President Donald Trump and congressional Republicans are primed to ram through tax cuts, but unless you’re part of the 1 percent, it wouldn’t be very good for your finances.
While some details remain to be worked out, what has become public suggests there would be a windfall for the wealthy and precious little for the middle class. What’s known is more than enough for the vast majority California taxpayers to tell their representative to stop this unfair legislation, which would only worsen income inequality in America.
Republicans are floating changes to 401(k) plans – how private-sector workers without traditional pensions have been told to save for retirement. In 2015, more than 50 million Americans had 401(k) accounts, which allow them to contribute as much as $18,000 a year tax-free.
Rep. Kevin Brady of Texas, chairman of the tax-writing committee in the House who is expected to unveil his bill in the next several days, says 401(k)s aren’t working well. Trump promised that the retirement accounts would be left alone, but as we’ve learned by now, he could change his mind at any moment.
Also on the chopping block is the deduction for local and state taxes, which is far more important in high-income states, as Govs. Jerry Brown of California and Andrew Cuomo of New York made clear in a joint press call Friday. Cuomo said his state’s GOP representatives who voted Thursday to clear the way for the tax bill committed treason.
In 2015, nearly 6 million California taxpayers deducted a total of about $80 billion. Many of these taxpayers had incomes of between $40,000 and $150,000 a year, though in terms of the amount deducted, the relatively few households whose income exceeds $1 million reaped the most, more than $30 billion.
Brown wrote Wednesday to California’s Republican congressional delegation, imploring them to vote against doing away with the deduction. He called it a “horrible idea,” especially when corporations that pay state taxes would keep their tax break. “Can you tell me how much your neighbors and fellow citizens will have to pay because of this proposal? Budget analysts say it will cost them many thousands of dollars!” Brown wrote.
Sen. Dianne Feinstein put out county-by-county figures showing that the biggest-dollar deductions for state and local taxes were taken in the Bay Area. In Sacramento County, nearly 219,000 taxpayers claimed an average deduction of $10,865 in 2015.
“This action is bad enough on its face, but to raise taxes on families in order to drastically cut taxes for the richest Americans is unconscionable,” Feinstein said in a statement.
Trump and Republicans want to repeal the estate tax, which would help the richest Americans. The so-called death tax is imposed on the portion of estates that exceed $5.5 million per person or $11 million per couple. In 2015, wealthy Californians accounted for 26 percent of the $17 billion generated by the tax.
The Trump-GOP blueprint would also do away with the alternative minimum tax, put in place in 1970 after outrage that rich people used loopholes to avoid paying any federal income taxes.
Republicans and the White House are trumpeting that individual tax brackets would shrink from seven to three. What they don’t highlight is that the top rate would decline from 39.6 percent to 35 percent, benefiting wealthy people, while the bottom rate would actually increase from 10 percent to 12 percent, harming low-income workers.
And while the standard deduction would be doubled – to $12,000 for individuals and $24,000 for families – the savings would be partly offset by eliminating the personal exemption.
Overall, the top 1 percent of income earners in California would get 82 percent of the benefits, according to the California Budget & Policy Center. The middle 20 percent would only receive about 8.5 percent of benefits. That’s even more unbalanced than the nation; the 1 percent would get 67 percent, while the middle fifth would get 6.5 percent.
The working GOP blueprint would also cut the corporate tax rate from 36 percent to 20 percent. The White House argues that lower tax bills for big business would create lots of new jobs and mean higher pay for workers, a 2017 version of failed trickle-down economics.
Maybe the details of the tax plan will turn out to be somewhat more beneficial to working and middle-class Americans than it now appears. And maybe Trump – who is promising the biggest tax cut ever – will tone down the hyperbole and help negotiate a fairer, bipartisan plan. Neither is likely to happen.
Instead, Republicans are full speed ahead to pass a tax cut bill – any bill – before the end of the year so they can claim a big legislative accomplishment, even if it benefits the super-rich who least need a break.
Of course, Trump and Republicans also vowed to repeal and replace Obamacare but failed, spectacularly. One big motivation behind Trumpcare was to get rid of the taxes on the wealthy that help finance the Affordable Care Act.
Republicans in the Senate and House have passed budget outlines to clear the way for this major tax rewrite without needing Democratic votes. It’s another sign of today’s deeply divided politics, but it’s not how the last major tax reform was done in 1986 under President Ronald Reagan.
All 14 California Republicans in the House voted Thursday for the budget bill. Now they have a choice – kowtow to Trump, rich people and corporations, or look out for the vast majority of their constituents.
House Minority Leader Nancy Pelosi of San Francisco warns that the GOP tax plan would be a “looting” of the middle class, would explode the federal debt and could lead to severe budget cuts.
She is urging fellow Democrats to hold events during the weekend of Nov. 3 to ramp up opposition, making clear Republicans would have to answer to voters in 2018 if they go through with tax cuts for rich people and corporations. That’s politics. What would be far better is real tax reform that gets rid of special interest loopholes and helps the middle class.