Alternative Facts of the Week: GOP tax bill edition

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We struggle at times to narrow down our choice to just one Alternative Fact of the Week, and with Republicans in the House and Senate embracing a full divorce from reality in their rush to pass by Christmas a “compromise” tax bill that the American public roundly opposes, it was simply impossible. Herewith our picks for Alternative Facts of the Week, tax cut edition.

President Trump gives remarks on tax reform at the Grand Foyer of the White House Wednesday.

Alternative fact: A boon for the working class

In a bit of cheerleading for the efforts of House and Senate negotiators to reconcile the differences between their bills, Mr. Trump on Wednesday brought five families to the White House to extol the benefits they expected from the legislation. The president added: “As a candidate, I promised we would pass a massive tax cut for the everyday working American families who are the backbone and the heartbeat of our country. Now we are just days away from keeping that promise.”

The GOP's 2018 fantasy

Actual fact: Benefits for the rich

Here is what broke the logjam in the negotiations between the House and Senate: Republicans agreed to give a slightly less massive tax cut to corporations (dropping the rate from 35 percent to 21 percent instead of the 20 percent in both chambers’ initial bills) in order to give an even bigger tax cut to the rich than either chamber dared offer previously. The House bill left the top marginal income tax rate at its current level of 39.6 percent but had it kick in at a slightly higher income level ($500,000 a year for individuals or $1 million a year for couples filing jointly). The Senate bill dropped that rate to 38.5 percent with the same income threshold the House adopted. Now, thanks to the cash they freed up by inching the corporate rate up a teensy bit, they want to cut the top rate even lower, to 37 percent.

We’ll have to wait a bit for the number crunchers to tell us just how big a giveaway that is for the wealthiest Americans, but in general, the answer is: yuge. The income thresholds for the top bracket correspond roughly to the top 1 percent of earners, and the Senate bill was already tilted heavily in their favor. The Tax Foundation, a non-partisan but conservative leaning group, estimated that the Senate bill would increase the take-home income of the 1 percent by 7.5 percent in 2018. Compare that to what the bill did for those you might call “everyday working American families” — say, those smack in the middle of the income spectrum. They can expect an extra 1.7 percent in their paychecks by the Tax Foundation’s estimate. The Tax Policy Center, a joint effort of the Urban Institute and Brookings Institution and generally more liberal-leaning than the Tax Foundation, predicts a lower overall benefit for taxpayers but the same pattern: The biggest gains percentage-wise (and, obviously, in raw dollars) go to those who already earn the most. By 2027, the TPC estimates, 62.1 percent of the benefits of the legislation will go to the top 1 percent. No question, lowering the top marginal rate by another 1.5 percentage points will only exacerbate that.

<p>Rep. Kevin Brady, R-Texas, presides over a markup session of the proposed GOP tax reform legislation on Nov. 6, 2017, in Washington. Brady told reporters&nbsp;Dec. 5&nbsp;that tax writers are looking at a number of ways to give relief to residents of high tax states.&nbsp;</p>

Rep. Kevin Brady, R-Texas, presides over a markup session of the proposed GOP tax reform legislation on Nov. 6, 2017, in Washington. Brady told reporters Dec. 5 that tax writers are looking at a number of ways to give relief to residents of high tax states. 

(Chip Somodevilla / Getty Images)

Alternative fact: This is about helping people

House Ways and Means Committee Chairman Kevin Brady said on Wednesday that “We decided not only what we wanted our tax code to stand for, but who it would stand with. Whether that was Washington special interests or all the workers, families, and local job creators. ... We chose the American people.”

Corporate tax cuts don't necessarily mean higher wages.

Actual fact: They chose corporations

A particularly odious bit of the Senate bill appears to have prevailed in the negotiations, which is that reductions to the corporate tax are permanent whereas the individual tax cuts would expire after 2025. But that just underscores the fundamental truth of this exercise, which is that about two-thirds of the cost of the legislation is tied to corporate tax cuts and one third to tax cuts for individuals.

The Republican theory for why this is good for the average working Joe and Josephine is that corporations will be less likely to move overseas to countries where corporate taxes are lower, and that they will spend their newfound bounty on creating jobs and raising salaries. The White House Council of Economic Advisers this fall made the eye-popping claim that cutting the corporate tax to 20 percent would boost annual wages by $4,000 to $9,000 per household. As Alternative Fact Godmother Kellyanne Conway put it on Fox News last month, “When our businesses pay less in taxes, they reinvest that money into their companies. They create new jobs. They save and secure jobs that exist. They start paying more in benefits and different benefits, and they invest in inventory,"

That would be nice, but it’s not necessarily what happens. When the George W. Bush administration created a tax holiday in which companies could repatriate foreign earnings at a deeply reduced tax rate, most of the money went to stock buybacks, paying down debt and other moves that benefited shareholders, not wage earners. Given the current economic reality — strong corporate earnings, high stock prices and low interest rates — the conditions a corporate tax cut are designed to fuel already exist. Yet despite low unemployment, wages remain stagnant. There is no reason to expect that throwing more money into already flush corporate coffers will change that.

Speaker of the House Paul Ryan (R-WI) speaks during a news conference on Capitol Hill December 12

Alternative fact: You’re getting a raise in February

House Speaker Paul Ryan was quite taken Wednesday with President Trump’s announcement that if Congress can pass the tax bill by the end of the year, the IRS will have new withholding tables ready by February to reflect the new rates. “Because the Tax Cuts and Jobs Act is a big tax cut for working people, this change will mean less of a paycheck will go to Washington and more will go to the hardworking person who earned it,” the speaker said in a press release. “This is real tax relief for real people — and it’s coming very soon.”

Even if you federal taxes go down, you state taxes might go up.

Actual fact: You may see more in your paycheck, but will you keep it?

This tax bill isn’t just a cut in rates. It also involves myriad changes to the deductions and credits in the individual tax code, many of which negatively impact Maryland more than most other states. Depending on your circumstances, reduced withholding may leave you with a bigger tax bill a year later.

A big issue in Maryland is the bill’s limit to the state and local tax deduction. Currently, there is no limit on such deductions (unless you qualify for the Alternative Minimum Tax), but the bill now taking shape would cap those deductions at $10,000. In a high tax state like Maryland, a middle income family could easily exceed that figure between state and local income and property taxes. Indeed, the deductability of state and local taxes is a prime reason why Maryland is No. 1 in the nation in the percentage of filers who itemize their deductions. The elimination of personal exemptions and the near doubling of the standard deduction won’t make up for that change for many Maryland households.

Those Maryland taxpayers who do benefit from the higher standard deduction could still get the shaft. You can only itemize your deductions on your Maryland return if you did so on your federal return. Because the standard deduction for Maryland income taxes is much lower than the new federal level (a maximum of $4,000 for joint filers), any savings from the federal tax cut could wind up being offset by a bigger bill from the state when tax time rolls around.