Republicans Pass Tax Cut; Who Wins?

December 20, 2017

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Congressional Republicans, with no support from Democrats, have used their majority control of both houses to pass the tax bill that emerged from the conference committee. It is fairly close to the one passed by the Senate, the one I’ve referred to previously as the “Magical Disappearing Tax Cut.” Unlike the corporate tax cuts, the individual cuts in the bill are scheduled to expire after 2025.

The final bill differs in a few ways from the earlier Senate version:

  • The top tax rate for wealthy taxpayers is lowered from 39.6% to 37%, instead of only to 38.5%
  • The corporate rate is cut from 35% to 21% instead of to 20%
  • Taxpayers with income from “pass-through” businesses such as partnerships and S-corporations still have to pay taxes at individual rates, but they can deduct 20% of the income before applying those rates
  • The deduction for state and local taxes is not repealed, but is now limited to $10,000
  • The Alternative Minimum tax, which is designed to keep rich individuals and businesses from reducing their taxes too much with deductions, is repealed only for corporations, but individuals can exempt more income before paying it

Who gets a tax cut? The short, but somewhat misleading answer is almost everybody who pays income taxes now.  However, the big winners are corporations and the wealthy, despite the assurances from the White House to the contrary. The benefits for the rest of us are a little harder to sort out, but they fall into a range from small (for the middle class) to almost nonexistent (for low-income households).

The richest fifth

I will once again draw on an analysis by the Tax Policy Center, which considered the effects of the bill on each quintile of the population by income. They estimated that in the top quintile in 2018, the average tax filer will see a $7,640 reduction in taxes and an increase of 2.9% in after-tax income.  The percentage of filers getting a tax cut will be about 94%.

The bill includes many benefits that go disproportionately to the wealthiest Americans:

  • The lower corporate rate that primarily benefits the wealthy because they own most of the corporate stock
  • The lower individual rates, especially the reduction in the top rate from 39.6% to 37%
  • The exemption of 20% of income from “pass-through” businesses, especially beneficial to real-estate partnerships such as Donald Trump’s
  • The exemption of more income from the Alternative Minimum Tax
  • The doubling of the estate tax exemption, so that heirs can inherit twice as much money tax-free

One provision of the new law that will impact negatively on some wealthy families is the reduced reduction for mortgage interest from $1.1 million to $750,000.

The Tax Policy Center estimates that in 2018, 65% of all the tax cuts will go to the richest fifth of the population. That does not include benefits that may trickle down from corporations to their workers, but most economists expect those benefits to be pretty small.

The middle fifth

In the middle quintile (neither in the upper 40% nor lower 40%), the percentage of filers getting a tax cut will also be very high, 91%. The average change in taxes will be much smaller, $930, and so would the increase in after-tax income, only 1.6%. The tax brackets that most affect the middle class have rate reductions of only 3 or 4 points. Contrast that with the 14-point reduction in corporate taxes and the new 20% exemption for pass-through business income.

Although the standard deduction increases by $5,500 for individuals and $11,000 for married couples, that is largely offset by the repeal of the personal exemption, currently $4,050 per person. Similarly, the child tax credit increases from $1,000 to $2,000, but families need that to make up for the lost tax exemption for children. Taxable income will remain just as high as now for many filers, and for some it will increase. Those who want to itemize because their deductions for mortgage interest, property taxes, state taxes, charitable donations, etc., exceed the standard deduction may not get much under the new system. They will gain nothing from the increased standard deduction, but they will still lose their personal exemptions. Those in high-tax states will also lose from the new limitation on state and local tax deductions.

The bottom line for the middle-class is a modest and temporary tax cut. The rhetoric on both sides has been a little excessive about this. The new law isn’t a huge cut for the middle class, but it’s not a transfer of wealth from the middle class to the rich either. It is a small tax cut whose full impact depends on who ultimately pays for it and how.

The lower two-fifths

In the lowest 40% of the population, the immediate effects are even smaller. In the Tax Policy Center analysis, only 54% of the lowest quintile and 87% of the next quintile even get a tax cut. The average change in taxes is only $60 for the lowest quintile and $380 for the next. The average increases in after-tax income are 0.4% and 1.2% respectively.

