Explainer

The Tax Cuts Hidden in Congress’ Tax Reform, Explained

| Alexandra Thornton
AP/Evan Vucci

In a joint statement on July 27, top Republican policymakers in the House and Senate, along with President Donald Trump’s top two officials responsible for tax policy, re-upped their commitment to passing “comprehensive tax reform.” With the help of business groups and conservative organizations backed by the Koch brothers, they plan to ramp up their campaign for tax reform over the Labor Day weekend.

The language that Republicans are using to push these proposals—“make taxes simpler, fairer, and lower” for American families—sounds appealing. But the policies on their wish list are almost entirely tax cuts, and almost all of the benefits (99.6 percent under House Speaker Paul Ryan’s plan) will go to the top 1 percent of taxpayers.

A real effort at tax reform would focus on closing loopholes that benefit the wealthy and well-connected. It would raise the revenue we need to strengthen Medicare and Social Security and maintain quality schools, housing, and roads. What Trump and Republicans have in mind is the opposite.

Here’s a list of the new tax breaks for the wealthy and corporations contained in the Trump and House GOP tax plans.

Cut the corporate tax rate

At the top of the list is a dramatic cut in the corporate tax rate. Donald Trump wants to reduce the rate from 35 percent to 15 percent, which the Tax Policy Center estimates would cost a staggering $2.2 trillion over 10 years (that’s more than three times what the Supplemental Nutrition Assistance Program, formerly known as food stamps, would cost over the same time period). Congressional Republicans proposed a slightly smaller reduction to 20 percent in their 2016 plan, which the Tax Policy Center estimated would cost $1.8 trillion.

Corporations contribute less to total taxes than they did in the early 1950s.

The standard justification for these cuts is that they’ll boost business and create jobs. During the 2016 Presidential debates, Trump vowed the cut would “be a job creator like we haven’t seen since Ronald Reagan.” The catch is, U.S. corporations’ tax burden is already comparatively lower than our major trading partners, and U.S. multinationals take advantage of so many loopholes that their effective tax rates are nearly half the statutory rate. Corporations as a whole are actually contributing less to total taxes than they did in the early 1950s: Their share of total tax revenues has dropped from 33 percent down to roughly 10 percent of total revenues.

Eliminate the tax on corporations’ overseas profits

Right now, U.S. corporations pay the U.S. corporate income tax on both domestic and foreign profits, but they can put off paying the tax on their foreign profits by keeping them offshore. This also gives them the incentive to shift profits they earn in the United States offshore. Trump has proposed moving to a territorial tax system, which would eliminate the tax on foreign profits altogether. That way, U.S. corporations would only owe taxes on profits made in the United States and no tax at all on their foreign profits. And the incentive to shift domestic profits offshore would be even greater.

Absent strong measures to prevent multinationals from shifting profits (and possibly jobs) offshore, a territorial corporate tax would create new tax loopholes that could be used for this purpose. Anti-profit shifting provisions are notoriously difficult to develop and enforce.

Cut the tax rate paid by high-income business owners

Businesses that are structured as S corporations, partnerships, LLCs, and sole proprietorships do not pay the corporate income tax at all. Instead, their owners pay taxes on their share of the business’s income at regular individual income tax rates, which range from 10 percent to 39.6 percent.

Trump and the House GOP have proposed capping the tax rate on pass-through business profits that individuals receive. Trump calls for capping the rate at 15 percent, while the House GOP has proposed a 25 percent rate. Since that would significantly lower the tax rate for business owners who are currently in higher tax brackets, this proposal would cost between $2 trillion (for Trump’s proposal) and $412 billion (for the House GOP proposal) over the next decade.

Trump and the House GOP claim this tax cut is for “small” businesses, but most actual small businesses won’t benefit much, if at all, from this change. Over 90 percent of pass-through businesses already fall in the 25 percent tax bracket or lower, and over 50 percent currently fall in the 15 percent bracket or lower. The people who will benefit from the change are very wealthy business owners—such as hedge fund managers, lobbying and law firms, and big businesses—that are organized as pass-throughs but compete with large corporations.

This proposal would also likely create a new avenue for wealthy individuals to avoid taxes, since they could avoid tax by re-characterizing their high salary as business income that would qualify for the lower rate. This can be accomplished, for example, by creating an LLC to receive their salary, then paying the preferential tax rate on the “profits” they receive from the LLC.

