GOP Tax Bill is Even Worse Than We Think
The secretive Senate Republican tax bill is one of the largest wealth transfers to elites in US history, and economist James Henry says its damage to lower-income earners will likely be even worse than thought once its full contents are known
AARON MATÉ: It’s The Real News, I’m Aaron Maté. Senate Republicans say now have the votes for what would be a historic tax bill and it would be historic for many reasons. It’s been called the largest ever transfer of wealth to the very top in U.S. history, and it’s also been called the largest ever US tax increase. That’s because while corporations and millionaires will benefit the most, some 24% of the country would see their taxes actually go up. All tolled, the measure would add $1 trillion to the federal deficit. I’m joined now by James Henry, investigative economist and lawyer, senior advisor at The Tax Justice Network.
So James, by the time many people see this interview, it’s quite likely that this tax bill will already have passed. If so, what have the Republicans done here?
JAMES HENRY: Well, we don’t know in particular because they’re still writing the damn thing. I mean, this is Friday evening and you are probably going to run this on Saturday, after they pass it, or don’t pass it, but they’re literally still making it up. In fact, Senator McCaskill of Missouri, to find out what is in the final bill had to go to a K Street lobbyist, and the lobbyists on Kay Street in Washington are notorious for writing these bills, and she came up with a long list of about 30 amendments that they were proposing that the Democrats have never been told about.
This whole thing has been written in secret. There have been no hearings. It’s the largest tax bill in 30 years, and yet you can smell a rat here because of the way the Republicans are going about this, holding negotiating sessions with their own Senator Corker on the floor of the Senate. Sticking in provisions at the last minute to favor parochial school tuition. It’s just a comedy, if it wasn’t so sad.
This is indeed one of the largest wealth transfers to the top 5% of the country. As far as we know at this point, first of all the bill provides for a deep reduction in the corporate nominal income tax rate from 35% to 20%. Most big companies don’t pay that. They have a lot of their assets offshore but they’re going to be able to continue to play offshore tax games and many of them are going to benefit substantially for the reduction in tax that applies to the 2 trillion offshore that they’re going to try to bring back.
Secondly, this does nothing about a host of problems we’ve identified like carried interest. It does nothing to really upgrade the quality of tax enforcement. It continues what’s called “the pass through treatment” and expands that tax treatment for many businesses and individuals.
So on the whole, the analysis that we’ve been able to do so far, and this is going to literally take weeks to redo this after we get the final details, shows that at least 70% of the benefits of this bill go to the top 5%. Basically, the donors to the Republican Party.
AARON MATÉ: Right. The number I saw from the Tax Policy Center was 80% of the benefits go to the top 1%. What about the middle and lower classes? How is it that a, what’s billed as a $1.5 trillion tax cut will actually increases taxes for so many people?
JAMES HENRY: Well first of all, the tax rates for individuals will be phased out. Any changes in those tax rates for individuals will be phased out after 2025, after which they will begin to go up. Because we expect to see a trillion dollars in added debt from this bill, they certainly will have occasion to do so.
Second, just the way the bill is written. There are a lot of deductions like mortgage interest and the state and local income taxes that many middle class people take advantage of. We just don’t know how those will work out but it’s quite possible and quite likely that the actual after tax effects for millions of individuals will be negative. So, what is absolutely clear is that the beneficiaries of this bill are mainly the top 1%.
AARON MATÉ: Can you give us just some micro-examples of how say, a lower or middle class person could be impacted? I’ve seen people just in my Twitter feed complaining about what this means for them, especially freelance workers, people who work from home. Talking about deductions that they rely on, are going to go and what the income that they take home is going to be way less than it is now.
JAMES HENRY: Well, this is going to affect lots of people in very, very different ways depending on the situations because it basically gets rid of a lot of the itemized deductions that people have been able to count on for self-employment in the interest of supposedly standardizing the income tax. That’s going to introduce a lot more inequality in the tax system. It is going to affect many middle class people who are working as independent contractors.
