Ryan's Plan To Give Away The Store To The Very Rich

Interesting and well-framed OpEd by Catherine Rampell in Tuesday morning's Washington Post, Who wins biggest in the GOP tax plan? The lazy rich. Ryan's tax bill, she wrote isn't just weighted towards the rich, "it’s actually weighted toward the loafer, the freeloader, the heir, the passive investor who spends his time yachting and charity-balling. In short: the idle rich." (Sounds like Nancy Pelosi's recruitment committee for the DCCC.) "[T]he GOP tax bill offers the biggest windfall to those who sit on their duffs and do nothing... So much for the dignity of work."

On Monday, the House Ways and Means Committee began marking up Ryan's tax proposal, something that should take most of the week. But is the bill already DOA? Right off the bat, Lloyd Dogged (D-TX) brought up the Paradise Papers and Trump's refusal to show the public his own tax returns, making it impossible to know how much of the tax bill was created to cut his own tax obligations. Doggett issued a statement saying that "Consideration of the Republican tax plan to reward tax dodgers and incentivize outsourcing of more American jobs abroad should be postponed until a thorough examination of these documents has occurred." Republicans on the committee voted that down in a vote that included electorally vulnerable members like Devin Nunes (R-CA), Peter Roskam (R-IL), Vern Buchanan (R-FL). Pat Meehan (R-PA), Erik Paulsen (R-MN) and Carlos Curbelo (R-FL).

By late afternoon there was a fight about making fetuses designated beneficiaries of college savings plans (529s), another moronic Republican attempt to deprive women of their right to Choice. Judy Chu (D-CA) slapped them down for the backdoor maneuver to try to redefine personhood to any "member of the species homo sapiens, at any stage of development, who is carried in the womb." Maybe it'll take even longer than a week if this keeps happening.

Meanwhile, more and more non-congressional groups have been coming out against the bill, including one no one would have guessed, the New Jersey Chamber of Commerce, which noted that the Trump-Ryan plan "would not be positive for New Jersey. While some citizens and businesses in the state would benefit, many more would not. This proposed legislation eliminates state and local tax deductions, which impacts 52 percent of families in New Jersey. It would limit property tax deductions to $10,000 and reduce mortgage interest deductions, both of which would erode property values, one of the most important financial assets for New Jersey families. Also many New Jersey taxpayers would see an increase in their federal taxes due to a change of rates. This proposal is exactly what we do not need at this time."

The Institute on Taxation and Economic Policy issued a devastating report ripping the bill apart and laid bare the Republican lie that it doesn't benefit the very wealthy at the expense of everyone else, pointing out that it "would raises taxes on some Americans and cut taxes on others while also providing significant savings to foreign investors. Of those tax cuts that would benefit Americans, nearly a third would go to the richest one percent in 2018, and by 2027 that fraction would rise to nearly half."

Some of the provisions in the House bill that benefit the middle-class-- like lower tax rates and fewer brackets, an increased standard deduction, and a $300 tax credit for each adult in a household-- are designed to expire or become less generous over time. Some of the provisions that benefit the wealthy, such as the reduction and eventual repeal of the estate tax, become more generous over time. The result is that by 2027, the benefits of the House bill become increasingly generous for the richest one percent compared to other income groups.

The middle 20 percent of income-earners in America, the group that is quite literally the “middle-class,” would receive 10 percent of the benefits in the U.S. in 2018 and just 8 percent of the benefits in 2027.  In other words, in 2027 the middle fifth of Americans would receive only one sixth of the benefits received by the richest one percent of Americans.

According to Congress’s official revenue estimators, the House bill would have a net effect of losing a little less than $1.5 trillion over ten years. The bill was drafted with the goal of increasing the deficit by no more than $1.5 trillion over ten years because this is the rule set out in a budget resolution already passed by Congress. In order to meet this goal while still enacting tax cuts that some lawmakers desire, the bill’s drafters included a complex scheme that phases some provisions in over time while causing others to expire and relying on some revenue raised that would not likely be sustained in the future.

The richest one percent of Americans would enjoy an average tax cut of $48,580 in 2018, and this average tax cut would rise to $64,720 in 2027. The middle fifth of income-earners would receive an average tax cut of $750 in 2018, which would fall to $460 in 2027.

Some might be tempted to believe that because income inequality is so great, the tax cuts might be simply proportionate to household income. One might wonder if the $460 average tax cut for the middle fifth of income-earners is fairly significant relative to their income level, and the average tax break of $64,720 for the richest one percent that year is simply proportionate to the income of that group. But that is not what the numbers show. Even when measured as a percentage of income, the richest one percent receive a larger average tax break in 2018 and 2027 than any other income group. As illustrated in the graph below, the richest one percent receive an average tax cut equal to about two and a half percent of their income in 2018 and 2027. The middle fifth of income-earners receive a break equal to 1.4 percent of their income in 2018, falling to just 0.6 percent of their income in 2027.

