THE BLOG

The GOP Tax Plan – This Is What Domination Economics Looks Like

Think more money at the top of the income scale means more at the bottom? It doesn't.

11/10/2017 10:28 EST
Jim Urquhart / Reuters

Monster storms destroy coastal cities. Wildfires kill dozens of people and displace thousands more. Health insurance coverage for millions is threatened. Wages remain flat, even though worker productivity is growing faster than expected. Income inequality is getting worse. CEOs of the biggest companies earn more than 300 times what their workers do. (To fully appreciate that stunner, consider that the CEO to worker pay ratio was 42 to 1 in 1980, and 120 to 1 in 2000.)

Against this backdrop, surely the party in possession of the White House and both houses of Congress would propose a thoughtful, fresh approach designed to protect us from the devastating cost of increasingly severe natural disasters, ruinous medical expenses, and growing family financial insecurity.

Yet the tax bill unveiled last week is a prime example of domination economics. Rather than encouraging better care and education, expanding opportunity, and strengthening our social safety net, it is calculated to exacerbate income inequality and set the stage for weakening public investment in people and the planet for years to come.

The Scam Plan

In spite of all evidence to the contrary, the GOP proposal is based on the flawed assumption that more money at the top of the income scale means more money at the bottom. The President and party leadership tout tax cuts for corporations, saying it will goose job creation and take-home pay.

But this claim has been thoroughly discredited; this strategy has been tried before and not performed as advertised. Instead of raising wages and expanding employment, what we can actually expect is that CEO compensation goes up and shareholders see the value of their stock rise.

Business tax rates have already declined steeply in the past 50 years, from a top rate of 52.8% to the current 39%. In fact, corporate tax revenue only comprises 10% of everything the IRS takes in, less than a third of what it was 60 years ago. In reality, the current 39% statutory tax rate is misleading – by the time tax deductions and credits and put into the mix, the effective corporate tax rate, what they really pay, is closer to 18%, or about half the statutory rate. This is not out of line with rates in other countries, and certainly not the highest rate in the world.

Giving tax breaks where they are not needed is just one reason to reject this bill.  Another is how these cuts are paid for -  by imposing higher income taxes on those lower down the pay scale. The method of choice is eliminating deductions that allow middle- and lower-income families to hold on in uncertain times.

For example, interest on student loan debt would no longer be deductible, driving up the cost of education. The adoption tax credit (currently worth $13,750) would disappear. Significant medical expenses, deductible now if they exceed 10% of a taxpayer’s gross income, would no longer be so. Two years ago, almost 9 million filers used this deduction to offset the cost of nursing home care for an older parent, or care for a special needs child, or pay for hugely expensive treatments needed by some cancer patients. Mortgage interest and property taxes would only be deductible up to a new cap. And state and local taxes would not be deductible at all, penalizing people in states like California and New York that did not vote for Trump with double taxation.

In short, tax cuts at the top are to be paid for by the elimination of deductions working people depend on to educate themselves and care for their families. The proposal does raise the standard deduction for individuals and families, and temporarily increases the Child Tax Credit from $1000 to $1600. But it eliminates personal exemptions and raises the lowest income tax rate, too. Taking the proposal as a whole, more than 2/3 of the tax cuts it contains go to corporations and wealthy individuals.

Unpacking the Hidden Domination Agenda

While the status of individual families will vary widely, many middle class families will pay even higher taxes under the GOP proposed “tax reform.” Eliminating deductions doesn’t make up for all the revenue lost by the cuts on corporations and the very wealthy. And here is where the scam of this proposal gets even worse. Passing the bill would add $1.5 trillion to the national deficit, a shocking move for the party who claims to champion fiscal responsibility!

By not paying for the full cost of the benefits it bestows, the bill sets the scene for deficit hawks to go after public spending far into the future. The impact of this proposed “tax reform” package is further shredding of our already tattered safety net. It is designed to put powerful pressure on our government to decrease spending on essential programs. Head Start, children’s health insurance, job training, and other investments in our work force will face greater risk. People who depend on entitlement programs will be watching their Social Security, Medicare and Medicaid benefits roll back, or even be eliminated.

Toward Real Tax Reform

Tax policy could be a meaningful method to meet unmet needs. It could promote a care infrastructure that would increase human capital. It could promote paid family leave, early education, and make higher education more affordable. It could give corporations an incentive to expand resources for elder care and implement green policies to preserve our natural resources. When more severe natural disasters are in store due to climate change, tax policy should work to help those who stand to lose their livelihoods, homes and lives.

The GOP plan does none of these things. It’s a cynical example of domination economics that benefits those at the top on the backs of those lower down. It puts profits over people, exacerbates inequities, and ignores the rapidly closing window of opportunity that remains to remedy the damage we’ve inflicted on the environment.

If the US is to fulfill its promise, expand its economy, and build on the principles which make us great, this proposal must be resoundingly rejected.