We do need to change how we fund our government’s activities and how our economy distributes the wealth it creates. But the tax plan now being revealed is not what we need.
Our President and Republican leaders keep telling us it is urgently necessary to lower corporate tax rates so companies can stay competitive. It has become the party line. As my Republican Senator Toomey’s website says:
“Our country’s current corporate tax rate of 35 percent is one of the highest in the developed world, far higher than the average 25 percent rate of our economic competitors. Without a significant reduction in business tax rates, the U.S. will never be the best place to invest and create jobs … The best economic stimulus for the middle class, who have seen their wages stagnate and tax bills rise over the last decade, is a well-paying job. Tax reform will help deliver on this goal with its focus on lower rates, investment, and growth.”
Really? The 20 US companies that accounted for 20% of US GDP last year, meaning all our economic activity, paid taxes totaling only 0.6% of GDP and only 3.6% of all federal taxes (Source: Forbes).
Businesses pay taxes on profits not revenues, of course, but my point is that our theoretical corporate tax rate is not making our businesses less competitive or stifling their job creation. That is not the motive behind this tax plan.
But before we get to that, what would this budget cost? The fiscally conservative Committee for a Responsible Federal Budget estimates $2.2 trillion in lost revenue over a decade. The tax cuts would total $5.8 trillion. New revenues totaling $3.6 trillion resulting from “base broadening” would allegedly reduce the net loss to $2.2 trillion.
Treasury Secretary Mnuchin told us “The plan will pay for itself with growth”. But we have seen over and over again, most recently in a multi-year “experiment” in the state of Kansas which its governor trumpeted as a “shot of adrenaline” to the state, that a tax cut plan that will pay for itself is a fantasy.
That fantasy cannot and will not ever come to pass.
So, what motivates this plan? Who would benefit? The Tax Policy Center estimates that 80% of the $5.8 trillion in tax cuts would benefit the richest 1 percent.
And who would lose? 55 million Americans would lose their tax deductions on what they save in tax-deferred 401k plans and what they pay in state and local taxes. They are our middle class.
Those who earn less would be hit harder, losing government services eliminated to pay for the tax cut, which look to include about $1.5 billion in Medicare and Medicaid.
Would anyone other than those with very high incomes benefit from this plan? Yes — their heirs.
This is a good budget if you want your kids to live under an aristocracy of folks like President Trump whose inheritance installed him among the plutocrats who bought our political establishment.
We do not have the leaders we should want. Their plan is very far from what we need.