From tuition to inheritance, tax breaks under GOP plan favor the kids of wealthy

WASHINGTON — Life may be about to get easier for people with rich parents. They can thank the Republicans’ tax plans.

Part of their prep school tuition could be shielded from taxes. A larger chunk of their inheritances would be free of estate tax. Family-owned businesses they have a stake in could be taxed at a discount. Stock portfolios gifted to them by their parents may keep climbing because of lower corporate tax rates. And their parents could enjoy a bigger child tax credit than poor working families would.

All told, such perks could further widen America’s increased wealth gap.

“It’s a pretty clear case to make that this helps wealthy children because they’re the children of shareholders,” said Kimberly Clausing, an economics professor at Reed College in Oregon who has worked on research with the left-leaning Washington Center on Equitable Growth.

Government and outside analyses of the House and Senate tax bills show that the benefits would flow disproportionately to the wealthy. Aides to President Donald Trump argue that lower tax rates for companies and the wealthy would trickle into substantial pay raises for middle-income workers. In fact, Trump told middle class families at the White House on Tuesday that the tax cuts would leave them flush with cash.

“You’re going to be making so much money (you’re) not going to know what to do with it, perhaps, I hope,” the president said.

Kevin Hassett, chairman of Trump’s Council of Economic Advisers, argues that the tax cuts could, in fact, reduce income inequality. As Hassett sees it, the recovery from the 2008 financial crisis is at a mature stage, with unemployment low and wages likely to pick up — a process that he says the corporate tax cuts can accelerate.

“It’s precisely now that we buy insurance for that wage growth with a big tax reform,” Hassett said.

Yet most mainstream economists and Democratic lawmakers have said the top 1 percent of earners are unlikely to spread around much of their expected windfalls. And the Senate and House bills could worsen wealth inequality, said Daniel Hemel, a law professor at the University of Chicago who was a visiting counsel at Congress’ nonpartisan Joint Committee on Taxation.

Most U.S. households would pay lower taxes over the next eight years, a benefit for the middle class. But the gap between the rich and everyone else could widen because the biggest tax cuts would still go to the wealthy.

And if the individual tax cuts in the Senate bill were allowed to expire as scheduled in 2026, one remaining element could squeeze the middle class and working poor: Standard deductions and personal exemptions would be adjusted at a less generous gauge of inflation. That change would amount to a tax hike that would help pay for cutting corporate taxes permanently.

“Over the long term, this is really one better than the sheriff of Nottingham: It’s taking from the poor and giving to the rich but doing so in a way so subtle that working-class Americans will really have to be paying attention to realize what’s going on,” Hemel said.