Last month, U.S. Sen. Susan Collins cast a critical vote enabling the passage of a massive tax cut bill by a simple Senate majority. Last week, the House unveiled its plan. If passed, 50 Republican senators alone, plus the vice president for a tie-breaker, can put it on the president’s desk for signature.
Since Collins was instrumental in green-lighting this partisan legislative maneuver, it’s fair to ask her what Americans in general and Mainers in particular stand to gain or lose.
Details may change but the tax bill’s contours are now clear: It will increase our national debt by up to $1.5 trillion. That’s almost double the size of the 2009 stimulus package, whose justification was a mortally wounded economy. The apparent urgency this time around: Unless Republicans can pass at least one piece of major legislation — something, anything — the party will suffer at the polls in 2018.
By far most of this $1.5 trillion is destined for transfer to the coffers of the largest corporations and the pockets of the wealthiest American families.
First, corporations. Their tax rate would be cut about 43 percent. The rationale is that such cuts will translate to higher wages and job creation. Perhaps Collins subscribes to this much contested theory.
But multiple studies show that corporations most often use this extra money to buy back their own stock, increasing its value to their stockholders. If you belong to the 1 percent of Americans who own 38 percent of the stock market, you will no doubt be very pleased. The top 10 percent whose portfolios comprise 80 percent of all stocks also will reap benefits. But if you are one of the 50 percent of Americans who own no stock at all, you will have nothing to cheer about.
Second, the wealthiest families win big. Those earning a million dollars a year would pay nearly $24,000 less. The House’s “concession” to tax fairness regarding those earning over a million dollars is that their top tax rate remains unchanged at 39.5 percent.
But the unadvertised special here is what the bill doesn’t change. America’s wealthiest families derive roughly one third to half of their income not from wages but from capital gains. Since that tax rate remains capped at 20 percent, the very rich can continue to elude the standard personal income rates the rest of us pay.
These gifts to corporations and to the wealthiest have to come from somewhere. If we view the federal government as a cartoon figure of a bloated Uncle Sam in need of a diet, perhaps there’s no problem. But consider that 40 percent of all federal outlays finance Social Security and Medicare, which will increase over the coming decade. Billions more fund Medicaid, education, infrastructure and veterans’ services, as well as a defense budget currently considered sacrosanct.
President Donald Trump’s supremely confident Treasury secretary promises that this tax plan will “ pay for itself.” How? By sparking remarkable economic growth that expands our economic pie, providing generous slices for everybody.
Is Collins willing to wager our Social Security and Medicare benefits that he’s right? Because it’s these most basic pillars of our financial security that will again be in the cross-hairs when today’s budget busters rediscover their zeal as deficit hawks and resume looking for what needs to be cut.
House tax writers have re-defined for us what “simplifying” the tax code means by doing so with the wealthiest in mind. Preserving legalized tax dodges like “ pass-through,” “ carried-interest” and “ stepped-up basis” assures that the incomes of the most affluent will be cushioned and their estates protected.
On the other hand, families with more everyday financial concerns such as high medical bills, college tuition, student debt or mortgage payments will find their taxes “simplified” by the loss of those relevant deductions. The roughly 25 percent of Mainers who rely on the state tax deduction to lower their tax burden will find that financial help has disappeared as well.
Transferring vast amounts of money into relatively few private hands has painful consequences for the rest of us. So back to the question for Collins: How can this proposed tax bill possibly help ordinary Mainers or the country?
Dennis Chinoy lives in Bangor.
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