Alternative Fact of the Week: The middle-rich tax cut

While the vagueness of the tax plan unveiled this week by President Donald Trump gave him a lot of wiggle room to describe it in the most favorable terms possible, enough is known about the proposal to recognize that the president lied through his teeth. In fact, a prudent observer might be checking to see if the presidential choppers are false, too. From describing the proposal as the “largest tax cut in our country’s history” to suggesting he won’t personally benefit “believe me” (and one might add here, don’t), Mr. Trump wins Alternative Fact of The Week honors in what amounts to more of a windfall than a landslide.

Here’s the most obvious prevarication from the White House and the Republican leadership in Congress: It’s a middle class tax cut. Perhaps if you define “middle class” as mid-range millionaires, that’s fair. But what’s clear so far from the proposal is that the benefits aimed at average Americans — simplification of the tax code and nearly doubling the standard deduction — are pretty thin gruel. The loss of other deductions in the tax cut plan (the ability to write off dependents as well as state and local taxes) pretty much cancels out the latter, and the value of the former is greatly overstated.

Just as crystal clear is that the primary beneficiaries of the other major components of the tax plan aren’t anything close to middle class. Take, for example, the proposed repeal of the estate tax. Please. The notion that average, ordinary people are suffering because the tax is applied to “millions” of farms and small businesses, as Mr. Trump claims, is complete nonsense. The vast majority of inheritances aren’t subject to the federal tax because they have a gross value of less than $5.49 million. How many farms and businesses will face the estate tax this year? The nonpartisan Tax Policy Center estimates 80. Eight followed by zero. This is a tax cut created entirely for the wealthy. It’s the richest .1 percent who pay more than one-quarter of estate taxes, according to the center’s analysis. And those who pay estate taxes at all fork over an average of 9 percent.

But that “death tax” spin by advocates is a well-worn misrepresentation. Americans may be less familiar with two other tax breaks for the rich included in the GOP plan. One would repeal the alternative minimum tax. That’s the tax rate created a half century ago to make sure rich filers don’t get away with paying little-to-nothing in federal taxes. Unfortunately, the income level at which the AMT kicks in has not been raised sufficiently to keep up with inflation, so now it hits some households in the upper middle class range as well as millionaires. It deserves to be fixed, but an outright repeal? Mr. Trump’s leaked tax return from 2005 shows he paid $36.5 million in taxes instead of $5.3 million because of the AMT. Is that what he meant by saying he wouldn’t benefit? Believe him now?

Another handout to the wealthy would be to lower the corporate tax rate under the trickle-down theory that it would goose growth and create jobs instead of simply increasing corporate profits. As we’ve noted before, the U.S. has a high corporate tax rate on the books, but that’s not what most corporations actually pay once their accountants get done. Looking at the effective marginal tax rate, the U.S. is already competitive with its trading partners right now. A proposed cut for pass-through businesses is just as suspicious.

Yes, yes, tax policy can be as dull as dishwater, but average Americans ought to be skeptical from the start when politicians start talking about how reducing the federal income tax rate is in their interest. You can usually bet it won’t be. Why? Because middle income Americans aren’t the ones paying most of those income taxes. Studies show households earning between $40,000 and $130,000 are paying an average of 2.5 percent of their income in federal income taxes. It’s the wealthy who stand to benefit the most when rates go down. Meanwhile, a $1.5 trillion or more tax cut is going to drive up the federal deficit, raise interest rates and further compromise the government’s ability to pay for programs that actual middle class Americans care about like Medicare and Social Security. We can only speculate on the exact consequences given the lack of specifics, but that’s a lot more reliable prediction than any claim that tax cuts for the richest Americans will somehow push economic growth to 3 percent a year and rain jobs and higher wages down on the masses.

Become a subscriber today to support editorial writing like this. Start getting full access to our signature journalism for just 99 cents for the first four weeks.

Copyright © 2019, The Baltimore Sun, a Baltimore Sun Media Group publication | Place an Ad