A Leopard Can't Change Its Spots: Newest GOP Tax Framework Is What We Knew It Always Would Be--Tax Cuts for the Rich

U.S. President Donald Trump (L) speaks during a meeting with members of the House Ways and Means Committee as committee chairman Rep. Kevin Brady (R-TX) (R) listens September 26, 2017 at the Roosevelt Room of the White House in Washington, DC. President Trump met with members of the committee to discuss tax reform. (Photo: Alex Wong/Getty Images)

A Leopard Can't Change Its Spots: Newest GOP Tax Framework Is What We Knew It Always Would Be--Tax Cuts for the Rich

Did Republicans unexpectedly veer and deliver a "middle-class tax cut"? Nope.

The framework of the Republican tax plan was released today. In recent months, architects of the plan repeatedly promised that they had no "intention" to release a tax plan that disproportionately cut the taxes of the rich. Some too-credulous writers repeatedly chastised those of who thought that past Republican plans would provide a decent roadmap for the future and pre-emptively warned about all of the creative ways their new plan would likely try to cut the taxes of the rich. So, did Republicans unexpectedly veer and deliver a "middle-class tax cut"?

Nope.

They have once again rolled out a tax plan that is basically the same as all their previous tax plans. Not only does it deliver big tax cuts for the rich, it actually pretty creatively ensures that the crumbs that fall to the middle-class will be as small as possible.

"Not only does it deliver big tax cuts for the rich, it actually pretty creatively ensures that the crumbs that fall to the middle-class will be as small as possible."

The most obvious giveaways to the rich are a reduction in the top individual rate to 35 percent and a cut in the top corporate rate to 20 percent. As we've noted before, cuts to corporate rates are cuts to the rich, period.

But these are just the most-obvious tax cuts for the rich.

Contradicting their claims to simplify the tax code, Republicans are adding loopholes. Anybody who studies taxes knows that they are not complicated because of the rates--you look those up in a table after you've done the hard part of wrestling with deductions and exclusions. So making 7 rates into 3 does nothing to deal with the complexity of the tax code. But adding further loopholes for the rich and big corporations does exacerbate the code's complexity and unfairness.

One of their more egregious loopholes is hidden behind rhetoric about helping "small business." The loophole caps the rate that individuals must pay on "pass-through" income at 25 percent. The first thing to note about this is that there is no small business tax code. Small business owners pay nothing at the business level, but then simply pay taxes on profits they take home on their individual income tax forms, just like you and I. So, the new tax rate does not cut taxes on small businesses. Instead, it cuts individual tax rates on small business owners who currently are in tax brackets above 25 percent. This is an extremely small share of all small business owners (less than 3 percent of all tax units are above the 25 percent tax bracket). So, this carve-out does not serve genuine small businesses, but instead serves only to ensure that rich households won't have to actually pay the top individual tax rate on money they earn from "small businesses" like hedge funds and law firms, but can instead pay a lower 25 percent.

On the corporate side, besides cutting top corporate rates, the Republican plan makes the current loophole that big multinational corporations use to dodge their taxes by claiming profits have been made overseas permanent, rather than temporary. In the jargon, this is change is called "territorial taxation." Today's corporate system demands corporations pay the current 35 percent statutory rate on profits earned anywhere in the world, but allows them to defer paying tax on overseas taxes until they're repatriated to owners in the United States. This deferral loophole has led to an entire industry of tax avoidance that classifies profits inappropriately as earned overseas, and has led to a growing drumbeat to allow corporations to repatriate their now-huge stock of overseas profits at a preferential rate. And, the Republican plan wants to deliver exactly that by changing the rules to moving the tax rate on profits earned overseas to zero, permanently.

The utter fakeness of Republican claims to have sought a "middle-class" tax cut can be seen all over their plan as well. For one, the lowest tax rate actually increases under their plan, from 10 to 12 percent. Republicans claim to have delivered relief to the middle-class by doubling the standard deduction (letting them hand-wave about "zero-tax brackets"). But the devil is always in the details-- which are short in today's plan--and the details of past Republican plans claw back the middle-class benefit of a larger standard deduction by getting rid of the personal exemption and head of household filing. For a lot of households, the net result this is basically a wash. But about 20 percent of households, and more than half of single parents would end up paying more in taxes at the end of the day.

Today's framework delivers absolutely no surprises: this isn't tax reform; this is simply tax cuts for rich people.

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