Tax roundup: Lies, lies, and more lies

September 29th, 2017 at 8:03 am

First, here’s a rough typology of the lies upon which the sales job for the Republicans’ wasteful, regressive tax cut is based.

  1. The tax cut won’t help the rich. 1a. It won’t help Trump.
  2. The tax cut will generate enough growth to pay for itself. 2a. Sec’y Mnuchin’s now going beyond this, claiming that it will raise more revenue than it loses. (Here’s what I think’s going on there.)
  3. Most of the benefits of the tax cut will go to the middle class.

Lies, lies, lies. And while it’s early days, and much could change, My impression is that a lot of people outside of DC Republicans aren’t buying them. The media and the Twitterverse is especially lit up with lies #1 and #2. In fact, here’s the NYT doing some calculations on lie 1b (“Trump could save more than $1 billion under his new tax plan”; that’s mostly due to eliminating the estate tax).

Also, on #1, see the Tax Policy Center’s take on the benefits to the wealthy:

  • The top 1 percent of households (those with incomes above $730,000) would get about 53 percent of the framework’s net tax cuts, or roughly $130,000 a year on average.
  • The top 0.1 percent of households (those with incomes above $3.4 million) would get roughly 30 percent of the framework’s net tax cuts, or about $720,000 a year, on average.

This analysis also applies to the reduction in the tax rate (from about 40 to 25 percent) for business pass-through income, which the R’s are trying to sell as helping small businesses. In fact, 86 percent of pass-throughs are already taxed at 25 percent or less. Chuck Marr reports that “79 percent of the benefit of this tax cut would flow to filers with incomes above $1 million.  The 400 households with the highest incomes would receive an average tax cut of $5.5 million from this provision alone.”

Re #3, since most of the cuts go to the top, there’s not much left to trickle down to the middle class, but the tax cutters are making a big deal out of how their plan to double the standard deduction (or, to increase the zero tax bracket) will help lower income families. And, no question, some will benefit from that.

But what they don’t talk about is their plan to get rid of personal exemptions, which also lower the tax burden for families, especially those whose deductions currently lead them to itemize (and thus forego the current standard deduction) and numerous members. To determine whether middle-class families get a cut or an increase under the new plan, you must see if the higher standard deduction (plus the proposed expansion in the child tax credit, about which details have yet to be released) is greater than the loss of personal exemptions.

Thankfully, Josh Barro carefully, with caveats for what’s known and what’s not, does the number crunching. His conclusion: “While there are still a lot of details to be filled in, the information we have available suggests the new Republican tax proposal would raise income taxes on many families who make just a bit more than the national average.”

Finally, once you’ve gone through all this muck and taken the requisite shower to clean all that BS out of your pores, here’s yours truly on what actual tax reform might look like. Simply put, the goal is to raise the ample revenue we need to meet the challenges we face, while pushing back on market-driven inequalities.

[I updated some numbers based on TPC’s new estimates; link above.]

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7 comments in reply to "Tax roundup: Lies, lies, and more lies"

  1. Smith says:

    Jared, you’ve got a not small mistake in your story, $700,000 is average for 1% which includes the stratospheric .1% income. You only need $450,000 and above to make it into the top 1%. The .1% figure also appears to suffer the same fate.

    Saez June 2016
    Striking it Richer:
    The Evolution of Top Incomes in the United States
    (Updated with 2015 preliminary estimates)
    Check page 4:
    Figure 2 decomposes the top decile into the top percentile (families with income above $443,000 in 2015)

    Not only that, but this is household income, so that personal income levels are even lower. The lower figures are important in order to frame the debate correctly. Someone needs to say to those earning just a few hundred thousand, your taxes needs to go up. Try Ronald Reagan’s 1986 rates of 50% on $350,000 (in 2016 dollars). Try the 1963 top level of 90% on $2 million or more. How come progressive liberal economists aren’t pressing Democrats for those rates?

    The basics should be known, 1 percent gets 20% of income, a doubling since 1980, the next 9 percent get 30% of income, a gain of 10%. So the top 10 percent are getting 50% of all income, they are taking an extra 20% of national income they didn’t use to get when Reagan was first elected. Fix that please. (no presidential candidate can argue for this and win, so it has to come from grass roots, or non presidential aspirants).

    • Smith says:

      If I’m mistaken about the $450,000 figure being the start up the 1 percent, could someone let me know? But I’ve given the source, and it seems a correction is still in order.

  2. D. C. Sessions says:

    In the “smack the lower brackets hard” department, you skipped over the removal of all exemptions for dependents and the removal of the over-65 surexmption.

    Add that one in and about the only “winners” in the lower brackets are childless couples under 65 who don’t itemize — who get a 15% increase in their standard deduction (not, of course, reduction in actual taxes. That comes to maybe 2% of their income.) Wow.

