Unpopular GOP Tax Code Revision Rewards Party Donors, Exacerbates Inequality

Posted Dec. 20, 2017

MP3 Interview with Alan Essig, executive director of the Institute on Taxation and Economic Policy, conducted by Scott Harris

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[UPDATED] With House and Senate passage of a final version of the Republican tax reform bill, Donald Trump and GOP legislators are celebrating their first major legislative win since the 2016 election. But in the long run, that partisan victory will be felt as a net loss for millions of Americans. The tax reform bill will permanently lower the corporate tax rate from 35 percent to 21 percent. Businesses will be taxed at a lower rate than the majority of American’s who are wage earners. For individuals, the top income tax rate will be reduced to 37 percent from its current level of 39.6 percent. The super wealthy will also see benefits from reductions in the alternative minimum tax and the estate tax.

Analysis by the Tax Policy Center finds that in 2018, working families will see some modest reductions in their taxes, but overall, the benefits of the new tax law will be concentrated among the wealthiest sector, with nearly two-thirds of the benefits going to the richest one-fifth of Americans. Because the individual tax cuts are temporary, by 2027, 53 percent of all Americans will pay more in taxes under the GOP tax bill. That year, 82.8 percent of the bill’s benefits will go to the top 1 percent. Many observers believe the tax bill, which will add $1.46 trillion to the national debt over 10 years, will be used by the GOP to justify major cuts to Medicare, Medicaid and Social Security.

According to the non-partisan Congressional Budget Office, the Republican tax bill’s inclusion of a provision to eliminate the Affordable Care Act’s individual mandate, will result in 13 million Americans losing their health insurance coverage and facing higher premiums overall. Between The Lines’ Scott Harris spoke with Alan Essig, executive director of the Institute on Taxation and Economic Policy, who assesses the GOP’s very unpopular tax plan’s long-term impact on working families and rising economic inequality in the U.S.

ALAN ESSIG: It's basically a Christmas gift to the most profitable corporations and the wealthiest Americans. It is a bill that has been written for and geared towards – and most benefits – that group. There are individual tax cuts included in this also. The individual tax cuts as a share are much smaller than the tax cuts that go to businesses and to the wealthy. The individual tax cuts actually are temporary. They phase out and go away in 2025 while the corporate tax cuts are permanent.

As unfair as the bill is when it is implemented in 2018, 2019 – it gets worse over time. It cuts the corporate tax rate from 35 percent to 21 percent. It cuts the top income tax rate from a little over 39 percent to 37 percent. By 2027, 10 years from now, it actually raises taxes on the bottom 60 percent of taxpayers. It does not simplify the tax code at all. It actually makes it much more complicated. It is an accountant and lawyer bill – if there's one sector of the economy that going to do really well, it's going to be tax lawyers and accountants to try to figure out what this does, and to take advantage of not only the existing loopholes that they kept, but the new loopholes they bought in.

Again, as a whole, this is something that does not necessarily benefit the middle class. If you look at actually the middle 20 percent, which we consider actually the middle class – in 2019, they will get on average about an $800 tax cut, while the richest 1 percent will get a tax cut of over $55,000. And it's not just as some folks say, "The wealthy pay more, so of course, they will have more dollar amount." But it's not just increased dollar amount they're getting. As a share of their income, they're getting a bigger break than anybody else.

BETWEEN THE LINES: Tell us how this tax bill will affect already record income inequality in the United States as compared to the rest of the industrialized world.

ALAN ESSIG: Oh, it's just, again, it'll just make it worse. The overwhelming benefits of this are to the top 1 percent. The top five percent. Right now, income inequality has gotten considerably worse over the last 40 years. This is something that will make it even more unequal. There'll be more money flowing to the top, less money flowing below. The estimated wage increases that the administration talks about is a fantasy. Anyone who's look at it, any economist, any group, the benefits clearly flow to the top, which again, will just make a bad inequality situation even worse.

BETWEEN THE LINES: If, as expected, this tax bill passes and it's signed into law by President Trump, how can the Democrats – if they retake Congress and the White House over the next four years – repeal the Trump GOP tax cuts? Is it pretty easy to undo these tax cuts and to revisit changes in the tax code that would truly benefit people in the middle and among working families? Something that this current legislation really does not do.

ALAN ESSIG: For the Democrats to do it, they would need to control both houses of Congress and the White House, because obviously, any one can control and veto it, can stand in the way of doing rational tax policy. The ideal thing would be, if the Democrats were in the control is to truly do a bipartisan fix to this. To truly simplify our tax code, to get rid of corporate loopholes that are in and that makes this bill even worse. To really gear the tax code to the benefit of low-, moderate, middle-income folks.

It might maybe my Mr. Smith goes to Washington view of things, but I do think that it's possible. But it would take a truly bipartisan effort to do that, to really put the focus on the middle class, on low, moderate-income folks. It needs to be done for the right reasons, for the right economic reasons, for the right tax policy reasons, and not for just for pure political reasons to pay off those donors who donate money to the political class. I think that's possible to do, but is it easy? No. But I think it is a worthy goal to have.

For more information, visit the Institute on Taxation and Economic Policy at itep.org.

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