Republicans in Congress have produced a tax reform proposal which, to all appearances, really does benefit lower-income earners. And although it will have indirect benefits for some higher earners — particularly those invested in companies that pay a lot in corporate taxes — it basically won't create the sort of huge windfall for the wealthy that we've seen in earlier tax cut proposals.
Yet, the rhetoric from Democrats is exactly the same as it always is — "tax cuts for the wealthy ... trickle down economics...." — and so on and so on, ad nauseam. It really does make you wonder.
The tax reform package has two parts, individual and corporate. The corporate tax is the main area where the plan produces a net cut in taxes, according to numbers from the Joint Economic Committee.
Democrats supported a sharp lowering of the corporate tax rate, at least in theory, when Barack Obama was president. That's because no one in any party is satisfied with a corporate tax code that has one of the world's highest rates (driving businesses off shore) yet allows one-fifth of large U.S. companies to avoid paying any taxes by exploiting all of its loopholes. A lower corporate tax rate within a simpler, loophole-free system would both reduce what American consumers at all income levels pay for goods and services, and eliminate perverse incentives for the offshoring of jobs.
On the individual side, meanwhile, there is a modest overall tax cut, amounting to about $300 million over ten years. And this benefit disproportionately goes to households that:
- take the standard deduction;
- rent their home;
- own a smaller home with lower property tax bills and smaller mortgages;
- have children;
- pay less in state income or sales taxes.
And who fits into these categories? Lower-income households, for the most part.
People making high six-figure incomes would also benefit from a lower rate, but this would at least partly be offset by their inability to take many of their favorite high-earner deductions — for state income taxes and large mortgages, for example. That's because the deductions we see disappearing ($1.3 trillion's worth over ten years) are generally the ones that high-income earners use, such as the deductability of interest from more than $500,000 of mortgage debt and the deduction for state and local income and sales taxes, and for property taxes above $10,000.
Despite their professed desire to make the rich pay their fair share, Democrats hate this stuff. They see it endangering local governments' ability to raise taxes with political impunity, thus potentially weakening their party's bench and burdening communities that choose to overtax themselves.
As House Ways and Means Chairman Kevin Brady, R-Texas, pointed out Friday, the times we live in are not like the Reagan era. And the proposed reforms in this package are not like the reforms from that time, either. Reagan's main contribution to the tax code was to bring down top marginal rates from ridiculous levels to more sustainable ones that were lower than today's, but not by that much. The Bush tax cuts of 2001 were a miniature version of that idea. So, you can at least understand if not agree with the cries at the time of "trickle down," similar to what we heard in the 1980s.
But the new tax package doesn't change the top marginal rate for individual income taxes (although it does change who pays it). And it even contains a "bubble tax" for million-dollar earners — an extra six percent slapped on income between $1 million and $1.2 million, to recoup from the uber-rich the tax cuts that apply to the bottom brackets.
Yet, despite so many measures that will exact a higher price from the wealthy, we hear exactly the same rhetoric from Democrats. Is it unfair to suspect them of ulterior motives? Of trying to protect tax-hiking as local policy? Of fearing that tax reform will be successful and help the party in power? Is there any middle- or lower-income tax cut they would support, that doesn't raise taxes on net? Or, like Bill Clinton during his presidency, will they always be satisfied to raise taxes on the rich and then forget all about their promise to cut them for the middle class?