the Senate and House bills would so increase the federal deficit that, by law, Congress would have no choice but to take a meat-ax to other spending. Sen. Marco Rubio (R-Fla.) gave the game away by starting the campaign to cut Social Security and Medicare, on which more than 60 million Americans depend for retirement income and healthcare.
“We have to generate economic growth which generates revenue, while reducing spending,” Rubio said at a Washington appearance. “That will mean instituting structural changes to Social Security and Medicare for the future.” As anyone knows who has followed the debate on the programs over the decades, when Republicans talk about “structural changes” to Social Security and Medicare, they’re talking exclusively about cutting benefits.
Contempt for the less fortunate: The subtext of GOP discussion about the necessity of granting an immense tax cut to the wealthy is disdain for Americans struggling to make ends meet. Sen. Charles Grassley (R-Iowa) stepped into this particular cow pie over the weekend when the defended the cut in the estate tax to his home-state Des Moines Register. “I think not having the estate tax recognizes the people that are investing,” he said, “as opposed to those that are just spending every darn penny they have, whether it’s on booze or women or movies.”
Grassley later claimed that his statement had been taken out of context, but in some ways the context was worse. “The question is one of basic fairness, and working to create a tax code that doesn’t penalize frugality, saving and investment,” he said. “That’s as true for family farmers who have to break up their operations to pay the IRS following the death of a loved one as it is for parents saving for their children’s college education or working families investing and saving for their retirement.”
As the Des Moines Register pointed out, however, Grassley was defending a myth. A 2015 study by the Congressional Research Service determined that nationally, only about 65 farm estates per year, or 1.8% of taxable estates, would be subject to the estate tax, and fewer than half would actually have to pay any tax and only about 14 farms per year would have any difficulty raising the money to do so.
Then there’s Sen. Orrin Hatch (R-Utah) who claims credit for inventing the Children’s Health Insurance Program but hasn’t managed to dredge up the $15 billion a year needed to reauthorize the program, which provides coverage for 9 million children and pregnant women and expired without funding Sept. 30.
“The reason CHIP’s having trouble is because we don’t have money anymore,”Hatch said during a debate on the Senate floor Thursday — even as he was preparing to vote on a tax cut for the rich estimated to cost $1.5 trillion over 10 years. Then he blamed “a liberal philosophy” for creating a population of layabout. “I have a rough time wanting to spend billions and billions and trillions of dollars to help people who won’t help themselves, won’t lift a finger and expect the federal government to do everything,” he said.
8:18 p.m., Dec. 5: This post has been updated to clarify that investment earnings in 529 plans are exempt from tax if spent on higher education, but the contributions are not tax-deductible.