  3. Smith says:

    I followed the “actual tax reform link” and found it lacking.
    Yes to the taxing capital gains as regular income. But if you want that, you might bring out that this was ok with Ronald Reagan (although at 28%, not the current 39%). Also, why should people with money pay lower tax rates than people who work for a living. They don’t like being taxed twice, they’re free to spend or save their money instead of lending it to collect more money.
    Yes to a financial transaction tax, very much needed, not just to raise revenue, but for stability and fairness. No one can claim high speed trading is efficient except for speculators who make money from financial and technological wizardry, while everyone else has to produce something or provide a service.

    A big no to increased EITC, an expensive boondoggle that functions as corporate welfare and hurts fair wage employers competing. It does not alleviate poverty at all. It only exists (like SNAP and TANF) because of poverty. Where is even the slightest acknowledgement that just the rise in minimum pay (law in California and New York, 17% of our economy) goes far beyond the entire existing program of EITC? Where is any clue that poverty is caused by less than one wage earner in a household, and not really lack of wages? Universal quality childcare even for one child is worth more than any benefit available form EITC. If you think a family of four with an income of $40,000 a year shouldn’t pay any taxes, but should collect a $6,000 government handout, you’re wrong. Keep in mind the median pay of full time worker is $40,000. The low median of $35,000 that shows up in income distribution tables is the result of averaging in part time workers, and workers not employed for the full year. (and $54,000 is for household, averaging in two earner families). You should work on increasing wages instead of spending money increasing poverty programs. That won’t help get people out of poverty in the least.

    Totally absent is any notion of restoring rates to there 1963 post WWII progressive level (or even Ronald Reagan 1986 level, as in 505 on $350,000 in 2016 dollars. As long as you won’t face facts about progressive taxation, you’ll end up with stagnant wages and wide inequality. Just restoring rates is actual tax reform.

    Your plan is not actual tax reform, any more than the first George Bush, or Clinton’s small tax hike, or Obama’s package that retained 80% of Bush II’s tax cuts.

    Also EITC is favored by Republicans, Speaker Ryan, and initiated by Reagan for a reason. It’s bad policy.

    Taxing foreign earnings at lower rates will still encourage exporting jobs. Instead of taxing lower taxes for building factories overseas, we should do the opposite and charge more.

    • Smith says:

      Also, from you supposed actual tax reform, I don’t know how you derived $2,000 EITC for a family of 4 with income of $40,000 unless it was one earner with three children and they get $2,000 vs about $1,000 if family is two adults and two children. With standard deduction and exemptions, they pay $139 with current EITC, and $1,123 without. I’m sure the worker would rather have decent wage hikes instead of EITC since the $1,000 is only 2.8% of their stagnant if not dropping income.
      There’s also a good argument for keeping everyone paying some substantial portion of their income in taxes, to have skin in the game. Raise wages, not costly tax credits.

    • Smith says:

      That’s a typo 505 on $350,000, should read 50%, but too low by $40,000 see below.
      Here’s the link to check the figures:
      It’s actually 50% on $197,000 for single filers.
      And plugging into the inflation calculator just now, I get 50% on $389,386, not $350,000
      Also for 1963 we get 90 percent on income above $2,383,679 for joint returns, and $1,191,839 for single filers.
      Here is the inflation calculator to check numbers from the tax tables

      Ask yourself 53 years later why rates should be less progressive? Not only are they less progressive, they’ve been cut more than half. Shouldn’t progress towards a more equal society mean are rates would be more progressive, not less? Should we aspire to do better than 1963? It’s not as if we have less inequality, we have more. It’s not as if poverty went away, it’s the condition of 1/4 of all children (although the line is drawn at at $24,000 for a family of four, feel free to debate what that means). It is also the case that since 1970, the poverty has hardly budged (13%), and that includes deep poverty (half the poverty threshold, at 6%)
      Cut taxes for the rich, why wouldn’t you expect the economy to be affected?

      Get this, not only does the 1% now take twice as much money, doubling their take of national income, but their taxes have been cut in half. This is how they pay the same 21% effective rate. Neat trick, a win-win.

      Your supposed tax reform doesn’t even begin to address the problem. When you were a kid, things were different. Just restore those tax rates.

  4. ProfMichele says:

    There are a few things that baffle me about the Republican messaging on this so-called tax reform and why there is no push-back on it. They are calling it a “jobs bill” because corporations will have the money to hire more employees. But additional hiring will require additional demand for the companies’ products and services. Where will that demand come from? Well, according to the Republicans, corporations will also have more money to give out in increased wages and salaries to their current employee base. But record profits have not yet trickled down to very large raises or starting salaries, so there has not yet been much increased demand lately.

    Again, there seems to be a messaging issue here on the push back; it has been totally focused on the tax cuts to the rich. I also am sickened by that, but let’s focus on some of the other aspects of this debacle as well. Or am I way off base in my thinking?