Two embarrassing bozos from New York StateChris Collins is a hapless backbencher from New York who represents everything in the northwestern part of New York state except the cities of Buffalo and Rochester. No one ever heard of him until he became the first member of Congress to endorse Señor Trumpanzee during the campaign. But every now and then he's responsible for some blooper that embarrasses everyone connected to him in any way, even beyond the insider stock trading that may still end up sending him to prison. This week it was his analysis of the tax bill fight in Congress that caught people's attention. He summed it up clearly: "My donors are basically saying, 'Get it done or don’t ever call me again.'" Yep... and that's exactly what this tax fight is all about-- not just for Collins, but for the whole Republican congressional contingent-- even if few of them are as stupid as Collins to publicly admit it on the record.Gary Cohn, on the other hand, doesn't have to worry about either voters or Paul Ryan's deceitful talking points about how the tax bill helps the middle class. He readily admitted to CNBC's Nick Harwood that "The most excited group out there are big CEOs, about our tax plan."That's because, in Thomas Edsall's words, Republicans are wondering how to make the rich richer. "As it stands now," he wrote, "the proposed House tax bill would give the undeserving rich-- legatees who will inherit multimillion dollar estates-- a $172.2 billion tax break over the next ten years. In doing so, the measure would further entrench the super rich, a class that in recent years has acquired a growing share of both income and wealth." Yep-- even worse than actual CEOs, who are-- for better or worse-- actually doing something. Remember, the rich have already been getting richer since Ronald Reagan and Bill Clinton started instituting policies to encourage just that.
Conservative estimates published by the Brookings Institution show that from 1992 to 2013, the share of wealth held by the top 1 percent rose from 27 percent to 32 percent, and their share of income swelled from 12 to 18 percent. Looking at a century of data in “Wealth Inequality in the United States since 1913,” the economists Emmanuel Saez and Gabriel Zucman found that the share of household wealth held by the top 0.1 percent recently climbed back over 20 percent, a figure it hadn’t reached since the 1930s. (Their findings are demonstrated in the accompanying chart.)There are a host of provisions in this year’s Tax Cuts and Jobs Act that disproportionately reward the rich, but the estate tax is one area where we can see the intentions of its sponsors most clearly.The House legislation, backed by the Republican leadership and President Trump, would, starting in 2018, double the size of estates exempt from taxation to $10.98 million from the current level of $5.49 million. It would repeal the tax altogether at the end of 2023. According to the Joint Committee on Taxation, for the tiny percentage of the population that benefits from such immense estates, the value of the tax cut would grow steadily from $1.3 billion in 2018 to $38 billion in 2027.Jason Furman, a professor of economics at Harvard’s Kennedy School who was chairman of the Council of Economic Advisers from 2013 to 2017, emailed his response to my inquiry about the impact of the bill on households with different incomes:The House tax bill would lead to substantial redistribution from the middle-class to high-income households. Moreover, the particular form of the high-income tax cuts is designed to reward and perpetuate wealth in several respects. Much of the corporate rate cut would provide a windfall for the returns on capital investments that have already been made. Going forward, much of the effect of the plan would be to reduce the tax on monopoly rents-- often to negative effective rates which means taxpayers would be subsidizing corporations.The House bill would repeal the estate tax, Furman wrote, and it “would also retain the step-up-basis loophole that even” President George W. Bush’s
estate tax repeal would have eliminated. This would mean that not only are estates not taxed but that much of capital gains could permanently escape taxation, substantially increasing dynastic wealth accumulation.The estate tax has been under assault by Republicans in Congress for more than four decades. According to a paper published on Nov. 2 by Isabelle Sawhill and Eleanor Krause of the Brookings Institution, the estate tax currently applies to “a tiny fraction of American estates-- about 2 out of every 1000 deaths,” compared with “the 1970s, when there were over 70 taxable estates for every 1000 deaths.”While income inequality is high in the United States-- the World Economic Forum ranked us 29th out of 30 developed countries in 2017-- wealth inequality is much greater....While proposing to eliminate the estate tax altogether, the House bill would retain a provision in current law-- the step-up in basis-- that effectively wipes out all tax liability for heirs on the increased value of assets at the time of death. Forbes declared, “this is a tax cut for the rich,” and described what would happen using the step-up in basis if you died with an estate that had grown in value from $10 million to $100 million:
