The details are out, and we know the winners and losers. Teachers would no longer be able to deduct a small amount of out-of-pocket school expenses; Donald Trump would still be able to deduct unlimited amount of fees paid to money managers and lawyers. There is a lot to love in the $1.5 trillion Tax Cuts and Jobs Act (TCJA)-if you’re Donald Trump. Most of the Trump’s business ventures are structured as pass-through entities, in which the economic activity of the business is reported on the individual owner’s personal tax return. The TCJA caps the tax on business income reported on individual tax returns in what amounts to a $448 billion handout to business owners like the Trumps. In comparison, over the same time frame, the TCJA recoups about $4 billion of that money through abolishing tax credits for retirees with disabilities and adoptive families, among others. When Americans hear about slashing tax cuts for “special interest groups,” most think of oil or Big Pharma, but the Republicans apparently mean wage-earners and big families, because big business gets granted every perk on the corporate wish list while many ordinary Americans are in for some unwelcome surprises. High-income taxpayers currently may incur a modest limitation on their overall itemized deductions; the TCJA repeals this overall limitation on itemized deductions, which only affects wealthy Americans, and recoups some of that lost revenue by eliminating the deduction for student loan interest payments and repealing catastrophic medical expenses as an itemized deduction.
The estate tax, which affects only the modern John D. Rockefellers, the richest of the rich-the wealthiest 0.2% of all estates-is phased out before being abolished entirely, giving the top echelon of the 1%er’s a $172 billion windfall. The TCJA then turns around and repeals employer-funded adoption assistance programs, providing cost savings of less than $50 million over the next ten years. From what little we know of Donald Trump’s tax returns, we know that he is subject to the Alternative Minimum Tax-a tax assessed against people who benefit from too many tax loopholes and would pay too little tax otherwise. The TCJA repeals the Alternative Minimum Tax, saving the Trumps of the country about $700 billion. All of the figures cited are from the Republican-chaired Congressional Joint Committee on Taxation and, in my opinion, the Joint Committee on Taxation is likely understating how much the wealthy will benefit from the repeal of the Alternative Minimum Tax, as tax advisors and money managers will rush to take full advantage of all of the loopholes that the Alternative Minimum Tax previously disincentivized, adopting tax planning strategies to more easily minimize the tax liability of America’s wealthiest families.
Some other tax credits that got the axe in the TCJA include expenditures to provide access to disabled individuals, clinical testing expenses for drugs that treat rare diseases, employer-provided child care, rehabilitation of historic buildings, and purchasing electric vehicles. Together, the cost savings of these socially beneficial provisions are negligible in comparison to the provisions that provide windfall savings to America’s billionaire class. The special carve-outs for industry largely remain intact; it’s only America’s working families that lose out on what little benefits they have under the current tax system. A lot has already been written about the repeal of the itemized deduction for state and local taxes and the capping of the deductions for mortgage interest and real estate taxes, and the effect it would have on ordinary Americans, especially ones in states like New York and California. One provision that hasn’t been talked about enough is the carried interest loophole-a special tax loophole exclusively for hedge fund managers and private equity partners that costs American taxpayers billions every year. The tax loophole is so egregious that Donald Trump himself vowed to repeal it, but the TCJA specifically preserves it, in another win for America’s moneyed elite. Donald Trump must answer to the American people why billionaire hedge fund managers should continue to receive lucrative special tax benefits while teachers and retirees lose out.
The case in favor of the TCJA can be summarized as follows: if you don’t know what’s in the bill, then the bill is a much-needed boon to hard-working middle class Americans; if you have read up on the bill, then, admittedly, middle class Americans will have to make some big sacrifices, but the TCJA is going to promote so much growth, and create so many jobs, that it’s worth the pinch to the working class. Congressional Republicans know from the Bush-era tax cuts that fiscal conservatives can be won over into embracing deficit-busting tax cuts with fuzzy math on future projected economic growth, even though such wildly optimistic economic growth has never panned out in the past. Congressional Republicans are also counting on that a few red-state Democrats can be convinced to vote in favor of what is, after all, a big handout to almost every Congressperson. If the TCJA passes with the support of a few red-state Democrats it will be proof of what we already know-that class divisions are more important than political affiliations, especially when all of the political class stands to personally benefit.
Trickle-down economics is a proven fraud. The International Monetary Fund, which is certainly not biased in favor of the working class, recently released a report stating that taxes could be raised on the top 1% of earners without negatively impacting economic growth. It’s common sense. If you give an extra $1,000 to a working class American family, that money will be reinvested into the economy in the form of purchasing gas, bread, and diapers; if you give an extra $1,000 to the average Congressperson, when they check their bank account they’ll be $1,000 richer, but it will not in any way affect their spending. If Congress wanted economic growth, it would be wage-earners who would receive the tax perks, rather than just business owners and Wall St. money managers. No amount of the TCJA’s funneling more money to the wealthy elite and exacerbating economic inequality is going to provide prosperity to ordinary families. Conservatives decry talk of the redistribution of wealth and class warfare, but the TCJA is the redistribution of wealth to the benefit of America’s richest and most powerful, and represents class warfare being waged against ordinary Americans.
If Congress was interested in middle class tax breaks, it would be trivially easy to pass a tax reform package-just ask what tax provisions benefit working Americans the most and increase those provisions, like personal exemptions and deductions for student loan interest. Instead these provisions are abolished outright under the TCJA, to cover pennies on the dollar of the windfall savings provided to the ultra-wealthy. If Congress was interested in job creation and economic growth, they would be discussing a desperately-needed infrastructure bill, preferably one modeled after the Works Progress Administration, which would put millions of Americans to work to rebuild America’s middle class at the same time as its roads and bridges. Instead, we have more of the same: a corrupt political system that exists to serve only the interests of the rich and powerful, at the expense of working people everywhere.
Published in Daily Times, November 13th 2017.