Collapse the individual tax rates from seven to three

Both Trump and the House GOP have made a lot of noise about simplifying the tax code for working Americans by reducing the number of tax brackets. Trump’s most recent proposal calls for individual income tax rates of 10, 25, and 35 percent, while the House GOP plan calls for rates of 12, 25, and 33 percent.

Depending upon where the rates kick in, there may or may not be any benefit for those who currently fall in the 25 percent tax bracket or lower. In fact, some moderate-income people may pay more tax than under current law, since other “simplifying” proposals include eliminating personal and dependent exemptions.

Millionaires, on the other hand, would benefit in two ways. The top rate, which currently applies to all income above roughly $400,000, would be cut from 39.6 down to 33 or 35 percent. For someone with $1 million in income, this could be a tax cut of roughly $30,000 or more. They would also get a secondary benefit from the lower rates on portions of their income that fall in the (newly reduced) lower-rate brackets.

For someone with $1 million in income, this could be a tax cut of $30,000 or more.

Repeal the tax on estates worth more than $5 million

Repealing the estate tax is a perennial GOP proposal. The estate tax is a progressive tax that only applies to the super wealthy: estates worth more than $5.49 million for an individual or nearly $11 million for a couple. Of the millions of people who die each year in the United States, less than 0.2 percent of estates are subject to any estate tax at all.

Since the gain in value of stock, art, real estate, and other capital assets is not taxed unless the assets are sold, the estate tax is designed to ensure that wealthy people pay at least some tax on assets they’ve held onto before those assets are passed down to their lucky heirs. Repealing the estate tax is not about making the tax code simpler or fairer. It’s about enabling millionaires and billionaires to pass valuable assets to their heirs tax-free.

What real tax reform would look like

There are many ways the tax code could be improved to increase fairness and reduce complexity, while still providing adequate revenue to fund investments in education, housing, and transportation. These tax code improvements include eliminating loopholes that reward multinational corporations that offshore profits; ending special subsidies for oil and gas companies; treating income from wealth and work more equitably so that everyone pays their fair share of the cost of government; strengthening tax credits for working families so that those who need them the most can have access; and addressing tax accounting complexity faced by truly small businesses. These steps would constitute real reform.

Instead, the GOP is clinging to the premise that tax cuts will spur huge economic growth that will somehow trickle down to average American workers. History tells us they won’t. It also tells us that tax cuts of this size will lead to budget-busting revenue losses—and that could threaten funding for Medicare, Medicaid, education, and many other foundations of an economy that works for everyone.

So let’s stop calling this plan “reform” and call it what it is. It’s tax cuts. Trillions of dollars’ worth of them for the wealthy and corporations.

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Analysis

Happy Women’s Equality Day. Now Let’s Get to Work.

| Sarita Gupta
(AP Photo/David Zalubowski)

It has been almost half a century since the Women’s Strike for Equality March. Forty-seven years ago, 50,000 women marched down Fifth Avenue in New York City, calling for equity in education and employment, the repeal of anti-abortion laws, and universal child care. This massive event sparked Congresswoman Bella Abzug to lead the charge in establishing Women’s Equality Day in 1971.

Women’s rights have come a long way since then. We can expect the Equal Protection Clause to apply to us. We can end marriages that don’t work for us, and pregnancies that we didn’t plan. We can’t be fired for getting pregnant, and we can apply for our own credit cards. We can refuse to have sex with our spouses, and buy contraception without being married. We can be astronauts, Supreme Court justices, four-star generals, and nominees for President of the United States.

It’s easy to point out all the broken glass ceilings as evidence of our equality. But it isn’t the full picture—not by a long shot.

Women’s earnings are still approximately 20 percent less than men’s. And the gender pay gap persists even though women are more likely to earn bachelor’s degrees than men, and do one and a half times as much unpaid care work.

Right now, women in our country are given unreasonable and unequal choices. Either put food on the table or care for your child. Find a new job or a second job to make ends meet. Grin and bear sexual harassment, unequal pay, and disrespect, or accept a reputation as a troublemaking bitch. Choose to be a good mom, a good daughter, or a good employee.

