“We are going to massively lower taxes on the middle class, reduce taxes on American business and make our tax code more simple and much more fair for everyone including the people and the business,” said Donald Trump in his speech at CPAC today, with characteristic eloquence.
He didn’t say much more on the topic, perhaps because the administration still hasn’t figured out exactly what kind of tax reform it wants to pass. But there are two things you can count on.
First, Trump and his senior officials will repeat the words “middle class” over and over whenever they talk about it. And second, the vast majority of the tax cuts are going to go to the wealthy. Simply put, there is no higher priority for this or any Republican government than cutting taxes on the wealthy.
Back in November, future Treasury Secretary Steven Mnuchin made a bizarre promise: “Any reductions we have in upper-income taxes will be offset by less deductions so that there will be no absolute tax cut for the upper class.” This demonstrated Mnuchin’s lack of political experience. A more practiced Republican figure would have known that you’re supposed to imply that the benefits of GOP tax cuts won’t accrue mostly to the rich, then quickly change the subject. It’s much more dangerous to make a concrete promise you have no intention of keeping.
Yesterday, Mnuchin was at it again, only with language that gave him a little more wiggle room: “Look, as I’ve said before, we’re primarily focused on a middle-income tax cut and simplification for business. And…on the high end, if there are tax cuts, that they are offset with reduction of deductions and other things.” Yes indeed, the collection of billionaires and Goldman Sachs alumni populating the Trump administration thinks of little apart from the interests of the middle class. That’s where they’re “primarily focused.”
We don’t know exactly what the administration and congressional Republicans will produce, but we can get a pretty good idea from the plans they’ve already floated. During the campaign, Trump put out a tax plan; here’s what the Tax Policy Center concluded when they analyzed it:
The highest-income taxpayers (0.1 percent of the population, or those with incomes over $3.7 million in 2016 dollars) would experience an average tax cut of nearly $1.1 million, over 14 percent of after-tax income. Households in the middle fifth of the income distribution would receive an average tax cut of $1,010, or 1.8 percent of after-tax income, while the poorest fifth of households would see their taxes go down an average of $110, or 0.8 percent of their after-tax income.
There’s that focus on the middle class for you. Of course, any tax reform has to go through Congress, and there are already plans there waiting. Speaker of the House Paul Ryan has a plan, and the gifts it showers on the wealthy put even Trump’s plan to shame. Here’s the Tax Policy Center’s analysis:
The top quintile — or fifth of the distribution — would receive an average tax cut of about $11,800 (4.6 percent of after-tax income). Three-quarters of total tax cuts would go to the top 1 percent, who would receive an average cut of nearly $213,000, or 13.4 percent of after-tax income. The top 0.1 percent would receive an average tax cut of about $1.3 million (16.9 percent of after-tax income). In contrast, the average tax cut for the lowest-income households would be just $50, 0.4 percent of after-tax income. Middle-income households would receive an average tax cut of $260, about the same relative to after-tax income — 0.5 percent — as for the lowest-income households.
And in 2025, a remarkable 99.6 percent of the benefits of the Ryan tax cuts would go to the top one percent. When Ryan gets asked about this, he says that even discussing the way his tax cut helps the rich is “ridiculous,” because “People don’t think like that.”
So how can Republicans claim that they’re focused on the middle class? It’s going to work the same way it did when George W. Bush passed two rounds of massive tax cuts, which you’ll recall supercharged the American economy just as Republicans predicted, leading to a period of unprecedented growth in GDP and wages. (Oh, that’s not how you remember the Bush years? Strange.) First, they cut income tax rates across the board, which means that the middle class gets something, even if it’s only a couple hundred bucks. Most Americans actually pay more in payroll taxes (which fund the Social Security and Medicare systems) than they do in federal income taxes, but Republicans aren’t interested in cutting payroll taxes. The ones hit hard by income taxes are mostly the wealthy, and each percentage point you cut their taxes represents a much bigger giveaway.
Second, Republicans push a series of cuts to other taxes that are paid almost entirely by the wealthy, like the inheritance tax and the capital gains tax. Add them together, and the rich end up making out big league. But the fact that middle class people get some kind of cut becomes the centerpiece of the PR campaign to win support for the cuts.
Bush was particularly good at this. During his 2000 campaign he’d pull up people he called “tax families” on stage, a waitress or plumber who he said would get a $500 or $1000 tax break under his plan, and everyone would cheer. He didn’t mention the CEO who’d be getting $1 million.
Then, in an absolutely brilliant move, once the first tax cut was signed, the Bush administration sent a letter to every taxpaying household in America, saying, “We are pleased to inform you that the United States Congress passed and President George W. Bush signed into law the Economic Growth and Tax Relief Reconciliation Act of 2001, which provides long-term tax relief for all Americans who pay income taxes…As part of the immediate tax relief, you will be receiving a check in the amount of…” Then not long after, everyone got an actual check in the mail.
Later, when the Obama administration cut taxes, it decided not to do so in the same splashy way, because research indicated that a check like the one Bush sent was likely to be saved, while a few extra dollars in everyone’s weekly paycheck were more likely to be spent, having a greater effect on the economy. So the Obama administration got no public relations benefit out of their tax cut.
But Republican administrations aren’t really worried about maximizing the economic impact of their tax cuts. Their concern is fundamentally a moral one: they view wealthy people as more deserving and upper-end taxes as inherently evil. It would be perfectly fine if cutting them helps the economy, but if it doesn’t (and it doesn’t), then that’s okay, too, because tax cuts for the wealthy are an end in themselves.
So when the Trump administration and Republicans in Congress start talking about how concerned they are about the middle class, look at the actual numbers. That’s where you’ll find the truth.