Trump’s 'forgotten men and women' are still forgotten

Rick Newman
Columnist

The lobbyists are winning. And there are no lobbyists representing the “forgotten men and women” President Donald Trump vowed to help while campaigning for president in 2016.

The major tax-cut legislation speeding through Congress is likely to be Trump’s biggest policy achievement, whether he’s in office for four years or eight. And that legislation is getting close to final form that will ultimately face a vote in the House and Senate. Odds are high, and improving, that Republicans who control Congress will have a bill on Trump’s desk within weeks. Of course, he will sign it.

Here’s what that tax legislation is likely to do: Sharply cut the tax rate for big businesses. Cut the rate less, but still substantially, for smaller, privately owned businesses. About 75% of roughly $1.5 trillion in tax cuts over a decade will go toward businesses, which are well-represented in Washington by lobbying groups such as the U.S. Chamber of Commerce, the Business Roundtable and the National Federation of Independent Businesses. Those lobbyists are earning their money.

Demonstrators take part in a protest against tax cuts for rich people in the Manhattan borough of New York City, Nov. 27, 2017. (Photo: Eduardo Munoz/Reuters)

On the individual side, the GOP tax cut plans will lower the tax burden for a majority of taxpayers. But low-income workers will see modest gains at best, and some families earning less than $30,000 a year might actually end up with lower take-home pay. The top 20% of earners will reap 62% of the total tax savings on the individual side, according to the Tax Policy Center. The middle fifth will garner 13% of the cut and the lowest fifth will enjoy 1% of the total cut. The average tax break will be nearly $1,300 in 2019 — but it will be $5,740 for the top 20% of earners and just $850 for those in the middle.

[Podcast: How the Trump tax cuts will affect you.

Critics of this sort of “distributional analysis” point out that top earners in the United States pay the majority of taxes, so it’s only logical that they would benefit the most from tax cuts. On the lower end, some families in the bottom brackets pay no federal tax at all, and you can’t give a tax cut to somebody whose tax bill is $0. Those arguments are generally correct.

Argument for “trickle up” tax cuts

But it’s also true that if your primary goal were to help the working and middle class, you could structure tax cuts that lowered the tax burden for those families with no change for top earners or businesses. Ed Kleinbard of the USC Gould School of Law, who was former chief of staff for Congress’s Joint Committee on Taxation, argues in favor of “trickle up” tax cuts that put more money in middle-class pockets — and stop there — with the expectation that the middle class will spend more and help businesses that way. You could extend such cuts to families with annual incomes of $200,000 or even $250,000, to include coastal households with kids who might earn more than average, but still consider themselves middle class. This sort of approach would directly benefit typical workers in tangible ways, with the haves waiting for it to reach them.

Instead, Congressional Republicans have crafted traditional trickle-down tax cuts that directly benefit the haves who really don’t need the help, in the belief that it will generate more economic activity beneficial to those who need more help. But there’s a waiting period. White House economist Kevin Hassett argues that cutting business taxes could boost middle-class incomes by at least $4,000 per year — but it will take three years in the best scenario, and 10 years in the worst.

Meanwhile, Congress has skipped the opportunity to help working families in other ways. The Tax Policy Center recently found that “very few tax-lowering changes in the bill are targeted at families with children—and none at families with very young children.” The tax-cut legislation does include an increase in the child tax credit, but that’s somewhat offset by other changes, including the elimination of deduction for each dependent child. Overall, says the Tax Policy Center, the legislation “delivers no significant benefits to families with children, including families with children younger than 3, in the lowest two-fifths of the income distribution.”

Senate’s bill also ignores those in need

In the Senate’s tax-cut bill, most tax cuts for individuals would expire in 2025, which is necessary to limit the amount of federal revenue the government would lose. But the business tax cuts, which would account for at least three times as much money as the individual cuts, are permanent. If the focus were on those most in need of a helping hand, this would probably be reversed. There’s also an inflation-related provision that would gradually increase the tax bite over time. Well-run companies employ hedging strategies to guard against such eventualities. Working- and middle-class families often focus the entirety of their efforts on paying today’s bills, today.

Maybe Trump has other plans to fulfill his promise to “the forgotten men and women” of America. But if that whole campaign pledge amounts to a few bucks’ worth of temporary tax cuts, they might have to ask Trump’s successor if he or she can do better.

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Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman