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Blogs > Steve Hochstadt > This Tax Cut Is Not For You

Nov 22, 2017 9:54 am


This Tax Cut Is Not For You

tags: Obamacare, taxes, Republican, Tax cut



The news is all about tax cuts. For corporations, the news is good – both the Senate and House plans cut corporate taxes by nearly half. For real people, not such good news, unless you are rich. These plans are complicated and subject to change, but one thing is clear. This is not a middle-class tax cut.

 

It’s not a tax cut for teachers, whose $250 deduction for classroom supplies is eliminated.

 

It’s not a tax cut for middle-class and working-class families who work for colleges and universities, because the House bill classifies their children’s free tuition as income. They would get a tax increase of thousands of dollars on tuition costs of $10,000 to $40,000 a year.

 

It’s not a tax cut for middle-class families in states with high taxes, like New York, New Jersey and Illinois. The Senate bill eliminates deductions for property taxes and state income taxes; the House bill allows a deduction for up to $10,000 in property taxes. About 30% of all taxpayers claim these deductions, including half of middle-class taxpayers who make $50 - $100,000 a year.

 

It’s not a tax cut for families with high medical expenses. People who have to spend more than 10% of their income on health care could no longer deduct that amount, according to the House bill. About 9 million people, with average income of $55,000, take that deduction every year. People in nursing homes and families with disabled children often need that deduction to make ends meet.

 

This is not a middle-class tax cut. It will only lower some middle-class families’ taxes for a few years. But Republican leaders won’t say that. Two weeks ago, House Speaker Paul Ryan said: “according to the Joint Committee on Taxation – which is the official scorekeeper of these things – every single person, every rate payer, every bracket person gets a rate cut.” But he was doubly lying. First, while every category of taxpayers would see an average reduction of taxes, not everybody in each category gets a cut. If the House version becomes law, 10% of taxpayers in the middle income range would pay $1000 more in taxes next year and every year.

 

Second, the cuts for the middle class don’t last long. Senate Republicans made the tax cuts for individuals temporary, expiring in 2025, while the tax cut for corporations is permanent. Whatever benefit middle-class families gain disappears in a few years. That is clear from an exhaustive analysis by Ryan’s own scorekeeper, the Joint Committee on Taxation. By 2025, the Senate bill would increase taxes for Americans whose income is under $50,000 and collect about the same from those with incomes between $50,000 and $500,000. Only those making over $500,000 a year will still see a tax cut by then.

 

President Trump has broken the promises about taxes made by Candidate Trump. Candidate Trump said, “the hedge fund guys, they’re going to be paying up,” meaning they would no longer get a special low rate for their income. He repeated this many times, saying they are “getting away with murder.” Both the Senate and House bills leave that tax break intact. The most important promise Trump made was that the tax cut was for the middle class. Just two months ago, he said his tax plan was “not good for me, believe me” and “there’s very little benefit for people of wealth.” Don’t believe him. This month he urged a cut in the rate for the richest Americans and an end to the estate tax for inheritances over $11 million.

 

But you can believe that Trump is still trying to kill Obamacare. With his encouragement, Senate Republicans eliminated the Affordable Care Act’s requirement that everyone have health insurance. As we learned during the health care debate, this means insurance premiums will go up for millions of Americans, wiping out any tax cut they might get.

 

What would a real middle-class tax cut look like? Reduce taxes on Social Security benefits. If you receive other retirement benefits, then you’ll probably pay taxes on some or most of your Social Security income. Only if your total family income is less than $32,000 is your Social Security income free of tax. Millions of middle-class retirees would benefit if that threshold were raised. Pay for that by ending the tax boondoggle for hedge fund managers.

 

The Republican tax cut is not about economic policy and is certainly not for the middle class. It is political legislation about economic issues: cut corporate taxes to satisfy Republican donors and try again to kill Obamacare. Mainly it is a backwards reduction in the size of government. First create a giant deficit, much larger than the deficit that Republicans have been saying for years would bankrupt the country. Then later start screaming about deficits again and cut government spending to fit reduced revenues by slashing the programs that most Americans need to keep afloat – Social Security, Medicare, and Medicaid.

 

Only 25% of Americans approve of the Republican tax bills. The more Republicans know about the details, the less they approve. Trump, Ryan and company are trying to pass this giant bill so fast, that most people won’t realize what is happening to them.

 

Steve Hochstadt

Jacksonville IL

Published in the Jacksonville Journal-Courier, November 21, 2017



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