House Republicans and President Trump are hoping to pass a second-round federal tax cuts that are aimed at giving more money to those that have the most while jeopardizing funding for critical programs, such as Social Security, Medicaid, Medicare and education. Last week, the House Ways And Means Committee advanced what they are calling “Tax Reform 2.0”.
The center-piece of the “2.0” tax plan is a permanent extension of the 2017 tax law’s individual provisions that are set to expire after 2025. As we noted before, the 2017 Tax Cuts and Jobs Act (TCJA) mainly benefited the wealthy, at cost of $1.9 trillion between 2018 and 2027. Many experts at the time rightfully warned that TCJA would do little to grow the economy because the plan was skewed to the wealthy any big corporations instead of aimed at working people that would tend to spend the tax cut directly into the local economy.
While corporate profits are up and corporate owners and shareholders are doing well, there are no signs that investment or wages are up because of the tax cuts, which was one of the promises of the plan’s proponents. This is largely because a good portion of the profits have gone to stock buybacks. (A fascinating new report by the National Employment Law Project (NELP) on stock buyback found that nearly 60 percent of profits at the nation’s largest corporations between 2015 and 2017 were spent on stock buybacks instead of wage increases.)
Extending most of these provision does more of the same and is a huge and alarming waste of resources. According to the Institute on Taxation and Economy Policy, if the individual tax provisions are extended to 2026 and beyond, the richest 1 percent – those making on average $762,000 – in West Virginia would receive an average tax cut of over $20,000. Meanwhile, the poorest 20 percent with an average income of $12,900 will see an average tax increase of $40.
That means the top 1 percent will get a tax cut that is nearly twice what the average income is for the poorest fifth of West Virginians. Let that sink in. And the fact that 22 percent of the proposed tax cuts will go to the top 1 percent, while just 11 percent go to the bottom 60 percent, those that make below $59,500.
It is important to remember that like before, this is coming at a time of growing income, wealth, and racial inequality in West Virginia and around the nation. For example, most people in West Virginia have seen no real income gains over the last decade, as median household income has declined from 2007 to 2017. Meanwhile, West Virginia’s poverty rate of 19.1 percent has grown 2.2 percentage points over this same period of time and it is higher today than at any time over the past seventeen years. The poverty rate for African Americans in West Virginia has grown from 27.8 percent to 31.7 percent over the last 10 years.
On Wednesday, over 750 organizations signed a letter opposing a second of upside down tax cuts. With an additional $631 billion added to the federal deficit from extending the 2017 tax provisions over three years (2026-2028), many are concerned rightfully the these cuts will put more pressure on congress to force cuts to programs that we use every day and that lift thousands out of poverty.