The Republicans are no longer the party of the hard-working professionalby James Kwak / October 4, 2017 / Leave a comment
It’s no longer enough to be rich in Donald Trump’s America. Now, it’s only the super-wealthy who matter. That’s the message of the tax plan released by the Trump administration last week.
If you are a garden-variety rich person earning a six-figure salary, like a corporate vice president, President Trump doesn’t actually have much to offer you. The top marginal tax rate will fall from 39.6 per cent to 35 per cent, but today the higher rate only kicks in well above $400,000 per year, which puts you comfortably in the top 1 per cent. At the same time, the Trump plan eliminates personal exemptions and, more importantly, the deduction for state and local taxes, which mainly benefits high-income people with big houses in high-tax states. According to the nonpartisan Tax Policy Center, Trump could even be raising your taxes; by the time the law is fully phased in, the average family between the 80th and 95th percentiles of the income distribution (that is, the top 20 per cent, excluding the top 5 per cent) will pay slightly more in taxes than it would otherwise.
Many rich people would be willing to pay higher taxes in order to help solve our nation’s problems. In this case, however, they are paying more so the truly wealthy can pay less. The big tax cuts in the Trump plan are: first, the reduction in the corporate tax rate from 35 per cent to 20 per cent; and, second, the new 25 per cent cap on the tax paid on “pass-through income” from certain business entities such as partnerships, S corporations, and limited liability companies (LLCs). What do these two somewhat arcane tax cuts have in common? Although they are technically imposed on income, at the end of the day they are really about wealth.
Let’s start with corporate taxes. They are levied on the profits earned by corporations but, as Mitt Romney famously meant to say, corporations are ultimately owned by people. Though there is some debate, most economists—including those at the Congressional Budget Office, the Joint Committee on Taxation, and the Treasury Department—think that the vast majority of the corporate tax falls on shareholders in the form of lower profits. (A small amount falls on employees in the form of lower wages.) In other words, the corporate income tax is really a tax…