By Julie Garbus, Greeley Indivisible Co-founder
That’s the sound of the corporations and super-rich gloating over the proposed “tax reform” making its way through Congress. The rest of us? We’re the turkeys.
The Republican leadership in Congress assures voters that their tax plan will help the middle class. And it’s true that many people will pay somewhat lower taxes—for a while. But this plan really isn’t about the middle class. It’s about giving a windfall to huge corporations, whose tax rate will plummet from 35% to 20%. Companies get several other perks under the plan as well. Republicans say that slashing corporate taxes will result in better pay and benefits for workers. But in the past, when corporate taxes have been cut, corporate executives and shareholders profited the most. Workers gained little.
Here’s how the version of the bill that passed the House would affect a typical northern Colorado household making about $45,000-70,000 a year–the middle fifth of the US population. In 2018, most households would save about $800. They’d save only $310 in 2027, though. That’s because a credit helping moderate-income families expires in 2023; also, the bill changes the way inflation is calculated in a way that will push earners into higher tax brackets sooner than under current law. The bill eliminates most itemized deductions—including those helping students afford college and graduate school. That could negatively affect northern Colorado towns with universities, such as Boulder, Fort Collins, and Greeley—and towns near universities, like Longmont, as well. Deductions for high medical expenses disappear under the plan, too.
The top 1% of earners? They’ll save 3.1% of their pre-tax income– about $54,000 in 2018 and $62,000 in 2027. They’ll benefit from the repeal of the estate tax, enabling them to pay no taxes on money they pass on. The bill also makes it easier for rich people to dodge taxes because it removes the alternative minimum tax, put in place to discourage tax avoidance.
The centerpiece of the Senate bill, like the House version, is the same tax cut for multinational corporations, along with other perks for them. The corporate tax cut is permanent. As with the House bill, most people’s taxes would go down for a while. But here’s the problem: after 2025, the individual tax cuts completely disappear. Faced with a rule prohibiting increasing the deficit beyond a certain amount, senators showed where their allegiances really are: they kept the corporate tax cut and nixed the individual one. After 2025, households making $75,000 or under will pay higher taxes than they would under our current system. Filers making more than that, though, will still pay less.
This plan will increase the deficit by up to 1.7 trillion. The Republicans pushing the bill say the tax cuts will pay for themselves because they’ll spur the economy so much. Virtually all economists disagree. In fact, a real-life test of this theory happened in Kansas several years ago. Republican governor Sam Brownback drastically cut corporate taxes and income tax rates, promising amazing economic growth. The result was catastrophic. Everything decreased, not increased: state revenues, its bond rating, funding for essentials like education and infrastructure. The legislature reversed the tax cuts, but the state’s still struggling with its budget gap.
Congress is counting on moderate and low-income people being short-sighted and gullible. They’re counting on people happily pocketing their short-term savings, forgetting that in 10 years their taxes will go up. They’re counting on people believing that the bill was designed to help them, not huge companies and the very rich. Don’t believe the hype.