Secondly, one of the big things that they’re doing here, is repealing the Obamacare, charge on Obama, that’s going to affect millions of Americans who have been counting on Obamacare. They’re going to see their health insurance rates rise. If they’re going to pay for this thing without increasing the debt, they’re going to have to cut Medicare. There’s a talk about a $300 billion reduction in Medicare. So, this is going to really impact a lot of ordinary Americans.
The only ones who can really count on benefiting from the bill are the people who are supporting the K Street lobbyists. The Apples, the Googles, the Microsofts. The big, major multi-nationals who are going to get a one day tax cut on their offshore wealth that they’ve stashed and also many other multi-nationals, and Wall Street, which is, you’ve seen Wall Street stock rise just this week in response. Major banks here are going to have a tax holiday.
AARON MATÉ: James, it’s been amazing for me to watch just how Republicans aren’t making much of an effort to hide that fact. There’s that famous quote from Senator Lindsey Graham, the Republican, where he said that,”if we don’t pass this tax reform, the financial contributions will stop.”
JAMES HENRY: I mean, that’s pretty blatant. I think they’re worried about running out of time because they’re facing the November 2018 elections. They have a President who, to say the least as we saw in today’s news on Flynn, makes it clear is in trouble. And, they want to be able to say to their donors, “at least we did something during the last two years.”
So, this is a very unpopular bill. At least 62% of the American people are opposed to this tax plan, even before they know what’s in it. They know enough about it to know that it stinks and they’ve seen the process being worked behind closed doors, and there’s every indication that the people who are writing this bill do not have their interest at heart.
We’re in an economy where we already have pretty full employment. Most of the economists I talk to, don’t expect this to accelerate growth very much, if at all. In fact, the idea of paying for tax cuts for the rich with federal borrowing or deep spending cuts for the poor and the middle class is just the opposite of what you’d like to do if you want to stimulate the economy.
So, all things considered, this is a horrific bill that can only be explained by the fact that the people writing it are representing not us but their donors.
AARON MATÉ: James this is a tangent, but just briefly. When you say that economists, why they believe that we have full employment. The unemployment rate is pretty low but isn’t it also true that that figure does not account for all the people who just simply just stopped looking for work?
JAMES HENRY: It does, and there are efforts to take account of that. I think even when you make those adjustments and look at people who have dropped out of the labor force, for economic reasons those numbers are still quite low compared to where they were. It’s not satisfactory by any means but compared with where we were over the last decade or so, under the Obama administration I think it’s fair to say that the employment, job situation improved considerably. And it has continued to do so during this first year of the Trump administration.
So, I don’t think anyone denies that the economy’s operating at a pretty tight rate. We don’t see inflation rising yet but no one’s making the case we need tax cuts in order to stimulate economic growth except these Republican donors.
AARON MATÉ: Okay right, so then two questions then: the first is even assuming that this bill passes tonight, when do you think we’ll actually know the full extent of what’s in it? And also, if there have been economic gains in recent years, certainly we have rebounded from the worst of the financial crisis, although not totally obviously. Do you think that this tax bill is seismic enough to undo whatever benefits have happened in the past few years?
JAMES HENRY: Well, it’s going to hurt some very specific people very hard. I think the low income people who are counting on health insurance. Elderly people are going to see some tax rates increase for odd reasons. They are big users of the state and local deductions and many people who live in places like New York or relatively high tax states, that are high tax for good reason, we tend to take care of people better than states that don’t use taxes and progressive taxation.
But I think it’ll take some time to know exactly what’s in the bill because in the next stage they have to reconcile this Senate bill with whatever is in the House bill, and it’s not clear that they’re going to be any more open about that negotiation over the next few weeks than they have been up to now.
So, I think by the time we get to see what’s actually been done to us it’ll be some way down the road. But it’ll be plenty of time for us to do the detailed analysis that’s required. I’m a betting man, I believe that the odds are that when we do the numbers we’ll find out if anything, it’s even worse than we suspect right now. That’s in a way, good news for the progressives, in the November 2018 election, because I think what we can try to ensure, is that this is the last time the Republican Party is ever able to do this to the American people.
AARON MATÉ: James Henry, investigative economist and attorney, also senior policy advisor with The Tax Justice Network, thank you.
JAMES HENRY: Thanks very much.
AARON MATÉ: And thank you for joining us on The Real News.