This is not the life I signed up for, and I doubt you did either. Yes, there are a handful of women who seem to have it all. They either came into this world with privilege, possess exceptional family supports, or won the boss lottery. But none of those bits of fortune are guaranteed—we can gain them through luck, lose them through misfortune, or never experience them at all. That’s why, until all women can slay, none of us really can.

As feminists, we have a long road ahead in the struggle for women achieving economic freedom. We need to root out sexism, racism, discrimination, ageism, and gender inequality across the board, but that’s not possible until all women acquire real economic power.

The women who make our country work ought to have a say in how that work gets done and who benefits from it. Our economic liberation requires freedom in our workplaces, in our health care decisions, in our homes, and in our communities. The long-term policy shifts to make that happen won’t take place overnight. Structural fixes aren’t easy or sexy, and can’t be summed up in a hashtag or on a t-shirt.

Women in our country are given unreasonable and unequal choices

How many women do you know who are stressed out from juggling work and caring for their spouses, children, and aging parents because Congressional leaders refuse to implement a comprehensive paid family leave program? The care conundrum cuts across race and class, yet the women who work for low-wage employers are in the worst predicament, trying to balance the fear of losing their jobs or life savings while navigating a patchwork of insufficient fixes.

And how many still have to bear the brunt of sexual harassment, for fear of losing their jobs? The Huffington Post found that 1 in 3 women has been sexually harassed at work. Nearly half of all housekeepers in Chicagoland hotels had guests expose themselves, and 65 percent of casino cocktail servers had a guest grope or grab them.

But there are signs of progress, as women band together to reclaim our power. Around the country, women are winning campaigns for paid sick days, for consistent and dependable schedules, for equal pay, for ending the sexist and racist tipped subminimum wage, and for domestic workers to be included in basic wage and overtime protections that they have been barred from since the New Deal. Through these wins, women are taking the first steps at earning a fair return on their work so they can make smart choices for themselves and their families, and for the women who follow.

As feminists, we must combine the demands of the millions of women who came before us, of those fighting for their rights today, and of our daughters and granddaughters who have yet to grasp the full weight of living in an unequal world. If we do so, together we can rewrite the rules so that women from all walks of life are in the drivers’ seat, taking control of their lives and their economic well-being.

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First Person

I Helped Low-Income Americans Save for Retirement—Until Trump Ended the Program

| Alysha Alani
AP/Eric Risberg

Last month, the Treasury Department announced plans to wind down the myRA program, an Obama-era initiative designed to help low- and middle-income earners start a retirement account. According to the July 28 press release, the Treasury could not justify the expense the three-year-old program represented to taxpayers, given the slow uptake of the program among its target demographic: the 55 million Americans who lack access to a workplace retirement plan.

The argument against myRA’s expense is hard to swallow, since the next item on President Donald Trump’s agenda is a tax reform plan that could cost as much as $7 trillion over the next decade. The myRA program would be 0.001 percent of the cost. The claim that enrollment has been unenthusiastic isn’t much easier to stomach, since the program was so new. Publicity efforts, such as partnerships with Volunteer Income Tax Assistance programs and promotions through government websites and TurboTax, have not yet been executed.

In reality, it was a deeply practical, badly needed program. I spent this past tax season working with United Way of King County to expand the savings options available to low-income taxpayers in Seattle. Tax time is one of the only times a year that saving is a real possibility for low-income earners—their tax refunds are often the largest lump-sum payment they receive all year. Asking clients a question as simple as, “Are you considering saving a portion of your refund today?” was enough to spark a meaningful conversation about budgeting, savings, and overall financial stability. Tax clients had the option of splitting their refund into a savings account, savings bond, or myRA, which was piloted at United Way’s tax sites for the first time this season.

For middle- and upper-income earners, retirement programs are an assumed benefit.

myRA was a great fit for clients who were new to saving. The accounts had no minimum balance required, no fees, and no risk of losing money. Account holders could withdraw contributions in case of an emergency, and had the option to automatically contribute from their paycheck. And since almost 1 in 6 King County households are underbanked or unbanked, myRA’s accessibility without a formal relationship with a bank or other financial institution is a major asset. Of course, myRA was not perfect: It was hard to access without a Social Security number, and it counted against people enrolled in other safety net programs like Medicaid and food stamps (SNAP) in states with public assistance asset limits.

