Since Republicans failed to deregulate the health-care industry last month, they've moved on to something bigger and better: tax reform.
So far, though, the Trump administration has only put forward a series of regressive, revenue-losing tax cuts: halving the corporate tax rate; slashing rates for pass-through entities like LLCs; trimming the top marginal income rate; eliminating the estate tax—the list goes on.
Trump and his team are trying hard to pitch this as a plan that, for one, actually exists, and two, will benefit every one across the board.
However, as those who've analyzed Trump's barebones proposal have concluded, the benefits of the cuts would be highly skewed toward the top 1percent, with that group pocketing about half the benefits, and just 9 percent going to the bottom three-fifths of households.
While the rich would get even richer, most lower- and middle-income Americans would only be a little better off.
Even that analysis is too rosy, though, when you factor in the cost of paying for those tax cuts for the rich, according to a new report from the Tax Policy Center’s William G. Gale, Surachai Khitatrakun, and Aaron Krupkin. Not surprisingly, paying for those cuts is an issue that Republicans have been trying to avoid for months now.
The report finds that when you spread the costs of paying for the tax cuts, through reductions to spending on Social Security and public assistance and increases to income tax, equally across each household or proportional to income, it would make Trump's plan “far more regressive and would leave the vast majority of households worse off than they would be if the tax cuts were not implemented in the first place.”
Without factoring in the costs of the tax cuts, 90 percent of the taxpayers in the top 1 percent will get a pretty big tax cut. Three-quarters of the middle class will get a tax cut. And about two-thirds of the lowest-income households would get a tax cut, though only about $100 a year. (See Jared Bernstein's excellent Washington Post column on this report for some helpful charts.)
But when you factor in the cost of pay-fors (which the report assumes would come through both tax increases and spending cuts), the share of poor people who would get a tax cuts is wiped away to a flat zero percent. In the middle class, the share of beneficiaries falls to just 6 percent.
Meanwhile, 88.6 percent of the top 1 percent would still get tax cuts.
The depths of these disparities are further clarified when examining after-tax income. While in the lowest-income households—in which 44 percent of children live—after-tax income would tick up by 0.3 percent without considering the cost of the cuts, they would fall by 16 percent when you factor in the costs. For the middle class: up 1.3 percent before; down by nearly 3 percent after.
And for the 1 percent, you ask? Their after-tax incomes would rise 11.5 percent without considering the costs of financing the cuts. With the pay-fors, their income would still rise by 11.3 percent.
In short, the burden of (eventually) paying for the wealthy's enormous tax cuts falls almost entirely on the poor and middle class.
Trump's trickle-down tax cuts will only serve as a further accelerant for already-crippling levels of wealth and income inequality.
Over the past 34 years, as The New York Times’s David Leonhardt’s illuminating chart shows us, the income of those in the top 99.999th percentile has grown exponentially while the growth rate of incomes for nearly everyone else has fallen.
The TPC report considered two other potential scenarios for measuring the costs; the one discussed here was the most regressive. But as Bernstein points out in the Post, there’s plenty of reason to believe that the route that Republicans choose to pay for the cuts will be even more regressive than TPC’s model, which generously includes the prospect of future tax increases.
Bernstein's apprehensions appear quite realistic considering the brutal spending cuts the Republicans put forward in their health-care repeal and budget proposals, which include rollbacks of Medicaid, Medicare, food stamps, welfare, and a whole host of other essential programs that predominantly benefit low- and moderate-income people. Trump and the GOP have given no indication that they would hesitate to offset enormous tax cuts for the rich with draconian cuts for the poor.
This is the one-two punch of trickle-down economics. First, enact tax cuts that mostly serve to further enrich the wealthy. Second, start yelling about the deficit and initiate drastic cuts in spending.
When trickle-down Republicans try to sell their tax cuts for the rich by offering crumbs to everyone else, be sure to ask how they intend to pay for them, and how many of those crumbs they plan to take away.
Tax Cuts for the rich. Deregulation for the powerful. Wage suppression for everyone else. These are the tenets of trickle-down economics, the conservatives' age-old strategy for advantaging the interests of the rich and powerful over those of the middle class and poor. The articles in Trickle-Downers are devoted, first, to exposing and refuting these lies, but equally, to reminding Americans that these claims aren't made because they are true. Rather, they are made because they are the most effective way elites have found to bully, confuse and intimidate middle- and working-class voters. Trickle-down claims are not real economics. They are negotiating strategies. Here at the Prospect, we hope to help you win that negotiation.
