Even before the House Republicans released their tax plan Thursday, polls showed that Americans weren’t happy with its primary goal — lowering the corporate tax rate.
Most people just don’t see that as a pressing issue or economically beneficial. Even a majority of Republicans polled by the Pew Research Center this summer supported either raising corporate taxes or keeping the rates the same. So it’s no surprise that House leaders have instead touted their plan as a “middle class tax cut,” a truly misleading label when the financial benefits skew so overwhelmingly to large companies and the wealthy.
Whatever help might be offered to families earning less than $100,000 by such proposals as increasing the standard deduction or an expanding the child tax credit, for example, are likely to be offset by the loss of other tax benefits — most notably the limit on local and state tax deductions and the cap on mortgage interest deductions. Both hit states like Maryland hard.
While a $500,000 mortgage may sound like a princely sum (and it is in much of the country), in areas of high property values such as Maryland’s Montgomery County, it is not. Even by some fairly generous accounting, middle class families probably won’t see much net benefit under various possible scenarios. The nonprofit, non-partisan Tax Foundation estimates that “Kavya and Nick” who earn $85,000 a year might see a $1,072 benefit while “Olivia and Richard” who earn $1 million might see $59,130, which, even on a percentage basis, is about eight times better than their middle class brethren (a 9.09 percent after tax income boost for the rich compared to 1.44 percent for the not).
It gets worse. Those tax cuts would expire in a decade; reducing the corporate tax rate from 35 percent to 20 percent would be permanent — at a cost of $1.5 trillion over the next 10 years alone. The counter argument from the White House is that reducing corporate tax rates would yield benefits to workers, presumably in the form of wage growth. But that’s a dubious claim, at best, given that corporate profits are fairly robust right now, yet wages are stagnating. The most recent U.S. Department of Labor jobs report released on Friday showed hourly wages rising just 2.4 percent over the last 12 months, a period of high corporate profits (perhaps the best in 13 years) and record stock valuations.
Tinkering with the corporate tax rate isn’t necessarily a bad idea, but slashing it so substantially and at such a high cost isn’t justified and shouldn’t be sold to the American people as something it isn’t. Describing the Republican plan as a middle class tax cut requires ignoring about 95 percent of its effect. The danger is that too many in Congress may be willing to do just that if the public decides that table scraps, no matter how costly in the long-term, are good enough.