Imperfections aside, myRA provided a straightforward and flexible savings platform unlike any other. For middle- and upper-income earners, primarily white collar workers, retirement programs are an assumed benefit. There is no comparable alternative for workers whose employers don’t offer such benefits. And with the increasing necessity of “side hustles” in the gig economy, many workers don’t even have an employer to fill that role. Five states are moving forward with state-sponsored retirement plans called “Secure Choice,” which provides some hope, despite congressional efforts to block them.

After I left Seattle, I worked with a think tank in Washington, D.C. I passed by the Treasury building on my way to the office every morning, which gave me plenty of time to reflect on the thousands of taxpayers all the way across the country in the “other” Washington.

The label “taxpayer” is one Americans on both sides of the country (and the states in between) wear with honor, regardless of their political ideology. The structure of our tax code, the loopholes and deductions we permit, and whether or not we feel our tax burden is fair should be reflective of our values. If we value financial stability, for ourselves and our neighbors, we need to support programs like myRA. Without it, there aren’t many safe and accessible retirement savings options for lower-income workers. Innovative programs that could level the playing field deserve a chance to prove that they work, instead of being shut down.

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Analysis

The U.S. Is Still Forcibly Sterilizing Prisoners

| Lea Hunter
AP/Rich Pedroncelli

Last month, news broke that a Tennessee judge issued a standing order offering inmates a 30-day sentence reduction if they underwent a permanent birth control procedure: vasectomies for men, or a 4-year birth control implant (Nexplanon) for women. Though the program is technically voluntary, media pointed to it as a form of coercion that forces inmates into sterilization. The American Civil Liberties Union agreed, arguing that the program “violates the fundamental constitutional right to reproductive autonomy.”

But the media missed a key piece of context in its outcry: Programs like this aren’t actually unusual. The United States has a long history of forcibly sterilizing people, and it never really stopped.

Starting in 1907, state governments sanctioned sterilization as a form of eugenics, to prevent anyone with undesirable traits—disabilities, poverty, a criminal record, specific racial backgrounds—from procreating. This type of legislation justified the sterilization of approximately 60,000 Americans until the laws were phased out in the late 1970s. But that doesn’t mean the practice actually ended: In 2013, the Center for Investigative Reporting found that at least 148 female inmates in California received tubal ligations without their consent between 2006 and 2010. Just one year later, the Associated Press reported on at least four instances of prosecutors in Nashville including birth control requirements in plea deals.

Other recent examples of court-required sterilization throughout the country include a 21-year-old West Virginia mother who had her tubes tied as part of her probation for marijuana possession (2009), and a man in Virginia who traded a vasectomy for a lighter child endangerment sentence (2014). “We’re starting to reach a point where the courts are responsible for anyone,” explained one prosecutor involved in a Florida plea deal. “It’s one final step to have to supervise teenagers in sexual relationships they aren’t ready to handle.”

Starting in 1907, state governments sanctioned sterilization as a form of eugenics.

The prosecutors in each of the recent cases lean on a classic conservative talking point to justify this paternalism: the need for “personal responsibility.” Judge Sam Benningfield, who is behind the recent sterilization program in Tennessee, used those exact words in his justification: “I hope to encourage them to take personal responsibility … This gives them a chance to get on their feet and make something of themselves.”

It is strange to think that these prosecutors and judges do not connect “responsibility” to “autonomy,” and stranger still that they see no connection between the personal and the systemic. At the core of each of these stories is an individual whose body was violated. But these plea deals tap into a historical pattern of abuse against people of color, LGBTQ people, people with physical and mental illness, and those living in poverty. Instead of acknowledging the systemic failure and offering basic supports to the communities most likely to bear the brunt of these policies, they are punished in one of the most dehumanizing ways imaginable.

This disconnect is threaded through the conservative platform on reproductive justice. Campaign promises to defund Planned Parenthood, an organization providing affordable family planning services, have become canon for the GOP. Eighty-five percent of Planned Parenthood patients have an income at or below 150 percent of the federal poverty level. Defunding these clinics would have a profound and disparate impact on those living in poverty, communities of color, rural communities, and the LGBTQ community. Many of these patients often do not have access to alternative providers for reproductive health care—including cancer screenings like pap smears and breast exams, sexual health education, sexually transmitted infection testing and treatment, and contraception. These clinics empower patients to make their own reproductive decisions, but conservatives are on a crusade to take away their agency while simultaneously spouting rhetoric about individual responsibility. The contradiction appears to escape their notice.

