As we watch the tax-cut debate play out over the next few months, it will be useful to keep some things in mind. Here’s the most important:
The people who are now asking you for your faith, who are now promising you that this is not some badly disguised tax cut for the rich — these are the very same people who for the past six months have reassured you over and over again, with apparent sincerity, that nobody would lose coverage under the Republican health-care plans, that in fact those plans would cover more people with better plans than Obamacare, and that they would never, ever undercut protections for Americans with pre-existing conditions.
They looked you in the eye and told you all that, and it was a massive lie, a lie that they knew to be a lie as they told it. And now they come to you once again, once again asking you to believe.
Be skeptical, my friends.
One of those people once again asking for your faith is President Trump, who now promises us that he and others like him won’t make out like bandits from this “tax-reform” proposal. As he put it this week:
“I don’t benefit. I don’t benefit. In fact, very, very strongly, as you see, I think there’s very little benefit for people of wealth.”
That too is a lie.
For example, the Trump tax proposal calls for the elimination of the estate tax. Under current law, a couple can leave their heirs an estate of up to $10.98 million completely tax free, so the only people who would benefit from its repeal would be those with estates valued at more than that amount. I think it’s safe to say that this change would help “people of wealth,” and only people of wealth.
In fact, if we accept Trump’s valuation of his own empire at $10 billion, his heirs would save the tidy sum of $4 billion under this proposal.
“Where’s the logic in that? Why should inherited wealth receive a more privileged status than wealth accumulated through work or entrepreneurship? Why should the government encourage dynastic wealth at a time when income and asset concentration among an elite few is already dangerously high?”
Trump is the only president in modern times not to release his tax returns, so it’s hard to know precisely what impact these proposed changes would have on his personal finances. However, we do have a Trump tax return from 2005 that somehow made its way into the light.
According to that return, Trump paid $38.4 million in federal income taxes that year. Most of that tax — $31.3 million, or 81.5 percent of his total tax burden — was due to the alternative minimum tax, enacted to ensure that high-income individuals don’t entirely duck their obligations.
Trump’s proposal would eliminate the alternative minimum tax.
In addition, Trump’s proposal would drop the tax rate for business income to 25 percent, significantly below the 39.5 percent top rate. According to tax experts consulted by the New York Times, that change would have saved Trump another $16 million in taxes in 2005. So those two changes — abolishing the alternative minimum tax and lowering the business income rate — would produce a one-year total of $47.3 million in tax savings for Trump. In effect, they would have eliminated his tax obligation entirely.
We are also hearing incredibly sad, truly heart-rending stories about the predicament of corporate America, which is so incredibly burdened by high taxation that it can no longer compete internationally or even turn a fair profit. However, as you process these oft-told tales of woe, perhaps a little context might again be helpful.
For example, individuals this year are projected to pay $2.8 trillion in personal and payroll taxes. Corporations are expected to contribute a grand total of $310 billion.
That’s a chart of corporate AFTER-TAX profits, compiled by the helpful folks at the Federal Reserve of St. Louis. Those profits are the highest they have been at any point in our nation’s history. Remember the booming economy of the 1990s? Those were great years for corporate America, but AFTER-TAX corporate profits today have quadrupled from what they were back then.
What have your own after-tax profits done?
Now, there’s a broad, bipartisan consensus in Washington for reforming the corporate tax system. Democrats and Republicans pretty much agree on eliminating corporate deductions, lowering the nominal rate of 35 percent and finding a fair means to repatriate the estimated $2 trillion in profits that corporations have parked overseas to avoid U.S. taxation. In short, a deal can be made to rationalize our corporate tax system.
Unfortunately, that consensus falls apart when those goals are used by Republicans to try to smuggle through a significant tax cut for corporate America, as they do in this proposal.
Defending such a giveaway is tough, especially given the public mood. According to a new Fox News poll, just 20 percent of Americans support cutting taxes on the wealthy; just 34 percent support cutting corporate taxes. Even among Republicans, support for cutting taxes on the rich stands at just 37 percent. So how do you sell it?
If you’re Treasury Secretary Steve Mnuchin, husband to America’s own Marie Antoinette, you sell it by claiming to be doing it all for the American worker. According to Mnuchin, corporations will take more than 70 percent of their corporate tax break and pay it to their workers, leaving less than 30 percent to be shared among stockholders. That’s right: A huge reduction in the corporate income tax is actually a tax cut for the little guy, but in clever disguise!
Do you believe that? I don’t.
Neither does the non-partisan Joint Committee on Taxation, which estimates that high-income shareholders would reap 75 percent of a corporate tax cut. The non-partisan Congressional Budget Office doesn’t believe it either, also estimating that shareholders would take 75 percent of the tax cuts. An analysis by the Treasury Department estimates that shareholders would get 82 percent of the savings, leaving 18 percent for workers.
I would like to provide you a link to that Treasury analysis, as I did for the CBO and JCT studies. Unfortunately, as the Wall Street Journal reports, Mnuchin has ordered that it be removed from publicly accessible websites.
Finally, let’s address the tax proposal’s impact on the deficit and debt. According to the CBO, the national debt is already projected to grow by another $12 trillion over the next 10 years, to $27 trillion. The tax cuts now being proposed would increase that debt load by an additional $2.2 trillion.¹ To Republicans who have treated the debt as an enormous monster about to consume our future, that ought to be frightening.
You know what’s coming, right?
Right. It’s trickle-down time again. The Trump administration and congressional Republicans claim that these tax cuts wouldn’t increase the deficit at all. To the contrary, they would produce so much new economic growth that government revenue would soar, not fall.
It would be nice if that were true. It also would be nice if you could lose weight by eating all the chocolate cake you want. It would be even nicer if you could sit at home and make $125 an hour on the Internet, or collect a $1 million reward just for helping out some nice Nigerian prince. But the world doesn’t work like that.
It certainly didn’t work like in Kansas, for example, where supply-siders claimed that huge tax cuts would produce an economic boom, but instead they produced disaster. It didn’t work that way during the George W. Bush administration, which inherited an annual deficit of $32.4 billion, passed two major tax cuts that were supposed to jump-start the economy, and finally left office with an annual deficit of $1.55 trillion.
And the overall economy when Bush left office? Not so good, as I recall.
Earlier this year, the conservative-leaning Booth School of Business at the University of Chicago surveyed 42 of the nation’s most respected economists, asking them whether it was plausible for large tax cuts to pay for themselves, as Trump claims.
Five did not answer. Of the remaining 37, 37 said they disagreed with that claim. Thirty disagreed strongly.
“It would be a fiscal disaster,” wrote one.
“It would put us in the running for a national Darwin award,” wrote another.
¹During the 2016 campaign Donald Trump claimed that if elected, he could entirely eliminate the national debt in just eight years, and could do so “pretty easily.”
Clearly, the CBO assumes that claim to be false.