The main reason why the impact is so small is that people with low incomes are not paying much federal income tax to begin with. They are often paying more in payroll taxes, and the bill provides no relief there. Consider a married couple with two children and an income of $45,000. Under the system in effect for 2017, they reduce their taxable income by taking a $4,050 personal exemption for each member of the household and a standard deduction of $12,700. That makes their taxable income low enough to put them in the 10% bracket, and their calculated tax low enough to be wiped out by their child tax credit of $1,000 per child. Cutting taxes for people who don’t pay much in taxes isn’t easy. Many families will experience what changes there are not as a cut in what they pay, but as a small increase in what the government pays them in refundable child tax credits.

That does not mean that low-income households have no stake in tax policy. Defenders of the legislation argue that it cuts taxes for the people who pay most of the taxes. That would be all well and good if the government were running a surplus, and could afford to send some tax revenue back where it came from. But when the government is running a deficit and having trouble paying for important things that need to be done, like rebuilding infrastructure and keeping Social Security solvent, borrowing more money in order to finance tax breaks for corporations and the wealthy makes less sense. Because the tax cuts for corporations and higher-income households will drive up the federal deficit by an estimated $1.45 trillion over ten years*, Republicans can be expected to drop the other shoe, calling for offsetting spending cuts. And since low-income households depend more on federal programs like Medicaid, Medicare and food stamps, they have the most to lose. In addition, the Congressional Budget Office projects that the repeal of the Obamacare insurance mandate will force health insurers to raise premiums 10% per year because they will have fewer healthy customers. That would make subsidized health insurance less affordable for low-income families. So the tax bill is a big deal for the rich, a small deal for the middle class, and a bad deal for the lower classes.

Looking ahead

The Tax Policy Center projects that in 2027, after most of the individual tax cuts have expired, only 25% of taxpayers will still be getting a cut, while 53% will be paying a little more than they would under current law. One reason for that is that the bill changes the way tax brackets are indexed for inflation, and does it in a way that favors the government. For most people, however, any tax increases will be extremely small. The more important part of the story is that the top quintile will still see an average tax cut of $1,260 while people at other income levels get virtually nothing. That’s probably because the wealthy continue to benefit from the permanent cut in corporate taxes.

Instead of exaggerating any harm that will be done to the middle class after the individual tax cuts expire, we should instead be focusing on the potential harm to society in general if our government is deprived of the revenue it needs to address pressing social needs. The tax cut makes perfect sense to those who believe that government should sit back and wait for free markets to solve our problems. The number of people who believe that government has waited too long already seems to be growing, which may explain why this tax cut is the least popular one in modern American history. Republicans say that we will learn to love it. We’ll see.


*In the time available, the CBO was not able to factor in the possibility that additional growth in the economy generated by the tax cut might produce some offsetting revenue. Most economists expect such effects to be small. Although they have made extravagant claims about these effects, Republicans quickly passed the bill without giving the CBO time to estimate them. Secretary Mnuchin claimed that the Treasury Department had its own analysis of this question, but he has not produced it.

 


The Senate’s Magical Disappearing Tax Cut

November 28, 2017

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The tax bill proposed by Senate Republicans differs in at least two noteworthy ways from the version already passed by the House: It repeals the individual mandate in the Affordable Care Act, and it makes the tax cuts for individuals expire after only eight years. These provisions make the bill an even worse deal for the middle class than the House version, which was already bad enough.

The individual mandate

What is another attempt to repeal Obamacare doing in a tax bill? Technically, it can be there, because the mandate to buy health insurance depends on tax penalties for failing to do so. The tax penalties also give the mandate a legal basis in the government’s power to tax, instead of just in the government’s power to regulate interstate commerce, an argument that proved decisive when the Supreme Court found the law constitutional. Without those tax penalties, most experts worry that too few healthy people will choose to carry insurance, forcing insurance companies to raise premiums on those with pre-existing conditions. If millions of them go without coverage too, that will defeat the whole purpose of the law. According to the Congressional Budget Office, “Healthier people would be less likely to obtain insurance; especially in the nongroup market, the resulting increases in premiums would cause more people to not purchase insurance.” The CBO estimated that the number of insured Americans would drop by 13 million.

Republicans have a twofold purpose in slipping this into their tax bill. Not only do they strike another blow against Obamacare, but they save the government an estimated $318 billion they can use to carry out their prime objective–tax breaks for corporations and the wealthy. If fewer people sign up for health insurance, the government pays out that much less to subsidize their premiums.

