Tax Giveaways Don't Trickle Down
By Carrie Welton
Today, President Trump and Congressional Republican leaders released an outline for their tax proposals, which would provide large tax cuts for the wealthy and corporations while providing little benefit to lower-income Americans. Republican plans will be packaged as “pro-growth,” but what we really need to ask is growth for whom?
Though the U.S. tax code is credited for creating income inequality that has reached levels not seen since the Great Depression, the Republican plan will further tilt the tax code in favor of the wealthiest Americans through various mechanisms:
- The number of individual rates will be reduced from 7 to 3, with the top rate cut from 39.6 percent to 35 percent—which benefits less than 1 in 100 households—while the bottom rate will rise from 10 percent to 12 percent.
- While Republicans claim they would double the standard deduction, they would also eliminate personal exemptions. Most taxpayers would see only small benefits, and those who itemize would likely face increased taxes.
- Because the increase in the child tax credit (CTC) would not be refundable, low-income households with the most need would not benefit. In his budget, Trump also proposed to deny the CTC to millions of children with immigrant parents, further harming those with the greatest need.
- The creation of a new 25 percent pass-through rate for income from certain businesses overwhelmingly benefits filers with incomes over $1 million. In fact, this change would reduce the tax bill of the 400 highest-income households by about $5.5 million each.
- Corporations will pay even less in taxes than they do now through a reduced tax rate from the current 35 percent to the proposed 20 percent, with the benefits overwhelmingly flowing to CEOs and investors, not workers.
These are not “pro-growth” policies and stand in stark opposition to empirical evidence about economic growth and mobility. Recent research shows that when incomes grow for the bottom 20 percent of earners, it increases economic growth, while the same amount of income growth for the top 20 percent decreases economic growth. To put it plainly, those benefits do not “trickle down.” These tax cuts will do nothing to reverse the trend of growing income and wealth inequality—especially for people of color—by a system responsible for funneling more federal tax benefits to the top 1 percent of U.S. households than the bottom 80 percent of all taxpayers combined.
We must not stand for tax cuts that will take away funding for critical education, health, and child care services to solidify the transfer of wealth and the concentration of political and economic power to top earners. Congress must focus on changes that not only provide the revenue critical to a well-functioning government but also ensure all households have access to economic opportunity through a more equitable tax code.