And right now, Republicans seem genuinely spooked by the possibility that the public will conclude that their tax cut is little more than a gigantic giveaway to corporations and the wealthy. This is a well-grounded fear: It is, in fact, a gigantic giveaway to corporations and the wealthy, and polls show the public doesn’t believe corporations and the wealthy desperately need relief from the oppressive burden of taxation.
So Republicans are working to make alterations to their tax cut that can then be used to argue that it’s something other than what it is. Damian Paletta and Mike DeBonis report:
House Republican leaders plan to propose preserving the top income-tax rate for very wealthy people, a last-minute adjustment to their plan to overhaul the tax code that they hope will assuage concerns that it will mainly benefit the rich, according to four people briefed on the planning Tuesday.GOP leaders had planned to collapse the seven existing income tax brackets into three brackets, lowering the top rate from 39.6 percent to 35 percent, but now will retain the top bracket for people earning more than a certain threshold, perhaps $1,000,000, the people said.The detail was one of several that emerged Tuesday as GOP leaders scrambled to put the final touches on their plan, widely seen as the last best chance for Trump and congressional Republicans to advance a major policy achievement this year.
No one thinks they’re doing this out of a commitment to fairness; this is obviously a change meant to allow them to say, “This isn’t a giveaway to the wealthy! We put a higher tax rate on millionaires!” It’s all about PR.
It’s true that keeping the top rate where it is for those with incomes over $1 million is better than the alternative of lowering those people’s marginal rate to 35 percent. That would save a lot of revenue that would otherwise be squandered, and those people can more than afford it. But when Republicans tout this change as proof that they aren’t showering gifts on the rich, they won’t be telling the truth, for a number of reasons.
The first has to do with how marginal rates work. Right now, the 39.6 percent rate is paid on income over $470,700 (for married couples). If that rate is cut to 35 percent for income up to $1 million, but income above that is still taxed at 39.6 percent, even those with incomes of $1 million or $10 million or $100 million will still benefit from that rate cut. That’s because all the income between $470,700 and $1 million — or $529,300 — will now be taxed at 35 percent. That 4.6 percent cut means that right off the bat, people with incomes of more than $1 million will get a tax cut of $24,348 — way more than most Americans will see from this bill.
And that’s before we get to all the other goodies for the wealthy that are going to be in the bill. The dramatic cut in the corporate tax rate will mostly flow back to wealthy shareholders — and because we perversely tax investment income at a lower rate than wage income, they’ll pay low tax rates on all that new income. The bill will also eliminate the Alternative Minimum Tax, which is in place to ensure that wealthy people can’t use loopholes to avoid paying any tax at all.
Republicans also plan to get rid of the estate tax, which right now is levied only on estates with values in excess of $5.5 million, meaning only rich heirs pay it on their inheritances. Don’t be fooled by all the talk of “small businesses and family farms,” because almost none of those are worth enough to pay the estate tax. Let’s say this real slow: When Republicans say the purpose of eliminating the estate tax is to protect family farms and small businesses, they’re lying.
The Tax Policy Center estimated that only 80 family farms and small businesses in the entire country would owe any estate tax in 2017, and what they pay makes up 15 one-hundredths of one percent of the revenue the tax brings in. But if you’re terribly worried that Ivanka, Donny Jr. and the rest of the Trump kids might have to pay taxes on their inheritance, the Republicans have got you covered.
Finally and perhaps most importantly, Republicans will be opening up a loophole for the rich to cut their tax bills that’s so big you could drive a Mercedes-Maybach S-Class Pullman through it. They plan to introduce a new 25 percent rate for “pass-through” income for businesses that pay all their profits to individuals. Chances are that your dentist and your lawyer organize their businesses as pass-throughs, but right now they pay regular income-tax rates on what they earn. If the Republican change goes through, enormous numbers of wealthy people will incorporate pass-through businesses to take advantage of this rate. To use an example I’ve offered before, if you’re a chief executive making $40.4 million a year and this bill becomes law, you could make yourself a “consultant,” have your company pay your “small business” instead of giving you a paycheck, and presto, you just got a tax break of $5.8 million.
Do you want to guess whose company is essentially a large agglomeration of hundreds of pass-through businesses? That’s right, Donald Trump. He stands to personally gain millions, maybe hundreds of millions of dollars from the changes Republicans want to make to the tax code. Though of course we don’t know exactly how much, because he refuses to release his tax returns.
So when Republicans point to this new tax bracket that kicks in at $1 million, we all need to see it for what it is: a diversion, a con, a way to claim that they aren’t giving a huge cut to the wealthy when that’s exactly what they’re doing. They can tweak the bill here and there, but they aren’t going to change its fundamental nature. The entire purpose of this exercise is to cut taxes for the wealthy and corporations, because it’s a Republican plan and that’s what Republicans do.