6 ways the Trump administration rigs an already unfair tax code
The New York Times recently reported that President Donald Trump has paid no income tax for most of the past two decades and only $ 750 in 2016 and 2017, highlighting how a wealthy and unscrupulous business owner can profit from a broken tax code and weak tax enforcement.
Since taking office, President Trump’s administration has only made the tax code worse. Here are six ways the administration’s tax policies, particularly the 2017 Tax Cuts and Jobs Act (TCJA), further rig the tax code in favor of corporations and the rich and powerful.
1. The Trump Administration’s Main Legislative Achievement Is An Extremely Regressive Tax Cut
The tax bill President Trump enacted in 2017 significantly reduced taxes for wealthy individuals and businesses. It cut the top personal income tax rate, created a new special deduction that mainly benefited wealthy business owners, eliminated the tax on large estates, and significantly reduced the tax on personal income. companies. Taken together, the changes this law brings will dramatically reduce the tax bill for the very rich, leaving little benefit to the working and middle class. In 2020, the average 1% household will benefit from a tax reduction of $ 50,000—77 times greater than the average reduction for the poorest 80 percent of Americans.
2. The TCJA has opened up new loopholes for the rich
Although labeled “tax reform, the 2017 tax law effectively opened new major flaws for the rich to exploit. One of the bill’s biggest loopholes is the so-called transfer loophole, which created a 20% deduction from business income for business owners such as S corporations or LLCs, thus opening up a number of news play opportunities. The deduction effectively reduced the top tax rate on most high-income business income by 10%, compared to the pre-2017 rate from 39.6% to 29.6%. By far the biggest beneficiaries of this provision are the richest 1% of Americans, who will see nearly two-thirds manna. Additionally, in the final hours before the bill was passed, lawmakers added a last-minute provision to widen the loophole, especially for property owners.
3. The TCJA cut corporate income tax by a third
At the heart of the 2017 tax law is a big cut for businesses. The law reduced the corporate tax rate from 35% to 21%. And unlike the personal tax cuts, most of which will expire in 2026 and 2027, most of the business cuts are permanent. Immediately after the law came into force, corporate tax revenues began to fall. Before the 2017 tax bill was passed, the Congressional Budget Office predicted that businesses would pay around $ 668 billion taxes on 2018 and 2019. After the law was passed, however, companies ended up paying only $ 435 billion during this period, a drop of 35 percent. The main argument According to supporters of the bill, businesses would use this $ 233 billion tax cut and reinvest it in new equipment, facilities and their workforce. But instead, business investment decreases, as companies have taken those gains and redirected them to their wealthy shareholders through share buybacks and dividends.
4. Wealthy estates got big tax cuts in the TCJA
The 2017 tax law also granted significant tax cuts to the wealthiest estates. Before the law, alone 0.2 percent estates of the deceased paid an inheritance tax because of the generous exemption. The 2017 law doubled the exemption so that over $ 22 million of a couple’s wealth can be transferred to heirs tax-free, meaning the wealthiest estates will pay more than $ 4 million less each than what they would have under the tax code prior to the TCJA. Inheritance tax cuts are expected to cost 83 billion dollars income over 10 years, and the number of wealthy estates subject to tax each year is expected to drop by more than two-thirds, from 5,500 to just 1,900 extremely wealthy heirs.
5. If the Trump administration succeeds in repealing the ACA, the rich will get more tax cuts while more than 20 million people lose their health coverage
The Trump administration is actively support a pending trial in the United States Supreme Court that would repeal the Affordable Care Act (ACA) in its entirety. If the administration is successful, it would likely eliminate the taxes that funded the expansion of health coverage by law, including a tax on investment income and high income earners and a tax on drug companies. The Center for Tax Policy estimates that more than half of the tax cuts resulting from the elimination of the ACA would go to taxpayers in the first percent, and more than 86 percent in the top quintile. The biggest beneficiaries of this change would be America’s billionaires, who only got richer during the year: the richest 100 billionaires saw their fortunes grow by more than 400 billion dollars combined since early 2020. If the ACA investment income tax is repealed, they will each get a massive windfall on their accumulated earnings in 2020, reducing their collective tax bill by over $ 16 billion. of dollars. Working-class and middle-class Americans, on the other hand, would see negligible tax cuts, while those who currently receive tax credits to help pay for Medicare would face much higher premiums, if insurance is available to them. (The loss of premium tax credits is not reflected in Figure 3.)
6. Trump’s New Capital Gains Tax Proposal Would Give 99% of Its Benefits to the Richest 1%
President Trump recently floated a proposal reduce the maximum capital gains rate – a tax paid on profits from the sale of a fixed asset such as stocks, bonds or property – from 20% to 15%. Capital gains tax already received preferential tax treatment compared to ordinary income from wages or salaries. According to IRS data As of 2018, only the richest 0.8% of Americans had capital gains or dividends in the current 20% tax bracket. Thus, lowering the maximum rate on these assets would almost exclusively benefit the rich. The Institute of Taxation and Economic Policy estimates that 99% of the tax cut would go to the richest 1%.
The richest among the richest 1% would reap the greatest benefits from either of these two policies. According to a Center for American Progress analysis based on 2017 tax data, if the maximum capital gains rate was reduced to 15% and net investment income tax repealed as part of the Trump administration’s efforts to repeal the ACA , the highest income of 0.001% of Americans – those with incomes exceeding $ 63.4 million a year – would receive a windfall of nearly $ 14 billion: an average tax cut of more than $ 9.6 million dollars per person.
The Trump administration’s tax policies have dramatically reduced incomes and given tax breaks to wealthier households. Instead of real tax reform that would close loopholes and gambling opportunities to ensure that big corporations and the rich pay their fair share, the Trump administration’s tax policies have cut rates and created new loopholes that the rich can exploit. Reversing these damaging tax policies should be a top priority for Congress and the next administration.
Galen Hendricks is Research Assistant in Economic Policy at the Center for American Progress.