Bill Honig, former State Superintendent of Education in California and owner of the Honig Vineyard, has closely studied the Republican Tax Plan and found that it is even more harmful than originally presented.
He writes:
The GOP/Trump tax cut bill is a much more massive shift of the tax burden from the wealthy to the middle-class and low income families than reported–essentially borrowing from the future, taxing the working classes, and cutting needed services to finance an unnecessary tax cut for the wealthy who are already living high on the hog and receiving an unprecedented share of post-tax income.
“For the full FAQ sheet http://www.buildingbetterschools.com/2017/12/26/faq-for-gop-trump-tax-bill/ Text below.
“FAQ on the GOP/Trump Tax Cut
“How Large Is It?
“Most reporters and commentators characterize the GOP/Trump tax cut legislation as a $1.5 trillion bill. That’s not remotely accurate and seriously underestimates the magnitude and severity of the recently passed law. According to the latest Congressional Budget Office analysis, the ten-year effect of the legislation is a net $3.9 trillion tax reduction (more than 2 ½ times what is being reported) even after you subtract the elimination of $1.3 trillion of corporate deductions from the total of $5.2 trillion in total tax cuts.
“Who Benefits?
“The tax reductions overwhelmingly benefit mega-wealthy families and corporations. Many of our most well-off citizens will annually pocket tens of thousands of dollars and some even millions while everyone else receives meager tax breaks or in some cases immediate higher taxes. Tax cuts which do help middle and low income families in 2018 (inflated to be in time for the 2018 elections) diminish over time until they are eliminated. According to Tax Policy Center, ten years from now 83% of the cuts will go to the top 1% and 53% of American families will suffer a tax increase–a classic case of bait and switch. In contrast, the corporation cuts are permanent.
“Do the wealthy really need such a large tax break so that they can buy another mansion, a bigger yacht or jet, throw another party, buy another designer outfit, or pad their bank accounts while tens of millions of families living paycheck to paycheck receive a pittance or get taxed? Republican mega-rich donors must think so because they drove the whole perverted process by which the tax bill was passed.
“Who Pays?
“Middle and low income families. The $3.9 trillion net tax cuts in the GOP bill are paid for by;
“borrowing $1.5 trillion or more by increasing the federal debt–a burden on our economy and our children in years to come;
“raising $2.1 trillion in taxes on mostly middle-class and working-class families by eliminating the personal exemption, changing the inflation measure, capping state and local tax deductions (which primarily affects the upper-middle class in blue states), and some other miscellaneous deductions; and
“cutting $314 billion from health care by eliminating the mandated Obamacare contributions which will have the added harm of increasing premiums by 10% and dropping 4-9million people from medical care.
“Thus, this tax cut bill is a much more massive shift of the tax burden from the wealthy to the middle-class and low income families than reported–essentially borrowing from the future, taxing the working classes, and cutting needed services to finance an unnecessary tax cut for the wealthy who are already living high on the hog and receiving an unprecedented share of post-tax income.
“What Happens to Inequality?
“This country is currently suffering from dangerously high levels of inequality not witnessed since the Guilded Age and the Roaring Twenties–the latter period followed by the Great Depression of 1930’s caused primarily by the failure to pass down to workers enough wages to sustain demand. A multitude of research has shown that high levels of inequality stunt economic growth and opportunity. At present, the top 1% own 40% of US wealth which is more than the combined wealth of the bottom 90% and receive almost 20% of yearly income which is about twice as much as the share of the bottom 50% of families. The GOP/Trump tax plan will make this bad situation much worse.
“Was There Any Bi-partisan Support?
“Not one Democratic senator or member of Congress voted for the GOP/Trump tax plan, so broad support is absent. Because the GOP congressional leaders rushed the drafting of the bill behind closed doors flouting normal procedure with no public hearings, there are many errors and hidden rip-offs creating fertile soil for gaming the tax code by such methods as turning individuals into corporations. Last minute loopholes and outright looting were obtained by lobbyists such as the pass-through write-off for real estate trusts which benefit real-estate moguls such as President Trump and his family. The real cost of the bill may turn out to be much higher and borrowing could exceed $2 trillion.
“How Extensive is the Collateral Damage?
“Severe. Existing budget rules, unless changed (good luck), mandate large and growing cuts to Medicare due to the increased deficit–$25 billion in 2018 and over $400 billion in the next ten years. GOP’ers are already using the existence of a larger deficit to refuse to fund health services for 9 million children under the CHIP program, insisting on public health cuts for millions of other children and calling for cuts to Medicare, Medicaid, Social Security, and medical and basic research. Republican leaders and President Trump are also proposing wide-spread reductions in other public services. For example, the proposed GOP budgets reduce federal funds for public schools while the GOP tax bill gives wealthy private school parents a significant tax break–in effect subsidizing private schools at the expense of the public school sector. This is consistent with many Republican politicians and the President’s expressed hostility to public education and encouragement of privatization of our public schools.
“Will There Be Enough Growth to Offset the Increased Debt?
“Nope, or minimal at best. GOP arguments that that the tax cuts for the wealthy pay for themselves by causing higher economic growth which will increase tax revenues to pay for a substantial portion of the larger deficit have been debunked by almost every reputable economist and the federal financial advisors who forecast minimal growth from the cuts. Furthermore, if there turns out to be greater revenues from greater growth, they are necessary to pay for current Medicare, Medicaid, and Social Security future obligations. To divert them to the un-needy wealthy now means cuts in these programs later.
