The Tax Scam, Six Months In
By Susan Harley
This week marks six months since the passage and signing of the tax scam legislation that further rigged our tax system to benefit the wealthy and corporations. The misleadingly named “Tax Cuts and Jobs Act” would more correctly be called the “Benefit Cuts and Lost Jobs Act” because the $1.9 trillion deficit that is projected due to the passage of the tax giveaways for the rich will end up being paid for by cuts to seniors’ Medicare dollars, funding for schools, or even taking food away from hungry families. And, provisions related to taxation of multinational corporations have opened the door wide open to further outsourcing of jobs and investment. As Public Citizen recently said in its testimony to congressional tax writing committees, the tax giveaway law can be boiled down to three words: unfair, cruel, and disliked.
The legislation is unfair because the vast majority of its benefit will flow to the wealthy– an estimated 83 percent will go to the top 1% of our society. And, the tax cut package worsened economic inequality by lowering taxes for the highest earners in our country and further weakening the estate tax. The legislation also unfairly made tax cuts permanent for corporations, slashing the rate down to 21 percent from the previous top rate of 35 percent, while allowing the paltry benefits provided to working Americans to expire after 2025.
Additionally, the law is unfair because it treats Main Street domestic American companies worse than multinational corporations in several ways. First because it gave a windfall to companies that had used accounting tricks for years to stockpile money on the books of subsidiaries incorporated in offshore tax havens. The tax cut law let corporations off the hook by allowing those hoarded profits to be taxed at the very low rate of either 8 percent or 15 percent, instead of the 35 percent tax they previously owed, rewarding their egregious tax avoidance behaviors. And, moving forward, multinational corporations will be allowed to use deductions that will cut their tax rate down to half what domestic companies pay—and in some cases, down to nothing at all—for profits made by these offshore subsidiaries. Combined with other provisions of the new tax law regarding offshore investments, we are unfortunately going to see far more examples like the recent case of Harley-Davidson where manufacturers will cut U.S. jobs and build plants overseas despite getting a massive tax handout.
However, the bill doesn’t just treat some people and businesses worse than others, it is downright cruel to Americans struggling to make ends meet. First, the huge nearly $2 trillion price tag of the tax giveaways to the rich will mean that funding for services like Medicare, Medicaid, Social Security disability nutrition services, and public education will be shortchanged. Lawmakers and the president have already made moves to cut earned benefit programs that seniors and families depend on in order to fill the hole caused by these tax cuts that mainly benefit wealthy corporate GOP donors. Moreover, the tax legislation is cruel because it ended the Affordable Care Act’s insurance mandate, which will harshly push 13 million Americans out of the markets and will raise premiums for the rest of us, leaving our nation much further away from reaching the goal of universal health care, a right enjoyed by citizens of other industrialized nations.
In addition to being unfair and cruel—or likely because of it—the tax cut legislation is disliked. Public opinion remains squarely against the law and approval of the bill continues to decline. Even prominent Senators are speaking unfavorably about the law, most recently Sen. Marco Rubio (R-Fla.) is quoted as saying, “[corporations] bought back shares, a few gave out bonuses; there’s no evidence whatsoever that the money’s been massively poured back into the American worker.” And, Sen. Corker (R-Tenn.) reportedly remarked, “If it ends up costing what has been laid out here, it could well be one of the worst votes I’ve made.”
In addition to the cuts that will come down the line to services hardworking Americans depend on like health and education programs, much of the reason the tax cuts are so disliked is because they are a clear example of self-dealing in that the people who passed this law stand to benefit richly from the changes. For example, many lawmakers have significant income from partnerships or limited liability companies where taxes “pass-through” and are filed by the owners on an individual basis, and a large number of President Trump’s own web of companies are formed as LLCs. These business owners now get a 20 percent deduction, subject to some complicated rules and thresholds that are ripe for gamesmanship and that have proven difficult for true small business owners to navigate. It’s been estimated that a full half of the benefit from the new “pass-through” deduction will go to millionaires.
This unfair, cruel, and disliked bill was clearly the output of a corporate patronage system where campaign contributions go in one end and tax cuts come out of the other. Republican lawmaker Rep. Chris Collins (R-N.Y.) shockingly admitted that his campaign donors were pressuring him to vote for the legislation. Even with the GOP bucking the democratic process by holding no hearings on the legislation, the so-called “debate” around the bill was heavily mired in the swamp that Trump’s base so clearly dislikes. Public Citizen’s research revealed the shocking statistic that more than 60 percent of all D.C. lobbyists weighed in on the bill—more than 7,000 individual lobbyists.
Unfortunately, our nation’s leaders bought the scam that these tax cuts for corporations and the wealthy would somehow trickle down to everyday Americans, though that’s never been the case in the past. Already we’re seeing companies using the money they have received from their discounted tax rate to line investors’ pockets by giving shareholders dividends and buying back stock to increase the value of the existing shares, all the while cutting existing jobs. This clearly breaks promises about this bill made by the Republicans to American workers, who were sold the lie that they would be getting a $4,000 benefit from the tax changes, on average. According to estimates of the results so far from the Tax Cuts and Jobs Act, corporations are spending 69 times as much on stock buybacks as they are shelling out for increased wages or one-time bonuses for employees.
If Congress and the President had truly cared about helping everyday Americans through the tax code changes, they would have actually closed unpopular tax loopholes instead of opening up new ones. For example, the carried interest loophole, which allows investment fund managers to pay a lower tax rate than teachers or construction workers was barely touched. The same is true for the loophole that still allows performance-based bonuses of more than $1 million dollars to be deducted from the tax bills of hugely profitable companies.
Americans have come together as a society and agreed to invest in services like health care, education, nutrition assistance, roads, first responders, courts and other essential government programs. But the fact remains that we need tax revenues to fund these services that we depend on and expect. To address that, the tax debate should have also looked at creating new sources of revenue such as by taxing Wall Street trades, among other things. A tax of only 3 cents for every $100 traded would create more than $417 billion in revenue over 10 years. That money could easily be channeled toward greater investments in our communities that will improve the lives of everyone, not just wealthy shareholders or corporate CEOs.
In America, equal opportunity should mean using taxes to pay for a hand up for folks who need it, not a handout to the rich who already have so much in comparison. Please join the chorus of Americans who are using the six month anniversary of the passage of the tax scam to call (202) 224-3121 and tell their U.S. Senators and Representative to repeal the Tax Cuts and Jobs Act and come up with a real tax plan that will benefit all Americans, not just the few who need it the least.