Back in law school, WC’s federal taxation professor, the late Vance Kirby, emphasized the only way to understand the federal income tax code was to understand it was a collection of special interest legislation.
Professor Kirby was right.
President Trump’s1 proposed changes to the federal income tax code are a classic instance of special interest litigation. Except that this time the special interests are the President and his billionaire cronies.
In all seriousness, this is legislation of the Trumpster, by the Trumpster and for the Trumpster.
While we don’t have very many of the Trumpster’s federal income tax returns, we do have the first two pages of his 2005 return. They were famously analyzed on a Rachel Maddow broadcast. In 2005, we know the Trumpster’s made more than $150 million, but his initial federal income tax liability was just $5.3 million; that’s a marginal rate of 3.5%. Sweet. But the Alternative Minimum Tax, a law passed to get taxes out of folks with too many deductions, cut in and the Trumpster was nailed for $38 million; a marginal rate of a little over 25%. Seven times more tax.
The Trumpster’s solution? Repeal the Alternative Minimum Tax. Why? He says because it is “too complex.” Sure it’s complex. Armies of smart accountants and tricky lawyers have been devising ways to avoid taxes since at least the time of Henry VIII.2 Any solution to complex tax dodging is necessarily complex. But – and this is the critical bit – the complexities of the AMT only impact the wealthy, the folks who can best afford to hire accountants and lawyers to deal with it. “Complexity” is a flimsy, pathetic excuse for repeal of the AMT. It’s all about saving the Trumpster and his rich buddies taxes.
But the Trumpster didn’t stop there. His proposal would also cut the tax rate for large corporations from 35% to 15% per cent. Stressing that the Trumpster wanted to help out small-business owners, too, his
hedge fund managers top economic advisers explained that the President’s plan would also cut the tax rate for owners of so-called “pass-through” businesses, sole proprietorships, S Corporations and L.L.C.s, to the same 15%. To folks unfamiliar with the tax code, this proposal may sound reasonable. Why shouldn’t a small businessman who employs fifty or sixty people pay the same tax rate as Walmart, or Goldman Sachs? Because the overwhelming benefit of such a break goes to the richest 1%. The Trumpster and his buddies. The Center on Budget and Policy Priorities found, “About half of all pass-through income flows to the top 1 percent of households (those with incomes above $693,500 in 2016). Only about 27 percent goes to the bottom 90 percent of households. Yep. The Trumpster wins again.3
All told, the loss of federal revenue looks to run the federal deficit up in ways that make President Reagan and President George W. Bush look fiscally prudent. No worries, though. The Deficit Fairy will magically boost the economy, generating new income that will be more than enough for even the lower tax rates to reduce the deficit.
There are at least two things wrong with that claim.
First, While middle-class incomes have stagnated, the top 0.01 percent of earners have had their average inflation-adjusted income roughly quadruple to $11.3 million since 1980. Their taxes have fallen, too. There’s absolutely no justification for cutting those taxes further.
Second, there is no Deficit Fairy.
The New York Times called it, “A laughable stunt by a gang of plutocrats looking to enrich themselves at the expense of the country’s future.”
- WC is managing get “President Trump” out without gagging every time. But until such time as New York’s Shame acts even slightly presidential, WC will generally avoid the phrase. ↩
- Ask any law student about the Rule Against Perpetuities, an impossibly complex law issued by Henry VIII to stop a tax dodge. ↩
- Some sources estimate all the wealthy folks shifting from employees to consultants to grab the new tax dodge would reduce total tax revenues by another $640 billion dollars over ten years. ↩