Trump's 2017 Tax Cuts Helped Super-rich Pay Lower Rate Than Bottom 50 Percent: Economists

The Trump administration's deficit-bloating package of tax cuts passed by Congress in 2017 led the following year to the 400 wealthiest families in America—all of them with a net worth in the billions of dollars—paying a lower tax rate than the bottom 50 percent of households.

That is according to a new analysis by two economists in their book—The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay—set to be published on October 15. The authors are Emmanuel Saez and Gabriel Zucman, both economics professors at UC Berkeley.

After collating the data going back decades, Saez and Zucman showed that since the 1960s the effective rate paid by the richest 400 families has been in general decline amid tax cuts and the emergence of sophisticated tax avoidance. Then, in 2018, their tax rate fell sharply.

According to The Washington Post, the pair found those families paid an effective average tax rate of 23 percent that year, below the 24.2 percent paid by the bottom half of American households. Back in the 1960s, the richest were paying close to 60 percent and the bottom half just over 20 percent.

"As a group, and although their individual situations are not all the same, the Trumps, the Zuckerbergs, and the Buffetts of this world pay lower tax rates than teachers and secretaries," the book states. "How can a tax system that many view as progressive be, in fact, so regressive?"

President Donald Trump pitched the Tax Cuts and Jobs Act 2017 as an economy-boosting tax cut to benefit the middle and working classes that would pay for itself. Instead, the deficit ballooned to near $1 trillion as federal tax receipts disappointed—and the wealthiest cashed in.

"On the whole, the growth effects tend to show a relatively small (if any) first-year effect on the economy," found a recent report on the tax changes by the Congressional Research Service (CRS).

The big cut to corporation tax meant the estimated average corporate tax rate fell from 23.4 percent to 12.1 percent, the CRS said. But individual income taxes as a percentage of personal income fell only slightly from 9.6 percent to 9.2 percent.

Moreover, the falling corporate tax rate did not filter down into the pockets of workers. The CRS found that "profits…grew faster than wages" and that "ordinary workers had very little growth in wage rates."

Around the time Congress passed the tax cuts, an analysis by the Tax Policy Center predicted that the poorest would see the lowest proportional benefit and the richest would benefit more than anyone else.

"In 1970, the richest Americans paid, all taxes included, more than 50 percent of their income taxes, twice as much as working-class individuals," The Triumph of Injustice states.

"In 2018, following the Trump tax reform, and for the first time in the last hundred years, billionaires have paid less than steel workers, schoolteachers, and retirees.

"The wealthy have seen their taxes rolled back to levels last seen in the 1910s, when the government was only a quarter of the size it is today. It is as if a century of fiscal history has been erased."

There is some debate about the methodology used by Saez and Zucman.

Jason Furman, an economics professor at Harvard and a former senior economic adviser to the Obama administration, highlighted to the Post refundable tax credits, such as the earned-income tax credit [EITC].

The EITC essentially subsidizes work. It can refund more federal tax to working low-income households than they actually paid. Yet where families receive back more, it is reflected as $0 in the analysis.

Zucman responded that he and Saez consider EITC to be a transfer of income, like welfare payments, rather than a negative tax.

Either way, it is clear that those at the top of the wealth pile are benefiting from Trump's tax cuts—and many are open about it.

Warren Buffett, the billionaire financier, noted in a letter alongside his firm Berkshire Hathaway's annual report that they made more than $29 billion overnight after the tax cuts. "A large portion of our gain did not come from anything we accomplished at Berkshire," Buffett wrote.

The U.S. Treasury did not respond immediately to Newsweek's request for comment.

Donald Trump tax cuts wealth economists
Donald Trump in the Oval Office at the White House in Washington, DC on October 8, 2019. Trump's 2017 tax cuts helped the richest families in America to pay a lower rate than the bottom half of households, according to a new analysis. BRENDAN SMIALOWSKI/AFP via Getty Images

This article was updated with quotes from the book.

Correction 10/10/19: The book will be published on October 15.