“Was There A Reversal of Settled Tax Policy?
“The GOP tax bill violates elementary standards of good policy by creating different classes of winners and losers. For example, for the first time in our history, tax legislation overwhelmingly favors those who earn through capital over those who earn from wages.
“Does the GOP Rationale for the Tax Bill Withstand Scrutiny?
“No. The major selling point of the GOP is the assertion that reducing the corporate rate will substantially increase growth and workers will receive sizable benefits from that growth. That contention is also disputed by the vast majority of economists, the official scoring reports and the history of tax cuts and tax increases. Bush II cut taxes and subsequent growth was weak; Clinton raised taxes and subsequent growth was spectacular which flies in the face of the GOP theory.
“The GOP’s specific argument that wages will rise significantly because giving corporations more cash and lower taxes will cause them to invest, which will increase productivity, which will then be shared with their employees, doesn’t hold water. According to recent reports such as the one by the Economic Policy Institute each assumption is false. Corporations currently are awash with cash, corporate profits as a percentage of GDP are at their peak, the corporate tax share of federal revenues has plummeted (the wage share has skyrocketed) and yet large-scale investment hasn’t occurred. No surprise there. Investments are made based on projected demand. Availability of cash and tax rates play a small part in those decisions. More importantly, productivity gains during the past decades have not been shared with workers.
“Instead, the increased profits for most firms have been used to buy back shares to raise stock prices, balloon executive pay, and increase distributions to shareholders. That same overall pattern occurred when billions of dollars were repatriated in 2004. A repatriation holiday allowed corporations to bring back billions of overseas profits at a lower rate. The 15 companies that brought the most profits back to the U.S. used them to buy back shares instead of boosting investment, and actually ended up cutting jobs and slightly lowering their research and development spending. Why would corporate behavior change this time around? Experts say it won’t. Even the most optimistic predictions suggest that only a small percentage of any increased cash or profits from corporate tax cuts will be given to wage earners.
“For individuals, one of GOP’s more discredited arguments is that the super-wealthy pay the lion’s share of taxes so if taxes are cut they will have to receive most of the benefits. That’s nonsense. It’s true that the rich pay a large percentage of income taxes because, unlike most families, their before tax incomes have grown substantially during the past decades. However, the canard that these rich families pay almost all of federal taxes is demonstrably false. Income taxes constitute less than half of federal taxes. Payroll taxes are a third. The wealthy pay no payroll taxes on income just over $100k which means for mega-earners most of their income is exempt from payroll taxes. Corporate taxes were at record low levels in 2016 at only nine percent of federal tax receipts. There was no shortage of ways to ease the tax burden on the middle class without providing the rich with a windfall, if that’s what the GOP and the president wanted.
“Were There Much Better Ways to Stimulate Economic Growth and Increase Wages?
“Failure to bolster demand by sharing profits with workers is the most likely reason for low investment. Worker’s wages have been essentially flat for decades.
“If the goal was to increase wages, the tax plan could have just given wage earners a larger share of the tax breaks directly, reduce their payroll taxes, or invest in rebuilding the US. Growth strategies which aim at increasing demand or direct investment result in much higher growth than trickle down measures.
“Particularly galling is the lost opportunity to re-build America. If we are going to borrow over a $1 trillion, wouldn’t it have been fairer and much more productive to invest it in fixing our roads, bridges, ports, fire and flood protection, airports, schools, and power grids instead of giving an unneeded windfall to the rich? In fact, the GOP could have chosen to invest in infrastructure without increasing the debt by just closing the corporate loopholes agreed to in the bill and not giving a whopping tax cut to the richest Americans. The economic payoff from building infrastructure is multiples higher than tax cuts skewed to the ultra-wealthy and corporations, with the added benefit of creating jobs and improving the health and safety of the nation. Unfortunately, any proposed GOP/Trump infrastructure plan for 2018 will be woefully short of funds because of the heavy debt borrowing to finance tax cuts for the rich.
“Were Corporations‘ Taxes Higher Than Other Countries?
“The GOP’s other argument made is that the US corporate tax rate of 35% was among the highest in the world and non-competitive. They contend that lowering it to 21% will attract investment from foreign companies or US companies threatening to leave. Actually, because of loopholes, our effective tax rate was 23%–already below the world average and thus competitive. Since most loopholes in the GOP tax bill weren’t changed, effective tax rates will plunge to 9% according to a UPenn-Wharton estimate, basically giving corporations a free ride. Since corporate taxes as a share of total taxes are already at historic lows, further lowering of their rates shifts that much more of the tax burden to the middle and working classes. Furthermore,, even if foreign corporations invest here, why would we think that these companies would act differently than domestic companies in allocating a decent share of profits to workers?
“How Much Do Foreigners Benefit?
“Corporate shareholders, most of them wealthy will do very well under this GOP/Trump tax bill. Unfortunately, nearly a third of them are foreigners, mainly millionaires and billionaires, so the effect of the GOP tax plan is to borrow from the future and tax the middle and working classes in order to ship large amounts of cash out of the country. Make America Great, indeed?
“Is This the Best Time for Massive Tax Cuts?
“Finally, with unemployment low and a potential recession on the horizon this is not the time to add to the debt and disarm our ability to fight a downturn when it arrives.”
