Stop me if you’ve heard this story before. Over and over again we’ve been told that Donald Trump ran as a so-called “populist” and was going to finally pay attention to the forgotten man in America. And yet on every policy initiative—except those that negatively impact black and brown people—he has backed policies that would hurt them in favor of giving an assist to the wealthy and big corporations.
Now it’s time for Trump and Republicans to put forward their ideas on tax reform. Last week the president tried to sell us on the idea that cutting the statutory corporate tax rate would be a boon to working and middle class Americans because it would give this country a competitive edge. I’ve already demonstrated how that is a lie.
But reducing the statutory corporate tax rate would increase the deficit—mostly because it would help small businesses who don’t have access to the loopholes that allow giant corporations to pay very little in taxes. So how does the party that claims to want to reduce the federal deficit deal with that? By screwing the forgotten man, of course.
Nancy Cook writes that everything is going wonderfully for the group that is calling themselves the “Big 6.” That includes Trump administration officials and congressional leaders who are working on tax reform. When it comes to paying for a reduction in the corporate tax rate from about 39 percent to somewhere between 22 to 25 percent, here are a few of the ideas they’ve come up with:
- Capping the mortgage interest deduction for homeowners
- Scrapping people’s ability to deduct state and local taxes
- Eliminating businesses’ ability to deduct interest
- Requiring U.S. companies to bring back earnings from overseas at a one-time low tax rate
- Taxing the money that workers place into their 401(k) savings plans up front
In exchange for a reduction of the corporate tax rate of at least 14 percent, companies would lose their ability to deduct interest (thereby taking away one incentive to borrow and grow their businesses) and could bring back their overseas earnings at a low tax rate. Who would be affected by the mortgage interest deduction depends on where it is capped and what the housing market looks like in particular areas of the country (i.e., bad news for people who live in places like Southern California and Seattle). Meanwhile, the forgotten man loses his ability to deduct state and local taxes and would have to pay taxes on money put into retirement accounts.
That last one is particularly vicious and destructive. Corporate America has already abandoned the concept of defined benefit pension plans. As a result, nearly 7 in 10 Americans have less than $1,000 in savings. Very few people could afford to live on what they will receive from Social Security. The one stop-gap to this impending crisis is that a lot of companies offer 401(k) plans that allow their employees to put money into tax deferred savings plans. As someone who once employed people who weren’t paid enough to have much disposable income, I can attest to the fact that the tax savings were the main reason we used to convince staff to invest. Now these Republicans want to take that away.
Beyond that, this is nothing more than an attempt to gain federal revenue now that otherwise could be banked for the future. These 401(k) plans are tax deferred. In other words, earnings are not taxed when they are deposited. But they are taxed when the money is withdrawn. This “Big 6” group wants to grab the taxes now and reduce the incentive for saving—all in order to give corporations a big tax cut. In other words, they’re idiots.
Most people don’t believe that the Trump administration and congressional leaders have much of a chance to pass their tax reform package. The more Americans hear about their plans, the more we should hope that is true. Nevertheless, just as budgets are moral documents, tax plans are too. This example once again demonstrates that the goal here is to do whatever is possible to further line the pockets of the wealthy at the expense of the so-called “forgotten man.” If you expected anything different from Trump, you got played.