Tuesday | December 12, 2017
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Trump and Ryan vs. the little people

According to news reports, President Donald Trump wanted the House Republican tax “reform” bill to be called the Cut Cut Cut Act. Alas, he didn’t get his wish, and it was instead given a boring name nobody can remember. But there’s still time to change it! So let me propose, as one reader suggested, that it be renamed the Leona Helmsley Act, after the New York hotelier convicted of tax evasion, who famously declared that “only the little people pay taxes.”

That, after all, is the main thrust of the bill. It hugely favors the wealthy over the middle class, which is pretty much always true of Republican proposals. But it’s not just about favoring high incomes: It also systematically favors people who live off their assets, especially inherited wealth, over the little people — that is, poor shlubs who actually have to work for a living.

To get an idea why, consider four hypothetical taxpayers and how they would fare under the Republican bill.

First is the poster child family Paul Ryan keeps talking about, a family with two children making $59,000 a year. In the first year of the Cut Cut Cut Act, such a family would indeed receive a tax cut. But this cut comes from several special tax credits that are basically loss leaders to help sell the plan; they all either expire in later years or will get eroded by inflation. By 2027, with the plan fully phased in, that exemplary family would actually be facing a significant tax increase relative to current law.

Second, consider someone who is much further up the scale, but still works for a living. In the movie “Wall Street,” Gordon Gekko sneers at “a $400,000-a-year working Wall Street stiff flying first class and being comfortable.” What would happen to that guy? Well, I’ve done some back-of-the envelope calculations: If you ignore deductions, he’d end up paying a few hundred dollars less in taxes. But once you take lost deductions into account, especially reduced deductions for state and local taxes, he almost certainly ends up facing a tax increase, not a cut.

And of course it’s not just Wall Street stiffs who would find themselves in that situation: So would doctors, lawyers, engineers, and other well-paid professionals. Overall, the Tax Policy Center estimates that more than a quarter of the population would see taxes go up, not down, under the Republican proposal; for those with incomes between $200,000 and $500,000, that fraction rises to more than 40 percent.

But what about owners of small businesses? Under current law, their business income is “passed through” to their personal income, and taxed accordingly. The Cut Cut Cut Act would instead allow people with such income to pay only 25 percent — a big tax break for those with high incomes. But this raises obvious possibilities for abuse, with every well-paid professional reclassifying herself or himself as a business.

To limit these abuses, the Republican bill imposes rules that basically limit the 25 percent rate to “passive” income recipients. That is, you get the full tax break only if you own a business but don’t, you know, actually run it.

Finally, let’s imagine a very lucky individual — let’s arbitrarily call him Eric Trump — who stands to inherit a stake in a business he doesn’t run, plus a bunch of stock. He’ll get his inheritance tax-free, because the estate tax gets phased out in the Republican bill. He’ll get to pay a low tax rate on his business income. And his stocks will pay higher dividends, because the bill also sharply cuts corporate tax rates, and most of the benefit of those cuts will probably flow to shareholders.

So when Gary Cohn, Trump’s top economic adviser, says the bill’s goal is “to deliver middle-class tax cuts to the hard-working families in this country,” he’s claiming that up is down and black is white. This bill does little or nothing for the middle class, and even among the affluent it’s biased against those who work hard in favor of the idle rich.

Also let’s not forget that tax increases on working Americans are only part of the story. This bill would also, according to the Congressional Budget Office, add $1.7 trillion to the national debt over the next decade. You know what that means: If this bill or anything like it passes, Republicans will immediately revert to their previous pretense of being deficit hawks and start demanding spending cuts.

And since federal spending is dominated by programs — Social Security, Medicare and Medicaid — that benefit the middle and working classes, the end result of this tax bill would be to leave most working Americans, even those who wouldn’t face direct tax increases, worse off, all for the benefit of a tiny minority, especially those who haven’t even worked for their wealth.

You might wonder how Republicans imagine that they can get away with this. But anyone who has paid attention to U.S. politics knows the answer. First, they will lie, unashamedly, about what their bill actually does. Second, they will try to distract working-class voters by stoking racial animosity. That didn’t work too well in Tuesday’s elections, but they’ll keep on trying.

Paul Krugman is a syndicated columnist who writes for the New York Times News Service.

 

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