There would be no estate tax, and your heirs could sell the stock right after your death and owe no capital gains taxes on the $90 million gain.Many of the very richest Americans have children who stand to benefit enormously if the proposed tax bill is enacted. The list of these billionaires includes Mark Zuckerberg, Michael Bloomberg, Larry Ellison, Charles Koch, Sergey Brin, Larry Page, Phil Knight, Carl Icahn, Pierre Omidyar, David Koch, Warren Buffett, Bill Gates, Steve Ballmer, Sheldon Adelson, Michael Dell, Jeff Bezos, George Soros, and, of course, Donald Trump.According to calculations made by Chye-Ching Huang, the deputy director of federal tax policy at the Center on Budget and Policy Priorities, a liberal think tank,
repealing the tax would give about 330 estates (which are each worth more than $50 million) each a tax cut averaging more than $20 million compared to current law.The estate-tax provisions in the proposed bill are explicitly designed to help preserve and protect the assets of the wealthiest Americans. And despite their stated purpose, the corporate tax breaks in the legislation will not encourage new investment, according to many economists, but will instead reduce the taxes due on existing investments. Alan Krueger, a professor of economics at Princeton who was the chairman of the Council of Economic Advisers from 2011 to 2013, put the case against the Republican tax bill succinctly in an email:
Several components of the House bill favor physical and financial capital over labor and human capital-- namely, the lower rate for passive pass through income, the repeal of the estate tax, the big cut in the corporate tax rate, the failure to end the carried interest loophole, etc. At the same time, the tax on university endowments and treatment of grad student fellowships will slow human capital investment.If enacted, these features of the proposal would also deepen and further entrench existing class divisions and reduce economic mobility.
That sure doesn't sound the way Paul Ryan describes the bill-- let alone remotely connected to anything Trumpanzee campaigned on last year, with all that talk about helping "the forgotten Americans." Edsall quoted an analysis by the Tax Policy Center concluding that:
The largest cuts, in dollars and as a percentage of after-tax income, would accrue to higher-income households. However, not all taxpayers would receive a tax cut under this proposal-- at least 7 percent of taxpayers would pay higher taxes under the proposal in 2018 and at least 25 percent of taxpayers would pay more in 2027.
"In other words," he wrote, "the Trump tax bill, contrary to the president’s populist spin, is a classic trickle-down proposal, concentrating by far the largest share of benefits on corporations and the rich."
In a blog post called “All Hail the New Plutocratic Industrial Policy,” Daniel N. Shaviro, a professor of tax law at N.Y.U., argues that the tax bill has been carefully crafted to create a new class of rich people who can evade the 39.6 percent top rate and pay at a 25 percent rate by capitalizing on complex “pass-through” and “passive-income” provisions:So what must you do, or whom must you be, to get the 25% rate? First, you get it for 100% of your net business income from passive activities, which generally are business activities in which you personally do not materially participate. This typically applies to people who invest money in all kinds of partnerships, S corporation activities, et cetera that engage in pretty much any type of business.Shaviro calls this obscure set of provisions in the tax bill “a weapon to enhance plutocracy-- offering the biggest rate cut to millionaires,” allowing those “who are in effect rentiers to get the low (25 percent) rate” on all their income.A Nov. 2 analysis by the Center on Budget and Policy Priorities of the 25 percent rate for passive investors supports Shaviro’s point. A key reason the tax plan “is costly and heavily tilted to the wealthiest households is its special, much lower top rate for ‘pass-through’ business income,” Chuck Marr, Chye-Ching Huang, Brandon DeBot and Guillermo Herrera, all on the center’s staff, write. They continue:
Pass-through income would be taxed at no more than 25 percent, far below the 39.6 percent top individual income tax rate that now applies to pass-through income, or the top 35% top rate that would apply to individual income under the GOP plan. This would provide a massive windfall to the very wealthy.This section of the bill has been nicknamed the “Trump loophole” by the center
because Donald Trump exemplifies the type of business owner whom it would most benefit.Allan Sloan, a columnist for the Washington Post, wrote on Nov. 7 that
We don’t know how much Trump collects in such income, which has become passive for him since he put his children in charge of his enterprises rather than running them himself. But given that he seems to have stakes in at least 500 pass-through entities, it looks like reducing his rate to 25 percent from 39.6 percent would save him a ton of money....“[T]ax cuts for the rich” is no caricature. This year’s bill is already setting new tax avoidance schemes in motion... as it becomes clear once again that a favor-the-rich, reward-the-already-affluent ideology is embedded in the Republican Party’s DNA.
