‘Trickle-down’ economics back in GOP tax plan
WASHINGTON—The House Republicans’ tax-cut plan springs from a core argument: What’s good for big business and the moneyed elite is inevitably good for the economy and everyone else.
Their plan would slash corporate tax rates, end inheritance taxes for the ultra-rich and create new tax advantages for business owners. To help pay for some of those breaks, the plan would end tax deductions for college loans, high medical bills, moving costs and state and local income taxes.
It would also add $1.4 trillion to the national debt over 10 years.
Taken as a whole, the tax plan would drastically lighten the burden on the powerful groups that Republican leaders say would strengthen the economy while eliminating some benefits for the middle class they’ve called their top priority.
Some new benefits for ordinary households—like a family credit— expire in five years. And some existing benefits would erode with inflation.
But the Trump administration and Republican lawmakers argue that the goodies they would bestow on corporations and the wealthy would, in the political parlance of the 1980s, inevitably “trickle down” to everyone else.
Analyses from the White House contend that cutting the tax rates that corporations pay would ultimately result in $4,000 in additional income annually for the average U.S. household. It’s a claim that many mainstream economists have disputed as improbable. And it’s provided Democratic lawmakers with a rhetorical line of attack against the tax cuts: They’re fundamentally unfair.
On Monday, as the House Ways and Means Committee worked its way through the bill, Rep. Suzan DelBene stressed what she described as the inequality at the heart of the bill.
“If a worker in my district had to move because his employer is forcing him to relocate his family or potentially lose his job, can he deduct his moving expenses under this plan?” asked DelBene, a Washington state Democrat.
No, she was told by Thomas Barthold, chief of staff for Congress’ Joint Committee on Taxation.
“But if a company, a corporation, decides to close its facilities in my district, fire its workers and move its operation to China, say, can it deduct associated moving expenses under this plan?”
Yes, Barthold said. That company could shrink its tax bill by deducting moving costs—something families could no longer do.
By cutting the corporate tax rate from 35 percent to 20 percent, the bill would reduce the tax liability of corporations by $846.5 billion over the next decade, according to the Joint Committee on Taxation. What’s more, businesses could deduct the expense of state and local income taxes. Families no longer could.
Companies could deduct the price of equipment bought for employees. Yet teachers could no longer deduct some of the costs of school supplies that they bought for students.
Nearly the entire net tax cut for individuals would come from two changes that would do nothing for most of the middle class: The government would repeal the alternative minimum tax, a provision that has long prevented many wealthy taxpayers from using loopholes to avoid paying taxes. The loss of the AMT would cause a revenue shortfall of nearly $700 billion over 10 years.
Also gone under the Republican bill: The inheritance tax on estates worth at least $5.5 million. That would let wealthy heirs keep an extra $172 billion over the next decade.
The plan would also allow business owners whose profits double as their personal income to pay, in part, at a discounted rate of 25 percent. This would cause the loss of an additional $448 billion over 10 years.
Given how these business owners
are classified, the plan would let them deduct their state and local taxes from the equivalent of their personal income. By contrast, the employees of those business owners could not do so.
Taken together, that’s $2.17 trillion worth of benefits that would help mainly companies and the wealthiest segment of the U.S. population.
By getting rid of itemized deductions—such as for medical costs and state and local taxes—that now help many middle class and affluent taxpayers, the plan would raise an additional $1.26 trillion during the next decade.
Every tax overhaul tends to create some layer of inequality. The best chance for faster growth often comes from lowering corporate rates and clearing the underbrush of loopholes where companies can hide cash.
What makes this tax plan unusual is that many of the tax breaks that Republican lawmakers and President Donald Trump would like to preserve for companies would be taken away from families and individuals.