Tax cuts, permanent and temporary

Both the House and Senate bills cut the corporate tax rate from 35% to 20%. The Senate bill starts the cut one year later, but makes the cuts permanent from then on. For the individual tax changes, however, the Senate bill includes sunset provisions to end them after 2026. That applies to the rate cuts, the increase in the standard deduction, the elimination or scaling back of certain itemized deductions, the repeal of personal exemptions, and the cuts in estate taxes. It even applies to the tax cuts for small businesses such as partnerships and S-corporations, which currently pass through their income to individuals to be taxed at individual rates. Large corporations get a permanent tax cut, while small businesses get only a temporary one.

The reason for these differences is both fiscal and political. Republican tax writers found that they couldn’t make all the cuts permanent without adding more to the federal deficit than is allowed by the budget reconciliation process. The bill can only add $1.5 trillion to the deficit over ten years and no more after that. Only if they play by the rules of reconciliation can they pass the bill with a simple majority, so they can do it with Republican votes alone and prevent a Democratic filibuster.

On a deeper level, this is an admission that the country cannot really afford both the corporate and individual cuts. Republicans are evading this truth by assuring the country that the individual cuts can be made permanent later. Treasury Secretary Steven Mnuchin has said that he has “every expectation that down the road Congress will extend them.” The Republicans want to have their cake and eat it too, describing the cuts as temporary for purposes of squeaking the bill through Congress, but describing them as permanent for purposes of selling the bill to the public.

When “later” actually arrives, the country will face a stark choice: Either raise taxes by letting the cuts expire, or allow the kind of massive deficits that Republicans have always claimed to be against, or cut popular programs like Medicaid and Medicare (which many Republicans would love to do but hate to admit it publicly). In any case, this curious bill is an admission that they do not know how to fulfill President Trump’s promises for massive middle-class tax relief, debt reduction, and protection of entitlement programs. They are no closer to pulling that off than they are to creating a better health insurance system to replace Obamacare.

Winners and losers

The Tax Policy Center has released its independent analysis of the Senate bill. It shows that upper-income taxpayers gain more than the middle class, even before the individual tax cuts expire.

In 2019, 76% of taxpayers would get at least some tax cut. One reason why that percentage isn’t even higher is that some taxpayers lose more in itemized deductions than they gain in lower tax rates, especially because the Senate bill eliminates the deduction for state and local taxes. On the average, taxpayers in the middle quintile (40th to 60th percentiles of the income distribution) see a cut of $850 and an increase of 1.4% in after-tax income. But taxpayers in the richest quintile (top 20%) see a cut of $5,740 and an increase of 2.2% in after-tax income. Overall, 63.2% of the individual tax cuts go to the richest 20%.

In 2027, after most of the individual tax changes expire, only 28% of taxpayers still get a cut, while 50% pay a little more than they would under current law. One reason for that is that the bill changes the way tax brackets are indexed for inflation, and does it in a way that favors the government. In the middle quintile, after-tax income would be only slightly lower than it is now. But in the top quintile, after-tax income would be 0.6% higher, for an average gain of $2,230. That’s probably because the top quintile owns about 80% of the corporate stock, and so they benefit most from the permanent cut in corporate taxes.

The Congressional Budget Office has done a different kind of distributional analysis, focusing on how much it will cost the government to provide tax-cuts affecting different income groups. The CBO found that most of the cost–85% in 2019 and 100% by 2027–will be incurred by providing tax cuts for people with incomes over $75,000. Little is actually devoted to tax relief for the mid-to-lower part of the distribution.

A successful con?

In the name of tax reform and simplification, Senate Republicans have produced a masterpiece of obfuscation that shortchanges those it claims to benefit. They are aided in this effort by a President who speaks regularly in oversimplifications, exaggerations, and outright lies. Essentially, Senate Republicans are cutting taxes for corporations and the wealthy, while letting their Con-Man-in-Chief tout the bill as the biggest middle-class tax cut ever, which it certainly is not. All that the middle class actually gets is a small, temporary tax reduction. That is supposed to fool them into supporting a permanent corporate tax cut that will primarily benefit wealthy shareholders. When the day of fiscal reckoning comes, middle- and lower-income people will bear the brunt of the program cuts required to manage the debt.

Part of the con is the endless repetition of the dubious claims of “trickle-down economics.” Very little evidence supports the idea that corporations will use their tax cut to raise wages or hire more workers. Because of the numerous tax breaks already in the code, most of which are left standing in the proposed legislation, the average corporation pays far less than the official 35% rate. The effective tax rate on US corporations is not out of line with other wealthy countries. The corporate share of the federal tax burden has already declined dramatically since the mid-twentieth century, when the economy flourished despite high taxes.

