Tax plan shows 2 things can be true at once
WASHINGTON » Two things can be true at once. President Donald Trump’s tax overhaul is slanted to the rich, as Democrats say and Republicans like to ignore. It also comes with tax cuts for average people, which Democrats bypass in slamming Trump’s “betrayal” of the middle class.
Trump’s signing of the tax bill into law Friday capped a week also marked by a national security speech in which Trump misrepresented the records of his predecessors in his ceaseless effort to claim achievements that in many cases remain ambitions.
A look at statements by a variety of political players over the past week:
TRUMP: “The bottom line is, this is the biggest tax cuts and reform in the history of our country. This is bigger than, actually, President Reagan’s many years ago.” — remarks to reporters Friday.
THE FACTS: Not so, in either case. For months Trump has refused to recognize larger tax cuts in history, of which there have been many, or to grant that other presidents have enacted big tax cuts since Ronald Reagan in the 1980s. The White House won’t explain how he arrives at his conclusion.
An October analysis by the Committee for a Responsible Federal Budget found that it would be the eighth biggest since 1918. As a percentage of the total economy, Reagan’s 1981 cut is the biggest followed by the 1945 rollback of taxes that financed World War II. Trump’s plan is also smaller than cuts in 1948, 1964 and 1921, and probably in other years.
Additionally, a Treasury Department analysis found Reagan’s 1981 tax cut had an annual average cost of nearly 2 percent of GDP. This would translate into roughly $400 billion in today’s dollars. The tax cuts peak at $280 billion in 2019.
Valued at $1.5 trillion over 10 years, the plan is indeed large and expensive. But it’s much smaller than originally intended. Back in the spring, it was shaping up as a $5.5 trillion package. Even then it would have only been the third largest since 1940 as a share of gross domestic product. The government uses percentage of GDP to measure most budget and tax issues over time because that measure puts tax revenues and federal outlays in context relative to the entire economy.
VICE PRESIDENT MIKE PENCE: “You’re delivering on that middle-class miracle.” — to Trump at a Cabinet meeting Wednesday.
THE FACTS: Modest doesn’t usually make for a miracle. Pence’s praise to the boss reflects Trump’s assertion that “it’s a tax bill for the middle class,” as he often put it, but average people are not the prime beneficiaries of the tax cuts. Aside from businesses, rich people get the most.
The nonpartisan Tax Policy Center estimates the biggest benefit of the new law will go to households making $308,000 to $733,000. Households making over that should get a tax cut worth 3.4 percent of their aftertax income. For the richest 0.1 percent (making over $3.4 million), the tax cut should be worth 2.7 percent of their after-tax income. For middle-income earners: 1.6 percent, the center estimates.
Moreover, only high-income people would get a meaningful tax cut after 2025, when nearly all of the plan’s individual income tax provisions are due to expire.
Republicans argue that the middle class will also see benefits from the business tax cuts, in the form of more jobs and higher wages.
DEMOCRATIC SEN. CHARLES SCHUMER: “Their bill increases taxes on lots of middle-class people . ... According to the Tax Policy Center, the top 1 percent of earners in our country gets 83 percent of the benefits.” — remarks Tuesday.
THE FACTS: The tax cuts are not nearly as lopsided as many Democrats are portraying them. Almost all of the middle class would initially pay less in taxes.
For the next eight years, the vast majority of middle-class taxpayers — those earning between $49,000 and $86,000 — will receive a tax cut, albeit a small one. In 2018, nine-tenths of the middle class will get a cut, according to the Tax Policy Center. In 2025, 87 percent will. The tax cut won’t be very big: just $930 next year for the middle one-fifth of taxpayers, the center’s analysis concludes. For those paid twice a month, that’s about $40 a paycheck.
Schumer and other Democrats who have blasted the plan as a middle-class betrayal are basing their assertions on the fact that nearly all personal tax cuts expire after 2025. That would result in a slight tax increase for about twothirds of the middle class by 2027. The top 1 percent would still get a cut that year.
Only in 2027 do the wealthiest taxpayers get 83 percent of the benefit, as Schumer says. In 2018, roughly 21 percent of the tax cut’s benefits go to the richest 1 percent, a much smaller figure, though still a disproportionate share. Just 11 percent will go to the middle one-fifth.
REP. NANCY PELOSI, House Democratic leader: “86 million middle class families get a tax hike.” — tweet Wednesday.
THE FACTS: She’s ignoring all the middle-class tax cuts before 2027; that year, taxes will be slightly higher for the middle class unless the cuts are extended.
TRUMP on his tax legislation: “Obamacare has been repealed in this bill.” — remarks Wednesday.
THE FACTS: It hasn’t. The tax plan ends fines for people who don’t carry health insurance. That’s a major change but far from the dismantling of the health law.
Other marquee components of Barack Obama’s law remain, such as the Medicaid expansion serving low-income adults, protections that shield people with preexisting medical conditions from being denied coverage or charged higher premiums, income-based subsidies for consumers buying individual health insurance policies, the requirement that insurers cover “essential” health benefits, and the mandate that larger employers provide coverage to their workers or face fines.
Also, the tax law doesn’t repeal fines for uninsured individuals until the start of 2019, meaning the “individual mandate” is still in force for next year unless the administration acts to waive the penalties.
TRUMP: “When the individual mandate is being repealed, that means Obamacare is being repealed because they get their money from the individual mandate.” — remarks Wednesday.
THE FACTS: This is also wrong. The fines on people who don’t carry health insurance only provide a small fraction of the financing for the program. Most of the money comes from higher taxes on upper-income people, cuts in Medicare payments to service providers, and other tax increases.
The Congressional Budget Office estimated that fines from uninsured people would total $3 billion this year, while the government’s cost for the coverage provided under the health law would total about $117 billion.
TRUMP on his predecessors: “They put American energy under lock and key.” — speech Monday.
THE FACTS: On the contrary, energy production was unleashed during Obama’s presidency, largely because of advances in hydraulic fracturing that made it economical to tap vast reserves of natural gas. Oil production also greatly increased, reducing imports. Before the presidential election last year, the U.S. for the first time in decades was getting more energy domestically than it imports. The government estimated this year that the U.S. could switch from being a net importer of energy to being a net exporter as early as 2019, depending on what happens to oil prices, energy resources and economic growth.
Trump, a Republican, has rolled back some obstacles for the coal industry, which indeed complained of overregulation by Obama, a Democrat. But coal’s decline in recent years was driven mainly by competition from cheap natural gas.