The
New Tax Plan Sticks It to the Traditional Core of the GOP Voter Base
By
David Cay Johnston, DCReport Editor-in-Chief
The GOP just declared
war on the strivers who start their own businesses.
Or, to put it another
way: The nice young couple who just opened their own independent coffee shop
around the corner will likely be hit with a huge tax increase—as much as
250%—while the corporation that operates thousands of coffee shops all around
the world is getting its taxes cut 43%.
The complicated new
bill—remember when the GOP promised tax simplicity?—also lavishes federal tax
favors on rich individuals and on those who live in low tax states.
No wonder the GOP
developed the nearly 500-page tax bill in secret.
Had the public’s business been conducted in public, this bill simply would not exist. But it may become law because, if there is anything we know about Washington in the Age of Trump, it is that our elected leaders don’t listen to us, they listen to the political donor class and, in Trump’s case, to those advisers that he says reside in his head.
Had the public’s business been conducted in public, this bill simply would not exist. But it may become law because, if there is anything we know about Washington in the Age of Trump, it is that our elected leaders don’t listen to us, they listen to the political donor class and, in Trump’s case, to those advisers that he says reside in his head.
The Republican tax plan targets a class of voters who have formed the core of the GOP constituency since the age of Lincoln, entrepreneurs and small business owners. The party used to promote tax favors for those who start new enterprises.
But now that Trump has
turned Washington into a federally protected wetland for big, established
business and comfortable billionaires, stocking the swamp with the most
voracious predators on Wall Street. The GOP bill shows how it is on the side of
Wall Street, at the expense of Main Street.
The tax plan would
dramatically raise taxes on many entrepreneurs, in some cases more than
doubling the tax rate they pay on their profits. That explains why groups like
the National Federation of Independent Business attacked the bill, saying
in a statement that the bill “does not help most small businesses.”
Currently,
freelancers, small-business owners and others pay taxes at rates of 10%
and then 15% on their profits if their total income puts them below about
$125,000 annually. The GOP would tax these same businesses at 25% on about
one-third of their profits and at 10% to 15% rates on the rest.
So, if your small
business made a profit of $1,000, you would pay 10% rate on the first $700 and
a 25% rate on the other $300. Your total tax would rise by $5.
This completely contradicts
the oft-stated GOP claim that what matters are marginal tax rates, the rate
paid on the next dollar of income. And, of course, it makes the federal income
tax system even more complicated.
Meanwhile, big
corporations—known as C Corps to tax policy wonks—would pay a 20% rate.
Ponder that for a
moment. The nearly 3,000 companies which own nearly all the business assets
would be taxed at a lower rate than the guy who fixes your shoes.
Raising taxes on the
smallest businesses while giving the Big Boys a tax rate cut from 35% to 20%
only makes sense if you negotiate in secret and you only allow into the room
lobbyists hired by those who can afford to buy high-priced influence peddlers.
Had the GOP held
public hearings and conducted the people’s business openly, we would have known
this and it is unlikely many elements of this deceptive plan would have made it
into the bill.
Many people who own their own businesses directly will save big time, notably the man who runs more than 500 businesses from public housing he enjoys at 1600 Pennsylvania Avenue. Instead of paying a tax rate of 39.6% on most of his profits, Donald Trump will pay 25%.
Well, let’s qualify
that. Based on existing tax law, we should expect that Trump pays a 39.6% rate
on most of his business profits. But, since he is the only White House occupant
in the last four decades who won’t show his tax returns, we have to caution
that he may pay a lot less.
His regular tax rate in 2005, for example, was less than 3.5%. He paid a total rate of 24% only because of a backup tax called the Alternative Minimum Tax. The Trump-GOP tax plan would end the AMT.
His regular tax rate in 2005, for example, was less than 3.5%. He paid a total rate of 24% only because of a backup tax called the Alternative Minimum Tax. The Trump-GOP tax plan would end the AMT.
And it could well be
that Trump has bought tax shelters, like the now illegal one he bought in 1995,
that reduce his income tax bill to zero. So, pay close attention if Trump
continues to assert that he will pay more under this bill, which could be true
and at the same time totally misleading.
We’ll have more in
later reports, but we do want to note that as we told you last week, that $2,000 per child
tax credit, double the current law, is not in the plan. It was just a head
fake.
There is an increase
of $600 to $1,600, which can only be used to write taxes to zero. So, if you
owe $2,000 in tax and have two kids, you pay no tax and $1,200 of your tax
credit is worthless.
Sen. Marco Rubio, a
Florida Republican and also-ran presidential candidate, says that is not
enough, and he wants to make the credit refundable against Social Security and
Medicare taxes. That matters because, for the bill to become law, only two
Republican senators can vote no. That suggests some provisions will get
changed, but families are less likely to benefit from even bigger tax breaks
than the swamp dwellers who now roam freely in Washington.
Lloyd Doggett, the
Texas Democrat who is ranking member of the Tax Policy subcommittee of the Ways
and Means Committee, described the bill as political fraud because it will add
$1.5 trillion to the federal debt over 10 years.
“What the American
people really get from this tax plan is a huge bill for the debt incurred to
pay for tax breaks that line the pockets of Donald Trump personally along with
his billionaire buddies.
Like a Trump University degree, it is phony,” he said. The bill is mostly “a giant giveaway to special interests. Since most of the tax benefits go to giant corporations, this bill is a testament to the power of limousine lobbyists.”
Like a Trump University degree, it is phony,” he said. The bill is mostly “a giant giveaway to special interests. Since most of the tax benefits go to giant corporations, this bill is a testament to the power of limousine lobbyists.”
It’s important that
people tell their lawmakers what they think and loudly. As Doggett put it: “Our
country’s future depends on how quickly the truth can catch up with the lie.”
ACTION BOX / What
you can do about it
The Republican point
man on the tax-cutting project is Rep. Kevin Brady, chairman of the
House Ways and Means Committee. Contact his staff here.
On the Senate side,
the Finance Committee is chaired by Republican Orrin Hatch of Utah. A list of
members is here.
The Senate Finance Committee
staff are at 202-224-4515 or by fax at 202-228-0554.
Contact your representative or senators.