Huntington Herald-Dispatch/Williamson Daily News – Tax policy is one of the best ways to understand the values of our elected officials. It provides a clear indication of who they are working for, how they want to grow the economy, and how they plan to tackle some of our country’s biggest problems. Read/Read
Last week, the U.S. Senate narrowly approved a budget resolution that would set the stage to enact massive tax cuts primarily for the wealthy and profitable corporations. While some West Virginia policymakers are selling it as a plan to help the state’s economy, middle-class families and small businesses, the facts and evidence says otherwise. Instead of upside-down tax cuts that could lead to massive cuts in health care for the sick and food for the hungry, policymakers should take a bottom-up approach that boosts broadly shared prosperity and invests in our nation’s future.
The tax-cut proposal would do little for working families, according to the nonpartisan Tax Policy Center. Over 80 percent of the tax cuts would go to the top 1 percent of households- those making above $900,000 – over the next decade, while only 13 percent of the tax cuts would go to the bottom 80 percent of American households. The gains are even more concentrated for the super-rich. The top one-tenth percent – those making over $5 million per year – would get over $1 million apiece on average, or 40 percent of the tax cuts. Does this sound like a tax plan with you in mind?
The nonpartisan Institute on Taxation and Economic Policy projects that a typical middle-income West Virginian would receive a tax cut of less than $540 per year while someone in the top 1 percent would receive fifty times this amount, or nearly $28,000. Meanwhile, if you happen to be one of the few millionaires in West Virginia, you get to take home on average $179,000 from the tax-cut proposal.
The main provisions of the plan are constructed in a way where the wealthy gain more than everyone else. The plan creates a special, lower rate for “pass through” income, creating a massive tax loophole that mainly benefits millionaire hedge funds, real estate developers and law firms.
The plan cuts the corporate tax rate, benefiting corporate shareholders and executives, rather than small businesses and workers. The plan cuts the top income tax rate for the wealthiest taxpayers, which alone saves millionaires tens of thousands of dollars while doing nothing for low-and middle-income earners.
And the biggest example of how upside-down this tax plan is the elimination of the estate tax, which only benefits the wealthiest two out of every 1,000 estates – couples with an estate of $10 million or more. So few estates in West Virginia would benefit from its elimination, the IRS can’t disclose the number.
The tax-cut legislation also adds $1.5 trillion to federal deficits over the next decade – where are the deficit hawks? And it requires deep cuts in health care, family assistance programs, education, scientific research, infrastructure and more that will leave millions of Americans worse off, especially low and middle-income children.
Because the tax-cut plan favors the wealthy over working people, it is highly unlikely to provide a boost to our economy. The wealthy have so much money right now they do not know what to do with it. Corporations are sitting on huge piles of cash and corporate profits are historically high.
Meanwhile, wages are growing slowly and the buying power of many Americans can’t generate enough demand to boost business investment and job growth. Instead of being a ticket to growth, exacerbating our nation’s growing wealth and income inequality will only hurt economic growth by lowering investments in human capital and by lowering consumer demand.
While some have argued that because the wealthy pay the most in federal taxes that they should receive the most in tax cuts, this argument holds little water when you look at how economic policy has been rigged in their favor over the last four decades.
For example, the wealthy do not make most of their money from hard work. Instead, they make most of it from making money on assets and from inheriting it. According to the latest Survey of Consumer Finances, the wealthiest 1 percent of Americans inherited just under $1.5 million while most Americans have inherited very little. Meanwhile, the top 1 percent derives over half of their income from returns on invested money (e.g. business profits, rents, capital gains, etc.) while most of us generate almost all of our income by working for a wage or salary.
If Congress is interested in real tax reform that will boost economic growth and help build a stronger middle-class, then they should end offshore tax avoidance, clean up the corporate tax code by getting rid of loopholes, tax wealth like work, reform preferential tax treatment that mostly benefits the wealthy, and target tax cuts to low-income working families, such as expanding the Earned Income Tax Credit that has been highly effective at reducing poverty and increasing employment.
In other words, instead of pushing more money up, they need to give it to the people that will spend it and invest it public goods that working families and business alike count on.
Ted Boettner is the executive director of the West Virginia Center on Budget and Policy, based in Charleston.