Won't Help Most of Us
By Stephen Tuttle | Dec. 9, 2017
Now we know. Neither the House tax reform bill nor the Senate tax reform bill does much to help most of us. Actually, it's worse than that.What we've been told by President Trump is this is the largest tax cut in history, the middle class will most benefit, his rich friends won't like it, and neither he nor his family will benefit.
None of that is true.
Measured by the actual dollars put in the pockets of median income households, this will be the 14th largest tax cut in history. The middle class will not be the primary beneficiaries because the very wealthy — including Trump, his family, and his allegedly unhappy pals — will realize far greater benefits.
Corporations will see their top tax rate cut from 35 percent to 20 percent and will be given a break to bring their billions in off-shored cash back here. The promised elimination of all their elaborate business deductions did not come to fruition; they get to keep plenty to go along with their new lower rate.
The Senate version even adds new treats, especially for a recalcitrant Republican senator from Alaska, Lisa Murkowski. She was uncommitted on tax reform.
Now the Senate version includes two of her pet projects. First, the cruise line industry in Alaska was exempted from paying a tax when ships stop in Alaskan ports. The tax disproportionately hurt the state, the exemption advocates claimed.
Additionally, and it's hard to see what this has to do with tax reform, the Senate version opens up 1.5 million acres of the Arctic National Wildlife Refuge (ANWR) to oil exploration and drilling. As if “wildlife refuge” and “oil drilling” somehow go together.
Senator Murkowski claims the extra revenue generated by the billions of barrels of oil supposedly waiting to be extracted from ANWR will help pay down the trillion dollars in additional debt the tax reform plan will generate. That's right — both the House and Senate bills will add more than $1 trillion to the national debt.
(Alaska's senators might be a little less sanguine about producing more fossil fuel. Rising sea levels caused by climate change are forcing more than a dozen Alaskan coastal communities to consider relocating inland immediately. Dozens more face the same prospect in the future. Federal tax dollars will have to pay for it.)
Will these tax plans lead to job and wage growth as we're being told? Dozens of company executives have already said they will pay down debt, buy back shares and increase dividends. Job growth is way down their list, and most wage growth will happen at the upper management and executive level.
Some states have already tried these supply-side tax cuts. North Carolina is often used as a positive example. But North Carolina has experienced about the same economic growth as the rest of the country. There was no dramatic economic surge, just slow growth, and revenues decreased, forcing some budget cuts.
Kansas tried the same trick, with disastrous results. State revenues cratered, and the state lagged behind the rest of the country in most economic indicators. The Republican legislature finally restored some taxes, overriding the Republican governor's veto, in order to fill a $2 billion budget deficit and increase funding to their beleaguered schools.
There just aren't any recent real-world examples of this kind of tax “reform” producing dramatic economic gains.
But if you're rich, especially in the $500,000 a year or higher salary range, you should like both the Senate and House bills. Both will save you a lot of money. And your kids, along with the Trump clan, will not have to pay estate taxes at all.
Corporations will do just fine, too. Still lots of deductions and a massive rate reduction. It will be good news for their shareholders, less so for their lower level employees.
If you're closer to the bottom of the pay scale, the plans are not so great. People in the $20,000–$30,000 income range will actually get a tax increase by 2019. And most itemized deductions for individuals will be eliminated.
This allegedly historic legislation isn't even permanent for individual taxpayers; in 2025, everything goes back to exactly as it is right now. Not for corporations, though; their tax breaks are permanent.
It's a nice windfall for the wealthiest among us, a boon to corporate shareholders and executives, and leftovers for the rest of us.
Now the bad House bill and the bad Senate bill will go to a conference committee comprised of members of both bodies. They are already disagreeing on which bad things should be left in or added. Eventually, they will come up with a single bad bill. They will tell us it's the best thing in the history of the world.
They will be wrong.