OPINION │ On October 26, the Republican controlled House passed a measure, 216-212, unlocking the procedural powers needed for a simple majority in the Senate on the budget and taxes, while also blocking a Democratic filibuster. Let’s begin by discussing the Senate's budget plan. On October 19, 2017, the Republican controlled Senate passed a budget reconciliation plan that paves the way for one the fiercest manifestations of supply-side economics since the 1980s.
The tax policy side of the story, in essence, calls for a massive tax break for corporations and 0.1% of the United State’s highest earners, while simultaneously cutting programs for millions of working class families. Inevitably, this tax policy will lead to a higher concentration of wealth, a payoff for the massive campaign contributions from the wealthiest people in America, all in an effort to move our democracy towards an oligarchy.
Fiscal Cause and Effect of the Tax Initiative
It is necessary to note that along with the structural tax changes, which this policy calls for, there are major spending cuts in other sectors of the government in order to compensate for the reduction in government revenue. The New York Times notes that the proposed Republican budget would decrease government expenditures towards Medicare by $1 trillion and approximately $470 billion from Medicare over a ten year time period.
Additionally, on November 14th, Republicans managed to add a provision to the bill that calls for the repeal of the individual mandate, a major part of the Affordable Care Act. Reports from the Congressional Budget Office note that 13 million people would become uninsured and the deficit would drop by $338 billion by 2027. Conflicting analysis from the S&P show 5 million uninsured and a deficit drop of only $80 billion. Regardless there is a general trend arising, Republicans are trying to offset the deficit by having to provide less financial support for healthcare. To be sure, the deficit is being balanced on the backs of some of the poorest people in America.
The tax measure could add as much as $1.5 trillion to budget deficits over a decade. As Republicans, one would assume that they would seek to minimize the deficit, as opposed to raising it. Rand Paul, the junior senator from Kentucky, was the sole Republican vote against the measure, for that very reason — he felt as though the measure didn’t cut programs enough and added too much to the national debt. Regardless, his party is on track to pass a revised version through a Conference Committee and in turn land on the President's desk — without a single Democratic vote.
The major tax change elements in the budget deal are the individual income tax, the estate tax, and business & corporate tax rates. In regards to individual income tax, the plan would reduce the seven current tax brackets to three: 12, 25, and 33 percent, cutting the top tax rate by 6.6 percent (from 39.6 percent). It also repeals the 3.8 percent net investment income tax rate that currently applies to dividends and capital gains.
The Republican's plan would remove the federal estate tax. The estate tax is paid by approximately 4,700 American citizens every year and essentially only applies to the wealthiest in the country, as the person’s estate and assets has to be worth over $5.45 million. Accordingly, removing the estate tax disincentivizes people to spend their assets in our economic system before they die. Instead, it encourages people to sit on their capital — keeping wealth locked up.
The plan also calls for the corporate tax rate to drop from 35 to 20 percent. Republicans argue that the implementation of this policy would stop businesses from fleeing the country in order to escape our tax system — a term called corporate inversion. In what seems to be a common pattern throughout the tax initiative, we again see the greatest benefits going to those Americans who are fiscally better off in relation to others, considering the highest earning 10 percent of Americans own approximately 80 percent of the stock in corporations. This will simply exacerbate the concentration of wealth among the highest earning 0.1% of the population.
Lastly, the plan calls for a full repeal of the ACA and the taxes that accompanies it. The plan would specifically repeal a 3.8 percent “luxury” tax, that only individuals who make over $200,000 (for couples the number is $250,000) pay.
The Tax Policy Center, a nonpartisan economic research institution, maintains that, “Overall, the plan would cut the average tax bill in 2017 by $2,940, increasing after-tax income by 4.1 percent. However, the highest-income taxpayers (0.1 percent of the population, or those with incomes over $3.7 million in 2016 dollars) would experience an average tax cut of nearly $1.1million, over 14 percent of after-tax income” . We must ask ourselves if this is really what the U.S. needs at this time — or anytime for that matter
The Economic & Social Implications
Some capitalists, like Milton Friedman, Ronald Reagan, George W. Bush, and Donald Trump, would argue that this tax policy is heaven-sent. They subscribe to “trickle-down economics.” This is a deeply flawed and fraudulent economic theory that says if we give massive tax breaks to billionaires, they will invest that money in poor people, workers, students, and the elderly. Somehow, that wealth will “trickle-down” to the rest of the population – the majority of voters. As we have seen since the 1980s, this theory has only led to a transfer of wealth from the middle class and working families to the wealthiest people in America, leaving us with the most unequal distribution of wealth and income since 1928.
