Trump's Huge Tax Cuts for the Rich Betray Working People

The people spoke clearly, but it seems the voices of thousands of corporate lobbyists and special interests have prevailed.

This week, President Trump is likely to sign deeply unpopular tax overhaul legislation into law.

Lawmakers could have followed the pattern of 1986 tax reform and created bipartisan legislation that would have been meaningful for working people and businesses.

Instead, the GOP leadership indiscriminately crammed as much high-end tax cutting into a $1.5 trillion box as it could.

From the start, taxpayers were well aware of who would benefit most from these tax changes, despite repeated protestations to the contrary.

Over the weekend, for example, the White House reiterated the precise rhetoric it's been trumpeting all year. Trump said, "The rich will not be gaining at all with this plan."

This is categorically untrue.

Comfortably well off Americans at the Mercedes-Benz Polo Challenge July 21, 2001 in Bridgehampton, NY. The Hamptons, located at the east end of New York''s Long Island, is a traditional summer escape for rich New Yorkers. Spencer Platt/Getty

The Institute on Taxation and Economic Policy (ITEP) analyzed the final House and Senate bill. Households in the top 5 percent will receive more than half of the tax cuts in 2019, and families in the richest 1 percent will reap a tax-cut windfall averaging more than $55,000.

Meanwhile, families in the middle-income quintile will receive an average tax cut of about $800 ($15 a week) in 2019. But by 2027, that cut would shrink to an annual average of $70, and one in three taxpayers in that income group would face a tax hike because tax cuts for individuals expire after 2025.

Tax cuts for corporations, however, will remain in place.

These figures are the precise reason that the public is overwhelmingly against this plan. But GOP leaders continue to ignore data, reason and public opinion, all the while dubiously insisting a supply-side miracle will provide a financial windfall for working people.

Sunday, on CNN's State of the Union, for example, Treasury Secretary Steve Mnuchin responded with a word salad when grilled about who benefits most from the pending tax bill: "As you know, there are distribution of taxes. The distribution is staying very similar. And this is all about fixing a broken tax system. So this will be very large tax cuts for working families and very large tax cuts for businesses to make them competitive."

In truth, the distribution will not remain the same, not even close. Even if you accept the idea that higher income people should receive bigger tax cuts because they earn more, this argument is bunk because taxpayers in the top 1 percent receive the biggest tax cut both in dollars and as a percentage of their income.

The richest 5 percent of taxpayers will receive tax cuts averaging 3.5 percent of their income in 2019. At the same time, taxpayers in the middle-income quintile will receive tax cuts averaging about 1.5 percent of their income. The distribution is heavily skewed toward the top.

Besides ITEP, Congress's own scorers and other independent analysts have produced studies that demonstrate how much of a kickback this bill is for corporations and wealthy donors. This plan is historically the most unpopular tax legislation in the last four decades for good reason.

The truth is, if lawmakers truly wanted to craft a tax overhaul that would benefit working people most, they would have started from fundamentally different principles and developed policies that would provide true tax relief for all working families while shutting down favorable tax treatment for rich people.

An easy starting point would have been ending our tax system's preference for wealth over work. The final bill continues the current approach of taxing the capital gains and stock dividends enjoyed by the best-off Americans at special low rates.

This unearned income ought to be taxed at the same rates the rest of us pay on our wages and other income. Having separate rates for certain kinds of income makes our tax system much more complicated, and it's also unfair.

No other provision of our tax law so obviously tips the scales in favor of the richest Americans and against working families.

But the final tax plan would leave the capital gains and dividends tax break in place and would double down by creating yet more breaks for certain income received by business owners. This comes on top of the bill's enormous tax cuts for corporations to benefit the high-income Americans and foreign investors who own most of the stock in U.S. corporations.

The bottom line is that real tax reform would make our tax code simpler and fairer. The nearly 500-page Tax Cuts and Jobs Act does the opposite.

Americans know it, and even the authors of this bill know it, which is why they are rushing to enact it before anyone can study it more and pan it more than the public already has.

Alan Essig is the executive director of the Institute on Taxation and Economic Policy.