As of this writing, polls show that most Americans are not being fooled by this proposal. Whether that will make any difference is not clear, since so many Republicans listen to their wealthy donors more than to the public. If the Senate does pass this Thanksgiving turkey, one can only hope that there is hell to pay in 2018 and 2020.


Trump Tax Cuts–Dangerous for the Deficit

October 6, 2017

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Here I mention one other problem with the Trump tax proposal, besides its potential to increase economic inequality by favoring the wealthy. The Tax Policy Center estimates that it would “reduce federal revenues by $2.4 trillion over the first ten years and $3.2 trillion over the subsequent decade.” Without offsetting cuts in federal spending, it could add hundreds of billions to annual deficits and trillions to the national debt.

The question of how tax cuts influence deficits and the debt is complicated by their uncertain effects on economic growth. If the rate of growth goes up, incomes should rise, and taxes on those incomes should bring in additional revenue. Back in 1974, University of Chicago economist Arthur Laffer proposed that a tax cut can actually pay for itself by stimulating growth, while a tax increase can actually reduce revenue by inhibiting growth. This has become a popular argument for tax cuts, despite the weakness of the evidence supporting it. The big tax cuts under Ronald Reagan and George W. Bush did not pay for themselves, but contributed instead to soaring budget deficits.

Tax analysts have two different ways of evaluating the impact of tax changes on revenue. Conventional scoring makes no assumptions about the effects of the changes on economic growth. Dynamic scoring tries to incorporate an estimate of those effects (known as “macroeconomic feedback effects”) into the prediction model.  The Tax Policy Center said this in their first evaluation of the Trump plan:

This report uses conventional scoring methods that assume the tax proposals do not affect the overall level of economic activity. TPC will release supplemental estimates that include macroeconomic feedback effects soon. Based on TPC and the Penn Wharton Budget Model’s analyses of the macroeconomic effects of the House Republican leadership tax blueprint of 2016 (which shares many characteristics with the [Trump] unified framework), we would expect the framework to have little macroeconomic feedback effect on revenue over the first decade.

Translation: Revenue losses might be a little offset by economic growth effects eventually, but don’t hold your breath.

The Trump economic team has been vigorously promoting the idea that the tax cuts will pay for themselves. They seem to be reading from a familiar Republican playbook: Dismiss concerns about the deficit when calling for tax cuts. Then when the deficit goes up, blame federal spending rather than tax policy. Issue dire warnings about bankrupting future generations and call for cuts in programs that primarily help the middle class and the poor. According to the Republican Party line, the country can always afford another tax cut aimed mainly at the wealthy. What it can’t afford is programs like Medicaid or Obamacare to help people pay for health care.

That the current administration would play the same game is disappointing, considering how much Donald Trump has marketed himself as a champion of the working class. His positions on immigration, foreign trade and race do appeal especially to less educated voters. But on fiscal policy, his thinking seems very much in line with the Republican establishment, favoring tax cuts for the wealthy and spending cuts for the poor. He is very good at hiding his real aims behind a populist, pro-worker, pro-growth rhetoric. So far, most of his supporters are sticking with him, even as he sticks it to them with his economic policies.


Trump Tax Cuts–Meager for the Middle Class

October 5, 2017

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Whatever else President Trump’s “tax reform” proposal is, it is a big tax cut for the wealthy (see previous post). Adding a higher bracket to the three listed in the proposal (12%, 25% and 35%) would help (and is reportedly under discussion), but other goodies for the rich would still remain, such as the repeal of the estate tax.

How do the benefits for other taxpayers compare to those for the wealthy? The Tax Policy Center combined the President’s “Unified Framework” with the House Republican leaderhip’s “A Better Way” tax plan to estimate how different income groups would fare. The researchers divided the population into five quintiles by income, and then estimated how each group’s after-tax income would be affected. They calculated that in 2018, after-tax income would rise 3.3% for the top quintile, but no more than 1.2% for any of the other quintiles. The big winners would again be the top 1%, whose after-tax income would rise by 8.5%. In 2027, the gains would be 8.7% for the top 1%, 3.0% for the top quintile, and no more than half of one percent for any of the other quintiles.

In dollar terms, the average taxpayer in the middle quintile would save $660 on their taxes in 2018 and $420 in 2027.

Why are the middle-class tax cuts so small?

The Trump tax plan adds some tax breaks, especially for the wealthy, but it also eliminates some tax benefits that go to millions of people, such as the personal exemption and the state income tax deduction.

