In a recent interview, Rep. Erik Paulsen (R-Minn.) said that the new GOP tax plan will be “geared absolutely toward middle-income folks. ” But independent analyses suggest that the big winners are the super-rich, not the middle class.
The nonpartisan Tax Policy Center found this week that the biggest beneficiaries would be the richest 1 percent of Americans, who would reap half of all the tax benefits offered by the plan. (By 2027, this figure would increase to 80 percent of all benefits earned under the plan.) People in this tax bracket would enjoy a boost to their after-tax incomes by 8.5 percent. And the richest 0.1 percent of Americans－who earn upwards of $5 million each year－would do even better, and see their after-tax incomes increase by 10 percent.
Middle-income Americans, on the other hand, would see only a miserly 0.5 to 1.2 percent average increase in their after-tax income. In 2018, some people－including 13.5 percent of middle-income earners－would actually end up paying around $1,800 more in taxes under the Republican plan.
The taxes owed by people at different income levels would also change over time. As Politico reported: “By 2027, about 30 percent of those earning between $50,000 and $150,000 and 60 percent of those taking home between $150,000 and $300,000, would pay more under the Republican plan.”
Mark Mazur, who leads the Tax Policy Center and served as the assistant secretary for tax policy in the Obama administration, criticized the GOP plan. He was especially alarmed by the elimination of the estate tax (which only affects estates worth $5.5 million or more) and the alternative minimum tax, as well as the Republicans’ plans to cut the top income tax rate and the levy on pass-through businesses. “All of those things benefit high-income individuals either exclusively or largely, and so it’s hard to see how, if you continue to have those provisions in a tax reform proposal, that doesn’t benefit high-income individuals and high-income households disproportionately,” said Mazur.
Daniel Hemel, an assistant professor of law at the University of Chicago, was also critical of the GOP plan. “Based on the details of the plan that have been released, a married couple with two kids earning [under] $79,583 a year would pay more under the Trump plan than under existing law,” Hemel said.
Yet Rep. Paulsen has insisted that the tax plan is good for “middle-income folks” and “small businesses.” A member of the House Ways and Means committee, Paulsen has a key role in developing the plan. He also emphasized that “the United States is No. 1 in the world for highest corporate tax rate.” While this is technically true, big corporations have armies of accountants that push their effective tax rate down to about half of their official (statutory) rate.
While Paulsen has reluctantly admitted that several elements of his tax plan “may be a benefit to a high earner,” his Republican colleagues have offered even more exaggerated defenses. National Economic Council Director Gary Cohn has said “the wealthy are not getting a tax cut under our plan.”
In a speech Wednesday, President Trump himself said, “It’s not good for me, believe me.”
But evidence points to the contrary. Pass-through businesses like those that Trump has built his business empire on would see their effective tax rates fall from almost 40 percent to 25 percent.
Other types of businesses would also benefit. The corporate tax rate, for instance, will fall from 35 to 20 percent.
“Len Burman, a fellow at the Urban Institute who formerly worked at the nonpartisan Congressional Budget Office, said, ‘One thing I find troubling about big, deficit-financed tax cuts is it kind of looks like a free lunch.’ Burman pointed out that the burden of the postponed taxes could fall on lower- and middle-income people in the future, through tax increases or cuts to programs that benefit those groups.”
The GOP has pushed back against the Tax Policy Center’s report. White House spokeswoman Sarah H. Sanders said, “The Tax Policy Center analysis is useless and misleading because the unified framework does not include details that are necessary to determine either the cost or distributional effects of the framework. They either ignore — or use inaccurate assumptions — about important proposals like the size and availability of the child tax credit and other provisions.”
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