The Billionaires’ Enrichment Act

On November 10, 2017, in Latest News, by The Somerville Times

By William C. Shelton

(The opinions and views expressed in the commentaries and letters to the Editor of The Somerville Times belong solely to the authors and do not reflect the views or opinions of The Somerville Times, its staff or publishers)

For almost forty years, Republicans have been peddling tax-cut snake oil on the promise that it would aid the middle class while explosive economic growth would benefit all. The results have consistently been the reverse.

I expected something similar when, in June, I wrote about their tax legislation ambitions. But I could not anticipate how breathtakingly destructive and dishonest the “tax-reform” bill that House Republicans rolled out last week would be.

Destructive

We live in a time in which the U.S. is 146th out of 150 countries in wealth equality, and our middle class is being hollowed out. For the past four decades, wages and benefits have risen an average of 0.27 percent per year, while average inflation was fourteen times that number.

These conditions are largely the result of federal policies that distributed globalization’s and technologies’ benefits to the wealthy and burdens to working people. The House GOP’s tax plan would supercharge these trends.

Although the stock market and corporate profits are at an all-time high, the largest corporations would get a $2 trillion tax cut, reducing the top marginal rate from 35 percent to 20 percent. They would no longer be taxed on overseas profits, and they would pay only 12 percent to bring home the cash that they’ve stashed there.

Income that owners of partnerships, sole proprietorships and S-corporations receive is termed “pass-through,” and the bill would cut taxes on it by over half. More than 80% of profits earned by these pass-throughs come from companies with more than $10 million in income. That’s why the lobbying group for the nation’s small businesses says that “This bill leaves too many small businesses behind,” and publicly opposes it.

For wealthy individuals, the trigger for the top tax rate would be increased to $1 million, more than double what it is now. The alternative minimum tax, which prevents the wealthiest from paying nothing, would be eliminated. You may remember that in the one Donald-Trump tax return leaked to the public, this provision obligated him to pay $31 million.

The infamous carried-interest loophole, which enriches private-equity and hedge-fund managers, would be preserved, despite Trump’s repeated promises to eliminate it.

And while Republicans attacked the estate tax for decades as the “death tax,” they neglected to mention that it applies only to estates worth more that $5.5 million. The House GOP bill would completely eliminate it.

Perhaps most destructive, the Congressional Joint Committee on Taxation found that the bill would add $1.5 trillion to the national debt over the next decade. Paying off all that debt will eventually require massive tax increases, or more to Republicans’ liking, deep cuts in Medicare, Social Security, and programs that actually would strengthen the economy.

Dishonest

Last Thursday, House Speaker Paul Ryan said “It’s very clear and obvious that the whole purpose of this is a middle-class tax cut.” In fact, 80 percent of the benefits would go to the top 1 percent of earners. And for millions of people making less than $100,000, taxes would go up.

Although the bill would double the standard deduction, it would eliminate personal exemptions, along with deductions that many middle-class households rely on. Among those are deductions for state and local taxes, high medical expenses, interest on student loans, tax preparation, moving, alimony, and interest on mortgages above $500,000. The latter would increasingly affect homeowners in markets like Somerville.

The Joint Committee on Taxation found that taxes would go up on families earning $20,000 to $40,000. But the legislation’s complexities make it difficult to calculate exactly who would be harmed, and how much.

At their press conference last week, House Republicans waved a postcard-sized mock tax-return and claimed that they were simplifying tax reporting. As evidence, they pointed to fewer tax brackets, as if what made tax reporting challenging was finding your adjusted gross income in the tax table. Instead, for individuals claiming deductions, and for most small businesses, reporting would become more complicated.

A third false claim is that the tax bill is intended to stimulate investment and thereby create jobs. But the bill allows businesses to completely write off investments in plant and equipment, eliminating the taxes on these new investments.

As for job creation, America’s large corporation are already hoarding $2 trillion in cash reserves. If they want to create jobs, they certainly don’t need more cash.

Then, there’s the Republican myth that, with a 35% top marginal rate, America has the highest corporate taxes in the world. After accounting for loopholes, the average rate paid by American corporation is 24%, in line with other developed countries.

For me, the most galling hypocrisy is the Republicans’ dismissal of the $1.5 trillion that their scheme would add to the deficit. When unemployment was at 10 percent, they rejected in the name of fiscal conservatism a more aggressive stimulus program that could have made investments in infrastructure, research, and education to ensure long-term economic strength.

But now that it is at 4.5 percent, we desperately need an economic stimulus, and it will be best accomplished by increasing the wealth of the wealthiest.

Learning from the past

To make these specious claims, Republicans must deny – and hope you will forget – four decades of the same false promises regarding tax cuts.

They claim that Reagan’s tax cuts produced an economic boom. In fact, favorable monetary policy and deficit spending – which doubled the debt that the nation had taken two centuries to accumulate – more than accounts for that economic stimulus.

George W. Bush’s tax cuts promised savings, investment, employment, and productivity gains. What followed was the opposite in each category. Budget deficits skyrocketed, and we continue to pay interest on Reagan and Bush debt.

A Republican governor and legislative supermajorities made Kansas a test bed for the policies contained in the House Republican tax bill. Those policies damaged state finances so badly as to curtail essential services and force early closure of schools. The financial markets downgraded the state’s credit rating multiple times. Eventually, the grownups among the Kansas Republicans had to make common cause with their Democratic colleagues to restore fiscal health.

But House Republicans believe that the only problem with previous tax cuts was that they weren’t permanent. The current bill fixes this problem – except for credits that the plan extends to middle-income earners, which expire in five years.

Looking forward

The latest Washington Post/ABC News survey finds that a third of Americans support the plan, while 50 percent oppose it. That 17-point margin won’t deter most House Republicans, who serve their owners more than their constituents.

But if Senators are going to pass a bill within the constraints imposed by their budget resolution, they will need to come up with a trillion and a half dollars in savings. And if they try to pass it under reconciliation, it can’t include measures that would add to the deficit after ten years.

Some are already reciting the nonsense that the plan will pay for itself. Others are eying cuts to Medicare and Medicaid. We can only hope that the population of grownup Republicans in the upper chamber will be sufficient to make the corrections that those in Kansas accomplished.

 

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