The most obvious new benefit for the masses is the increase in the standard deduction, which would go from $6,350 to $12,000 for single taxpayers, and from $12,700 to $24,000 for married couples filing jointly. However, the elimination of personal exemptions would increase taxable income by $4,050 for each taxpayer or dependent in the household. A one-person household would gain $5,650 in deductions but lose one $4,050 exemption, coming out a little ahead. A family of four would gain $11,300 in deductions but lose $16,200 in exemptions, coming out behind.

The proposed increase in the child tax credit could offset some of the loss in personal exemptions, but the proposal did not specify the amount of the increase. The Tax Policy Center assumed that it might go from $1,000 to $1,500 per child.

Many taxpayers itemize because their specific deductions exceed the standard deduction. Under the Trump plan, there would be less to itemize. Mortgage interest and charitable donations would still be deductible, but many others would disappear, including deductions for state, local and real estate taxes. Taxpayers whose interest and charitable deductions were greater than or equal to the new standard deduction would get no benefit from it, but they could lose many thousands of dollars in other deductions and exemptions. That’s one reason why about one in every eight taxpayers would get an immediate tax increase.

The promise of growth

The President’s proposal says a lot about lowering the tax burden on the middle class and making the tax code fairer. That’s more than a little disingenuous, given that the benefits go primarily to the wealthy. But the proposal makes brief reference to another rationale, creating a “tax code built for growth.” The assumption is that tax cuts will stimulate economic activity, creating jobs and raising wages for many.

If that’s true, maybe it doesn’t matter as much how much the cuts directly benefit the middle class. Middle-income people would presumably benefit indirectly from the increase in general prosperity. Even benefits focused mainly on the rich could “trickle down” to benefit people of more modest means. The proposal can’t make that argument explicitly, since it is pretending to cut taxes primarily for the middle class. Too obvious an endorsement of trickle-down economics helped defeat Mitt Romney in 2012.  Nevertheless, it is what most Republicans still believe.

Why should tax cuts for corporations and the wealthy accelerate economic growth? Supposedly, because it will give them the means and the motivation to invest more in business expansion. The underlying assumption is that money in private hands will be used productively, while money in the government’s hands is more likely to be wasted.

Many economists have their doubts about this theory. Here are a few that I’ve heard expressed:

  1. Cutting taxes to stimulate the economy may work in times of recession, but it isn’t as likely to help when the economy has been growing for some time. Instead of putting idle resources to work, the extra capital may just feed inflation. That in turn may induce the Federal Reserve to cool the economy by raising interest rates.
  2. As countries go, the United States is not particularly over-taxed. The top personal rate is much lower than it used to be. The official corporate rate is high, but most companies pay far less after deductions.
  3. Companies are not generally suffering from a lack of capital, but are often sitting on piles of money they are not investing productively.
  4. When companies do invest in new plants and equipment, it is often in industrial robots that destroy jobs instead of creating them.
  5. The government will need to pay for the tax cuts either by cutting spending or increasing borrowing. Spending cuts can cost jobs, and increased borrowing can raise interest rates and encourage Treasury bond purchases instead of more productive investments.
  6. The economic data do not support the generalization that countries with lower taxes have greater economic growth.

What is more certain is that tax cuts aimed at the wealthy generate more economic inequality, and we have enough of that already.

Continued


Trump Tax Cuts–Windfall for the Wealthy

October 4, 2017

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Last week, the Trump Administration released its tax proposal, titled “Tax Reform: Unified Framework for Fixing Our Broken Tax Code.” Many observers have characterized it as short on reform but long on tax cuts, especially for the wealthy. I agree with them.

Although it is a little more fleshed out than the vague outline the administration released earlier, the proposal still leaves a lot of specific details up to Congress. Although it would reduce the number of personal income tax brackets from seven to three, it does not specify the thresholds for the new brackets; nor does it specify the size of the increased child credit that will replace the personal exemption for dependents. The White House has used the lack of detail to deflect criticism, claiming that the critics don’t know enough yet to assess the impact on taxpayers at different income levels.

However, that hasn’t stopped the President and his supporters from making some sweeping claims of their own about who will benefit most. The stated goals include “tax relief for middle-class families” and “tax relief for businesses, especially small businesses.” They say nothing about benefits for the wealthy. Trump himself claims that the plan will “put more money into the pockets of everyday hardworking people,” and that “I don’t benefit” from the changes. That may be the biggest falsehood he has ever told, and that’s saying a lot.

