Economists have provided some great charts demonstrating how the Republican tax cuts will affect various groups. There are even calculators that will tell you how it will impact your taxes personally. But I’d like to take a step back from the number-crunching and look at the big picture of what the impact is likely to be for working Americans.
To do that, let’s review how Speaker Paul Ryan is trying to sell this thing in an article he wrote for the Wall Street Journal. As the title suggests, he says that your paycheck will grow, and gives a couple of examples for how that will happen. Here’s the first one:
Taxpayers will get significant relief soon. A family of four earning the median income of $73,000 can expect a $2,059 tax cut. The Internal Revenue Service has announced that it will adjust its withholding tables as soon as February. With less money withheld, paychecks will be bigger in a matter of weeks.
Keep in mind that median income in the U.S. is just under $60,000 per year. So a family earning $73,000 is earning more than 50 percent of the population. The folks on the bottom half will see a smaller reduction in the amount of money withheld in February. As Jared Bernstein suggested, the changes are going to be too small for most people to notice.
From there, Ryan goes on to mention a couple of specific provisions, like an increase in the child tax credit. But then he goes on to what will be the really tough sell for Republicans.
This bill will also create jobs and drive up wages. It cuts the highest corporate tax rate in the industrialized world from 35% down to 21%, below the developed-nation average. This will make American companies more competitive. By driving economic competitiveness, lowering the cost of capital, and moving to a territorial system like most other countries, America will once again become the best place in the world to invest and build a business. Jobs and capital will return from overseas, leading to more demand for labor, higher wages and bigger paychecks.
Let’s just stipulate that this is the myth of trickle-down economics that Republicans have been trying to sell for decades, regardless of the fact that it has never proven to be true. The idea that giving big corporations a tax cut will lead to bigger paychecks is a hoax.
So from the perspective of working Americans, what they will experience in their own lives immediately will be a very small reduction in withholding from their paychecks. Otherwise, not much will change. That is why the biggest impact will come eventually in the form of what these tax cuts will do to the federal deficit.
Various figures have been bandied about, but it looks like the debt will increase by about $2 trillion over ten years. Keep in mind that Obama’s initial stimulus package in 2009 was less than half of that—weighing in at around $800 billion—and that was mostly one-time spending as opposed to ongoing tax cuts. At the time, Republicans pretended like it would positively bankrupt this country. Of course, it didn’t. But now they’re talking about spending over twice that on tax cuts that are targeted primarily at the wealthy.
I am not suggesting that a huge increase in the federal deficit will affect the economy in the way conservatives tend to claim. This tax bill will mostly impact working Americans in what happens next. Republicans are already teeing up their arguments about how Medicare, Medicaid, and Social Security need to be “reformed” because of the debt. That will be the huge fight legislatively in 2018, and these tax cuts are the opening salvo.
Beyond entitlements, any federal spending on items not related to Trump’s wall or the military will simply be dismissed because we can’t afford them. That includes any major infrastructure bill that could actually be a boon to the economy, if it were done right.
It is true that the Republican tax cuts will increase income inequality in this country because of all the goodies handed out to big corporations and the wealthy. But the impact on working Americans will come in the future, when our already-frayed social safety net comes under attack and any effort to level the playing field is discarded because of the deficits that are being embraced today.
