The Republicans proposed a tax reform package Thursday that would, if signed into law, radically alter current tax laws and provide a huge windfall for corporations and millionaires. It would also add $1.5 trillion to the national debt over 10 years, so Republicans are already eyeing huge cuts in social programs to make up the difference. It will be a transfer of wealth from the needy to the greedy.
President Donald Trump stands to be a big winner if the proposed bill passes. The bill calls for the elimination of the estate tax by 2024. Trump's estate is worth a little over $3 billion, so this would mean Trump's children stand to inherit well over $1 billion more than they will under current law. The bill also eliminates the alternative minimum tax, which some individuals are subject to today. Trump would have paid $30 million less in federal taxes had the AMT been eliminated in time for the 2005 returns. No wonder the president is pushing Congress so hard to pass this bill.
Corporations are the big winners under the legislation. They will see their federal tax rate reduced from 35 percent to 20 percent. Republicans claim that the corporate tax rate is currently the highest in the world. House Speaker Paul Ryan said Thursday, "With this plan, we are making pro-growth reforms, so that yes, America can compete with the rest of the world." It should be noted that few U.S. corporations currently have to pay the full rate. Meanwhile most small businesses, the main driver of jobs in the economy, will not benefit under the GOP proposal. One special interest group spokesperson described the measure as a "war" on small businesses.
The proposal calls for only three tax brackets in an effort to "simplify" returns. The top individual bracket, for those with the highest income, is reduced to 35 percent. The lowest tax bracket goes from 10 percent to 12 percent, with individuals making up to $24 thousand annually paying no taxes. Nonetheless, the benefits for individual taxpayers will depend on their income, where they live and the type of tax breaks they claim. For instance, the measure caps the amount of state and local taxes that can be deducted from one's gross income. The bill also ends the electric car tax credit while increasing taxes on wind and solar energy.
Congressional Republicans and the president are desperate for a win after having accomplished nothing legislatively this year, even though they control both houses of Congress and the White House. So they must succeed with the tax cuts they promised last election or Republicans will be more vulnerable in the 2018-midterm elections. An ABC/Washington Post poll released Thursday shows that half of all Americans oppose the GOP plan, while 75 percent of Republicans favor it. Sixty percent of all Americans polled believe the plan favors the wealthy. Another concern for congressional Republicans is the thin majority they have in the Senate. To compound matters, Trump's harsh attacks against GOP Senators John McCain, Jeff Flake and John Corker has put the measure in further jeopardy.
It is estimated that only $300 billion of the $1.5 trillion proposed tax cuts would go to individuals. Corporations would get $1 trillion in cuts, and heirs to estates would get the remainder, about $200 billion (including the Trumps). Nonetheless, enactment of the tax cuts will mean Republicans can move on to one of their favorite targets: entitlements. They will use the exploding debt as a justification for deep cuts in Medicaid and Medicare; only they will call it "reform." They will propose block grants and caps on the rate of growth. It will amount to billions of dollars in reductions. And people in need, especially seniors and the poor, will feel the impact.
This is the GOP long game, it is consistent with their core philosophy of smaller government, and a win on taxes will give them a head of steam to rein in entitlements. But to follow the Republican playbook will lead to an even larger disparity between rich and poor Americans. And the immense income disparity in this country today, the richest nation in the world, is already an inexcusable tragedy!