The proposal would cut taxes for the wealthy in at least five ways.

Personal income tax rates

The current law taxes personal income in seven income brackets, at rates ranging from 10% to 39.6%. The proposed system would have only three rates: 12%, 25% and 35%. Immediately we can see that top incomes get a reduction, although it is less clear than lower incomes do.

Although the thresholds for the new brackets are not definite, the analysis by the Tax Policy Center made the reasonable assumption that they will resemble the thresholds proposed by House Republicans in their 2016 tax plan, which Donald Trump praised when he was running for President. Based on those thresholds and other features of the proposal, the Center estimated how taxpayers in each of the five quintiles of income would be affected. (Quintiles are not the same as tax brackets, but just divisions of the population into fifths.)

In 2018, when the plan is assumed to go into effect, taxpayers in the top quintile would average a tax cut of $8,470, and they would receive 74.5% of all the tax cuts distributed. Taxpayers in the middle quintile would get an average tax cut of only $660. Even more startling, the richest 1% of taxpayers would get an average tax cut of $129,030, and by themselves get 53.3% of all the tax cuts.

It gets worse over time. By 2027, the average cut for the 1% would reach $207,060 while the average cut for the middle quintile would fall to $420. By then 79.7% of all the cuts would be going to the 1%. (Why one group’s tax cut goes down while another’s goes up has to do with how various features of the tax code are indexed for inflation.)

The Trump plan includes a rather vague remedy for this apparent unfairness: “An additional top rate may apply to the highest-income taxpayers to ensure that the reformed tax code is at least as progressive as the existing tax code and does not shift the tax burden from high-income to lower- and middle-income taxpayers.” Given that almost everything in the plan favors the wealthy, translating this pledge into reality will be a very tall order, and one that Congressional Republicans are unlikely to have any enthusiasm for carrying out. (I have been reading Jane Mayer’s Dark Money, which makes a pretty good case that today’s Republican Party pursues an agenda largely dictated by their richest donors.) The leadership is prepared to pass the bill entirely with Republican votes, using the budget reconciliation process to rule out a filibuster by Senate Democrats.

Corporate tax rates

The proposal would lower the corporate tax rate from 35% to 20%. This is also a benefit mainly for the wealthy, for two reasons.

The Congressional Budget Office, US Treasury, and the Tax Policy Center agree that the owners of capital bear most of the burden of corporate taxes, with only an estimated 19-25% falling on workers.

Although many workers own a small amount of corporate stock in their retirement plans, most stock ownership is in the hands of the richest 10% of the population. Less for Uncle Sam means more for the stockholders.

Pass-through business tax rates

Small businesses such as sole proprietorships, partnerships and S-corporations pass through their income to their owners, who pay taxes on it at individual rates as high as 39.6%.

The proposal would tax such pass-through income at a maximum of 25%. However, the great majority of small business owners already pay 25% or less because their income doesn’t exceed the individual threshold of $91,000 or the married threshold of $153,100. According to the New York Times, the effective tax rate for sole proprietors is only 13.6% now. The benefits of this tax cut would go exclusively to owners with higher incomes.

The Trump framework promises “tax relief for businesses, especially small businesses,” but it would more accurately read “especially large businesses.”

Alternative Minimum Tax repeal

The AMT is an alternative tax calculation that high earners with many deductions must complete in order to keep them from avoiding their fair share of taxes. The little bit we know about Trump’s own taxes reveals that he would have paid $31 million less in taxes in just one year (2005) if it weren’t for the AMT. Repealing it is mostly another gift to folks like him.

One can argue that if the new tax law succeeds in its goal of “providing greater fairness for all Americans by closing special interest tax breaks and loopholes,” then the Alternative Minimum Tax will be less necessary. On the other hand, one could argue that it may be more necessary than ever, given all the other tax breaks for the rich in the plan.

Estate tax repeal

The estate tax has already been “reformed” to the point that it only applies to estates valued over $5.49 million. Abolishing the estate tax would benefit only the wealthy, especially people as wealthy as Trump himself, whose estate has been estimated at several billion dollars. Trump has claimed that the repeal would primarily benefit farms and small business owners, but the Tax Policy Center found that less than 1% of the estate tax revenue comes from that group.

And for the rest of us…?

Even without many of the details worked out, the wealthy appear to be the overwhelming beneficiaries of the tax proposals, which are mostly just tax cuts for them. The benefits for the middle class are smaller and more uncertain. I will elaborate on that in the next post.

Continued