Marginalized communities do not suffer from a lack of personal responsibility. They suffer from a lack of resources and support. Instead of dismantling organizations that serve these communities and leaving it to the criminal justice system to serve as the arbiter of family planning, let’s support the institutions and policies that empower and build capacity for self-determination.

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Analysis

Poverty Doesn’t Make People Racist

| Linda Tirado
A white supremacist yells at counter demonstrators at the entrance to Emancipation Park in Charlottesville, Virginia. (AP/Steve Helber)

We tell ourselves little lies to make the world make more sense. Sometimes it’s because we’re looking for reason in madness, sometimes it’s because we’re telling ourselves pretty little falsehoods to avoid guilt. We lie to ourselves and each other about how the nation works, who’s at the top and bottom of various ladders. We find scapegoats for societal ills, to make them into something separate from ourselves.

Right now, we are looking for a story that lets us assign blame for terror and racism. The uprising in Charlottesville has knocked the wind out of us, and it is only natural to hope that the blame can be placed on something impersonal, to believe that no human being might simply be addicted to hate.

That’s likely how it came to be that former congressman and mayor of Atlanta, Andrew Young, appeared on NBC’s “Meet the Press” to say this:

Most of the issues that we’re dealing with now are related to poverty. But we still want to put everything in a racial context. The problem with the—and the reason I feel uncomfortable condemning the Klan types is—they are almost the poorest of the poor.

They are the forgotten Americans. And, um, they have been used and abused and neglected. Instead of giving them affordable health care, they give them black lung jobs, and they’re happy.

And that just doesn’t make sense in today’s world. And they see progress in the black community and on television and everywhere and they don’t share it.

It is a good impulse to look for structural reasons for social ills. But it goes too far when it removes agency from human beings. Poverty, even the crushing sort that has you rolling pennies to buy milk, does not cause bigotry. One does not conceive a love of genocide because the economy tanks. We choose what we say, and whom we hurt.

If poverty were a causal effect for racism, then you would not expect to see quite so many virulent racists in the upper classes. David Duke and Richard Spencer were both children of some privilege. Stephen Miller didn’t grow up in straitened circumstances. These are the men who stoke the fears and resentments of the lower classes, who manipulate and misinform.

There is no excuse for willful evil.

Lyndon Johnson famously said, “If you can convince the lowest white man he’s better than the best colored man, he won’t notice you’re picking his pocket. Hell, give him somebody to look down on, and he’ll empty his pockets for you.” He wasn’t wrong, and that strategy has been used to great effect over the centuries. It’s why we have de facto segregation, it’s why we pushed through welfare reform using the boogeyman of the “welfare queen,” and it’s why the same crime gets you a different sentence depending on what color you are. Find a bit of structural racism, and behind it you’ll find a white politician pandering to the worst parts of human nature to gain or hold power.

But there is a difference between misinformation and hate. I know many good people who support bad policies; they are well-intentioned but misinformed. I don’t know many good people who take pleasure in terrorizing others, who would join hate groups and call it a fight for utopia. We live under crushing poverty and manage to not kill our horrible bosses or the uncaring bill collectors; we can surely manage to not join the Klan.

There is no excuse for willful evil, even if someone’s life is filled with pain and desperation. Someone who is very poor has few choices, but the things you can choose are all about what sort of person you want to be. It’s the one thing you can control, the one thing you can’t lose and nobody can take from you. Those choices are intentional, adult decisions. To explain them away is to say that the poor are incapable of moral reasoning. In our quest to be reasonable and kind to the less fortunate, we risk making them not human at all.

One day we will have a conversation about race in the upper classes, about the people who make the laws and set the narratives and peddle these lies. Today is not that day, and sometimes it seems like that day might never come. For now, it is enough to say: The poor cannot afford illusions about themselves or their lives. At least give them respect that any autonomous human deserves, and call evil “evil” without equivocation.

Poverty does not cause bigotry, no matter how comforting it might be to tell ourselves it does.

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