The Tax Policy Center estimates that, at the end of the day, 80 percent of all benefits will go to the highest earning one percent over a 10 year period. Remarkably, the highest earning 0.1 percent will receive 40% of the tax benefits over a 10 year period. One would assume that since millionaires and billionaires are given massive tax breaks, the American people must have reaped all the trickled down fruits of supply-side economics — well, here’s the reality of today’s America.
This Republican tax plan does nothing to mend the situation; rather, it does the opposite. In this plan, the tax breaks are disproportionately concentrated in the top one percent of the population, and even more so for the highest earning 0.1 percent. Despite the United States being the wealthiest country in the world, what’s important to note is where the wealth of the nation is concentrated.
According to the Senate Budget Committee Minority Staff, around $5 trillion will be cut from programs that working families desperately need. Housing assistance for more than 1 million families are eliminated, due to a $37 billion cut to affordable housing and the Section 8 rental assistance program. Another $4 billion is to be cut from the Low Income Home Energy Assistance Program (LIHEAP), a program which serves over 700,000 seniors who live on fixed incomes, people with disabilities, and low-income families by assisting with costs related to energy.
Head Start, a program that aids in school readiness for 25,000 children under five years old from low income families, would be cut by $3 billion, transportation funding would be cut by close to $200 billion, and National Institutes of Health, a publicly funded medical research institution which researches Alzheimer’s disease, cancer, and other diseases prevalent in the U.S., would be cut by $37 billion over the next decade .
For reference, the Walton family, children of the founder of Wal-Mart, alone will receive up to $52 billion in tax breaks over 10 years, adding onto their current net worth of $145.3 billion; up to $38 billion in tax breaks for the Koch Brothers; up to $12 billion for the Sheldon Adelson family, and up to $4 billion for the Trump family. But why is the government, thought of as a democracy, working for very few, while the overwhelming majority are being cut from programs?
At a retreat of 18 elected officials, the Koch Brothers and their network warned that time is running out to push this Republican tax plan, with Doug Deason saying “Get Obamacare repealed and replaced, get tax reform passed… Get it done and we’ll open it back up,” referring to his “Dallas piggy bank.” The Koch Brothers network is spending between $300-$400 million for midterm elections to elect candidates representing the interests of the Koch Brothers, such as this tax policy, as opposed to representing the interests of the elderly, working families, and children. In a sense, the government is being utilized as a capitalist establishment — large investments are being made from a select few, namely, stakeholders, who are given an outlandish amount of power to sway legislation.
Our democracy has moved towards an oligarchy; essentially, a corporation working for private interests, where the structure of the electoral process and financial pressures allows for the voices of a few to be heard the loudest. The survival of a government representing corporate interests over the interests of the vast majority will be short lived, as an oligarchic government is an essential contradiction relative to democracy.
The good news is that the majority of Americans do not believe in cutting Medicaid, Medicare, and other life-saving programs to give tax breaks to billionaires. In a Reuters/Ipsos poll, 28% of Americans supported the Republican Congressional tax plan. Regarding the Graham-Cassidy bill, another handout to the wealthiest people and corporations with cuts to life-saving programs, only 24% of Americans approved .
Throughout history, change has occurred through grassroots movements. People began standing up for Workers’ Rights, Women's Rights, Civil Rights, and Human Rights internationally. The Koch Brothers may have the money. Corporations may have the media. Lobbyists and campaign contributors may have the political power. But objectively, the vast majority of people favor a progressive agenda benefiting working families, as opposed to an oligarchic agenda benefiting ruling families. They have the money, they have the power, they have the economic system, but we have the people to change the situation.