After nearly a year in office, Donald Trump has finally achieved his first legislative victory. Just three days before Christmas, President Trump signed the Tax Cut and Jobs Act into law. He describes it as a “big, beautiful Christmas gift” to the American people. Trump and Republicans claim this overhaul will put more money back into the pockets of ordinary Americans, stimulate growth, and create jobs. Which is a bold statement, especially since numerous analyses show that the legislation will ultimately raise taxes on millions in the middle class. In reality, this is a huge boon for corporations and the wealthiest people in the country.
After years of complaining about the deficit, Republicans in Congress have just passed a bill that would add about $1.5 trillion dollars to the deficit. Treasury Secretary Steve Mnuchin argues that economic growth generated from this plan would more than pay for the deficit. “Not only will this tax plan pay for itself, but it will pay down debt,” Treasury Secretary Steve Mnuchin promised. But every analysis seems to indicate otherwise. Congress’s Joint Committee on Taxation released their report stating that growth will only pay for about 1/3 of the cost for this bill. On the optimistic side, the right leaning Tax Foundation’s analysis concluded even with a 2.7 percent increase to GDP and 5 percent increase to middle class income, that the bill increases the deficit by more than $500 billion over 10 years despite those effects. The most pessimistic estimate comes from the Committee for a Responsible Budget adding nearly $2 trillion.
Despite advocating for a deficit-neutral budget in the Obama years, Speaker Paul Ryan (R-WI) now claims cutting taxes and creating a deficit will encourage growth. The theory is cutting taxes for corporations and the wealthy will stimulate growth through “trickle-down” economics. More money for corporations means they can create more jobs and raise wages. In practice, however, this doesn’t work. The idea that cutting taxes boosts growth to the extent that the government receives more revenue is almost universally rejected by economists. Yet, the wealthiest Americans and the Congressmen that work for them, continue to push this theory. You can see it in the bill. Eighty percent of the plan’s benefits go to the top 1 percent of earners in America. Households making more than about $900,000 a year would see their taxes drop by more than $200,000 on average. In contrast, a working class citizen earning between $15,000-30,000 would see their taxes drop by about $450. Hardly a boon for working America.
The biggest winners though are the corporations. Unlike the personal tax breaks for individuals, the corporate tax breaks are permanent. The law creates a single corporate tax rate of 21 percent. This drops from the current corporate tax rate of 35 percent (the highest of any developed country). However, according to the Congressional Budget Office, U.S. companies’ effective tax rate – defined as the tax paid on investments earning the market rate of return after taxes – was 18.6 percent in 2012, after loopholes and deductions. Along with this bill, is a repatriation of oversea profits of international corporations totalling approximately $3.1 trillion at a rate of 15.5%. That equals billions of dollars saved for the corporations.
While the top 1 percent and corporations reap their rewards, the lower and middle class are left with scraps. The law increases the standard deduction for all Americans and increases the child credit. This will undoubtedly help some Americans. The restructuring of the tax bracket will also benefit a few Americans. Despite all this, the termination of many individual and itemized deductions will utimately lead to higher taxes for many middle class citizens. Once the individual tax cuts expire in 2025, the majority of Americans (53.4 percent) will pay higher taxes according to an anaylsis by the Tax Policy Center.
Under the new law, even healthcare is under attack. The individual mandate, a provision of the Affordable Care Act or “Obamacare” that provides tax penalties for individuals who do not obtain health insurance coverage, has been reduced to $0. This will gut the exchanges set up for those unable to afford insurance. According to the Congressional Budget Office, this will mean 13 million people will lose their healthcare insurance and premiums will increase by 10 percent. Whatever little is saved from taxes, will be outweighed by the rising costs of healthcare.
This bill is nothing short of highway robbery. Overall, American citizens are losing big from this law. Once the plan goes into effect and the deficit explodes, Republicans have already promised to tackle “entitlement reform.” Which is a fancy way of saying cuts to Social Security and Medicare. Any benefits to those in a lower economic status will be slashed or eliminated. The tax burden will be effectively shifted to the American worker, while corporations continue to rake in record profits. If this was truly for the American people, the individual tax cuts would be made permanent instead of the corporate cuts. Instead it was written by the donors who control our politicians through campaign contributions. Even Donald Trump promised none of the benefits would go to the top. Now that the bill has passed, his tune has changed. As he told wealthy friends over dinner at Mar-a-Lago, “You all just got a lot richer.” We, the American people, were sold out to Wall Street once more.
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