The Tax Bill Is a Giveaway to the Super-Rich
Five Ways That the Republican Tax Bill Is a Giveaway to the Super-Rich
The impending vote gives Trump his first big legislative victory after nearly a year in office, but the real winners will be America’s largest corporations and wealthiest citizens.
With assurances of support from two former fence-sitters, congressional Republicans on Friday secured what appear to be the necessary votes to pass the final version of the most comprehensive overhaul of the American tax system in a generation. The Tax Cuts and Jobs Act (PDF), if passed and signed into law next week as expected, will impact nearly every American taxpayer, delivering what the bill’s supporters called “historic tax relief for workers, families and job creators.” But first and foremost, the plan appears to deliver historic tax relief for America’s wealthiest.
Originally envisioned as the “Cut Cut Cut Cut Act”—one of many compromises necessary to pass the legislation—the final version of the $1.5 trillion tax cut was drafted almost entirely under cover of darkness by Republican lawmakers, after the House and Senate passed slightly different versions of the legislation two weeks apart.
The impending vote would give President Donald Trump his first major legislative victory after nearly a year in office. But buried within the 554-page bill are provisions that are guaranteed to benefit the richest individuals, estates, and companies in the United States—and to aggravate the majority of people who say that the nation’s wealthiest should be paying more taxes, not less. For Trump himself, a real estate tycoon with a billion-dollar empire and a hoard of hungry heirs, the bill stands to benefit him most handsomely of all.
Here are five way the bill will benefit the best off, while leaving the rest of us behind:
Your tax cut is temporary. A company’s tax cut is permanent.
The Tax Cuts and Jobs Act amounts to the single largest reduction of the corporate tax rate in U.S. history, permanently slashing the rate at which corporations pay taxes from 35 percent to 21 percent. According to the preliminary budget effects estimate appended to the conference agreement, the reduction of the corporate tax rate amounts to a $1.3 trillion tax cut over the next decade.
Similar cuts for individual and joint tax filers have a “sunset,” lapsing on New Year’s Eve 2025. But the cuts for corporations never expire.
A hefty chunk of that tax cut goes to the rich, anyway.
The top marginal tax rate currently taxes income for married couples above $470,700 at 39.6 percent. Under the final bill, that rate would drop to 37 percent, and the threshold for meeting it would rise to $500,000 for individual earners and $600,000 for married couples. This cut goes beyond both the original House and Senate bills. For Republicans from high-tax states like New York, New Jersey, and California, the additional income-tax breaks for the 1 percent work, in part, to compensate for capping the state and local tax deduction at $10,000.
That rate cut goes against the promises of Trump and House Speaker Paul Ryan, both of whom vowed that the tax plan would not amount to a massive giveaway to the wealthy.
Income tax cuts for corporations are only the start.
The final bill also eliminates the corporate alternative minimum tax, or AMT, which functions as a floor for corporate tax rates by eliminating deductions and credits for corporations that would bring their effective tax rate below the current rate. The elimination of the corporate AMT means that the proposed 21 percent tax rate for businesses is merely a starting point—credits and loopholes would allow businesses to reduce their tax burden even further. Additionally, the tax bill reduces a corporation’s taxable income only to “territorial” earnings, meaning that foreign income made by U.S. companies will be tax-free.
Wealthy individual earners shouldn’t get too jealous, however—the final draft of the tax overhaul also reduces the number of taxpayers who have to pay the individual AMT.
The estate tax will give heirs and heiresses a big break.
In 2016, more than 2.6 million people died in the United States. Of the estates left behind, 5,219—or about 0.2 percent—triggered the estate tax. The final bill raises the ceiling on non-taxable estates to $11 million—or $22 million for couples. Under these new limits, a mere 2,204 estates would have met the threshold of taxation, according to the IRS—a mere 0.1 percent.
At the outset of his proposed tax overhaul in September, President Trump said that the repeal of the “crushing, the horrible, the unfair” estate tax was necessary to “protect millions of small businesses and the American farmer.” Although the final bill does not, as the original House version did, repeal the estate tax in its entirety, Trump’s characterization of the tax as negatively impacting American farmers is vastly overstated. According to the nonpartisan Tax Policy Center, only 80 small businesses and farms are likely to pay any estate tax in 2017, with those businesses and farms accounting for a whopping 0.0015 percent of the total amount paid in estate taxes.
The Trump Organization wins, big league.
The Trump Organization, the president’s holding company, is what’s known as a “pass-through” entity. Pass-throughs are businesses like law firms, hedge funds, or personally held businesses that aren’t corporations. They are labeled pass-throughs because the income derived from the business is passed through to the individual tax returns of the business’ owner or owners, where it is taxed at normal income tax rates. This means that pass-throughs are taxed at the same rates as the owners—which currently top out at 39.6 percent. More than two-thirds of income at pass-through companies ends up in the wallets of the top 1 percent of earners.
The final tax bill, however, slashes this liability, allowing most pass-through businesses—like the Trump Organization—to deduct 20 percent of their income tax-free, effectively cutting the president’s tax rate in half.
Of course, without the president’s tax returns, it’s impossible to know for sure.