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Rather than feeling chastened this week by a third failure to repeal Obamacare, Republicans are plowing forward with an attempt to significantly rewrite the tax code.
On Wednesday, Congressional Republican leaders and the White House unveiled a skeleton framework outlining their goals. It’s hard to say for sure what the impact would be if Republicans get everything they want, thanks to the lack of detail in the plan.
But what’s made it in—and what’s been left out—is plenty revealing.
Trump and his advisers have claimed over and over and over again that their plan won’t result in a tax cut for the wealthy. Yet there’s no other possible outcome from the details provided: The rich will clearly benefit from a number of specific provisions. What’s not clear is what happens to everyone else.
Drawing up a full distributional table, to assess which families receive what benefit (or shoulder what cost), is impossible without more information. The plan, for example, calls to change the current set of seven tax brackets to three, taxing income at 12 percent, 25 percent, and 35 percent. But it fails to say what income levels those brackets will apply to.
We can see, though, how the rich would benefit. For starters, the Republican plan repeals the estate tax, or what the outline dubs the “death tax and generation-skipping transfer tax.” Despite the misguided notion that this tax hurts family farmers, barely any actually pay it. It’s only paid by the richest of the rich: the wealthiest 0.2 percent of estates. A repeal would hand these moneyed families an average of more than $3 million each.
The rich will clearly benefit from a number of specific provisions. What’s not clear is what happens to everyone else.
The outline also repeals the Alternative Minimum Tax, which essentially ensures that the rich at least pay a certain amount, rather than being able to entirely avoid taxes through fancy accounting. The Alternative Minimum Tax was enacted about a half-century ago, when it became public that 155 very rich people paid no federal income tax at all. Without the Alternative Minimum Tax, Donald Trump would have barely owed any federal income tax at all in 2005. More than 60 percent of families earning between $500,000 and $1 million pay the this tax, versus less than 2 percent of those making less than $200,000. It’s the richer families who will see their tax bills drop under the new plan.
The Republican outline wants to lower the tax rate paid by what it calls “small and family-owned businesses” to 25 percent. That sounds nice, but the businesses in question are called pass-throughs—think law firms, real estate brokerages, and hedge funds. Preferential tax treatment for these kinds of companies overwhelmingly benefits the wealthy. Seventy percent of the income made through them goes home with the richest 1 percent of the country. Meanwhile, if the tax rate becomes so much more favorable, it’s likely even more rich people will find ways to convert themselves into a partnership or an LLC to reap the rewards—and it’s near impossible to write rules that would stop them.
Republicans have pledged to “ensure that the reformed tax code is at least as progressive as the existing tax code and does not shift the tax burden from high-income to lower- and middle-income taxpayers.” But they offer few clues as to how they might do that. Mostly what they offer is a bunch of asterisks.
The outline actually raises the lowest tax rate paid by those at the bottom of the income spectrum. The plan claims that this will be offset by other changes, but it doesn’t spell them out. One glaring omission is an increase in the Child Tax Credit, which helps families defray the huge cost of raising children. Republicans say they want to “significantly” raise it, but offer no details. Instead, everyone says it’ll be up to Congress to figure it out. Without that information, it’s impossible to know how much it will help low- and moderate-income Americans.
Republicans also promised that a higher tax rate for those with the least income would be offset by doubling the standard deduction, or the level at which families can reduce the income taxes they owe. But the details don’t bear that rhetoric out either because the outline removes other benefits at the same time. It’s likely many would only see a 15 percent increase in their deductions, effectively raising some families’ taxes. We, of course, don’t know exactly how many, or by how much, because Republicans have neglected to fill in the details.
The document also includes this reassurance: “Finally, the committees will work on additional measures to meaningfully reduce the tax burden on the middle-class.” Who knows what those might be.
It is still possible that Republicans will come up with ways to help the poor and middle classes, although it’ll be hard to do it without a truly eye-popping price tag. But what they spelled out in their plan, and what they decided could be put off until later is incredibly telling.
The rich are guaranteed to benefit. The rest of us will have to wait and see.
Bryce Covert is an independent journalist writing about the economy. She is a contributing op-ed writer at the New York Times and also writes for the New Republic, The Nation, and other outlets.