So here’s the thing. Much of the benefit of the rate reductions built into the four new brackets will go to the very wealthy. That is, the 39.6% bracket starts at $471,000 under current law, but that would be raised to $1.0 million under the GOP plan.
At the end of the day, however, the whole contraption isn’t going to fly.
That because the three big breaks for the wealthy mentioned above plus net corporate tax reductions for the 20% rate, 100% expensing of new equipment and other items will cost $2.2 trillion over the next decade.
Yet the net cost of the GOP draft according to the joint tax committee is $1.49 trillion or the exact allowance in the FY 2018 budget resolution for a deficit-financed tax cut ($1.5 trillion).
And those are truly funny facts. The tax cut for the very wealthy and corporations in the GOP draft amounts to 147% of the net cut.
Everybody else is getting a $700 billion increase!
I have been saying for a long time that the GOP is barking up the wrong tree. The individual income tax has become a rich man’s levy with the top 4% of filers (6 million) paying 60% of the taxes, while the bottom 122 million pay just 13%.
Consequently, there is no way to square the circle — you can’t have a middle class tax cut when the middle class (households with incomes under say $125,000) pay less than 5% of their AGI in Federal income taxes.
The proper tax to cut is the payroll tax. Speaker Ryan’s median income family ($59,000) currently has $9,500 extracted to pay the employer and employee share — or 8X more than the $1,182 tax cut he was ballyhooing last week
Needless to say, I don’t think the corporate rate cut will generate much incremental domestic investment, jobs or wages because companies mainly go abroad due to dramatically lower labor costs, supply chain logistics and customer market propinquity, not the statutory tax rate.
So the overwhelming share of the $1.46 trillion tax reduction owing to the 20% corporate rate will go into dividends and share buybacks — which is to say the top 1% and 10% of households which own most of the financial assets.
The net of it, of course, is that future generations are being bushwhacked with $1.5 trillion of additional public debt in order to indulge a tiny fraction of taxpayers with several trillions of tax cuts and shareholder returns that they don’t really need.