Some might be tempted to believe that because income inequality is so great, the tax cuts might be simply proportionate to household income. One might wonder if the $460 average tax cut for the middle fifth of income-earners is fairly significant relative to their income level, and the average tax break of $64,720 for the richest one percent that year is simply proportionate to the income of that group. But that is not what the numbers show. Even when measured as a percentage of income, the richest one percent receive a larger average tax break in 2018 and 2027 than any other income group. As illustrated in the graph below, the richest one percent receive an average tax cut equal to about two and a half percent of their income in 2018 and 2027. The middle fifth of income-earners receive a break equal to 1.4 percent of their income in 2018, falling to just 0.6 percent of their income in 2027.

The House bill includes features that are apparently designed to make the plan appear less generous to the wealthy than previous versions of tax reform that have been discussed. For example, the top personal income tax rate today is 39.6 percent, and in a departure from previous proposals, this bill would retain that top rate for married couples with taxable income exceeding $1 million and singles with taxable income exceeding $500,000. Also, the benefits of the lowest income tax bracket (12 percent under the House bill) would be phased out for the very rich.

But these changes prove to be largely cosmetic because much of the benefits for the richest Americans come from other provisions in the bill. For example, the provision reducing the corporate tax rate from 35 percent to 20 percent would mostly benefit the owners of corporate stocks, which mostly include high-income Americans and foreign investors. Another example is the special top tax rate of 25 percent for some “pass-through” business income. Pass-through businesses have profits that are not subject to the corporate income tax but instead are reported on their owners’ tax returns and subject only to the personal income tax. While proponents of this special tax rate for pass-through businesses often call it a break for “small businesses,” most pass-through income goes to the richest one percent of Americans.

The White House has recently argued that any plan to cut taxes will inevitably provide the largest benefits to the rich because they have the most income and because they pay the most in taxes.[3] But as the graph below shows, the share of the bill’s tax cuts that the richest one percent would receive in 2018 (31 percent) exceeds their share of income and the share of federal taxes paid by this group.

Some households in every income group would face a tax hike under the bill. For example, in 2018, 8 percent of households in the middle fifth of the income distribution would face a tax hike, rising to 21 percent of these households in 2027. This would occur because several provisions in the bill raise revenue by repealing or limiting tax breaks that benefit the middle-class, and for some households the loss of these tax breaks would not be offset by the new tax breaks introduced in the bill.

For example, the bill would increase the standard deduction in 2018 from $13,000 for a married couple to $24,400. But the bill also repeals the personal exemption that taxpayers claim for each member of their household. The standard deduction and the personal exemption together define the amount of income that is free of federal income taxes for most middle-class families. For example, in 2018, a married couple with two children will be allowed, under current law, to claim a standard deduction of $13,000 plus four personal exemptions of $4,150 for each member of their family, for a total of $29,600 of income that is shielded from federal income taxes. Under the House bill, this family would be allowed to claim a standard deduction of $24,400 but no personal exemptions, meaning only $24,400 of income would be shielded from federal income taxes.

Similarly, Brookings' Tax Policy Center's analysis found that "the largest cuts in terms of dollars and as a percentage of after-tax income would accrue to higher-income households [and that] at least 12 percent of taxpayers would pay higher taxes under the proposal in 2018 and at least 28 percent of taxpayers would pay more in 2027... Taxpayers in the bottom two quintiles (those making less than about $48,000) would see modest tax cuts of between 0.3 and 0.5 percent of after-tax income. Taxpayers in the middle income quintile (those making between about $48,000 and $86,000) would receive an average tax cut of $700 or 1.2 percent of after-tax income. Taxpayers in the top 1 percent (those making more than $730,000) would receive 22 percent of the total tax cut: an average cut of $37,000 or 2.5 percent of after-tax income.

You won't be seeing this in the mainstream media for a while, but there has been a lot of chit-chat in DC lately about Ryan wanting to usher this highly unpopular bill through and then announcing his retirement, knowing full well he has no real path to reelection against Randy Bryce who has built a powerful case against Ryan as an avatar of greed and selfishness. Ryan has become so toxic to independent voters that many have been indicating to pollsters that they are more likely to vote against Republican incumbents because of Ryan's position as Speaker. Rather than let the Democrats gin that up into a campaign issue-- the way the GOP has used Pelosi-hatred as an anti-Democratic issue-- Ryan just wants out... and away from Trump and Bannon and the forces of extremism ripping the GOP apart.