Why it’s indefensible for liberals to oppose this progressive tax bill

Daniel Horowitz · December 20, 2017  
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Dianne Feinstein
Sen. Dianne Feinstein, D-Calif. | Tom Williams | AP Images

It’s truly indefensible for Democrats and the media to oppose this tax bill, given their own views on the progressive income tax.

The corporate tax cut is a no-brainer. The bill cuts taxes on businesses so that more jobs can be created, wages can go up, and products and services will cost less. It’s simple math. You raise the bottom line for businesses, it will create more jobs; you lower it, it will reduce jobs. Even if one subscribes to class warfare on the individual tax rates, it makes no sense to screw over businesses, even from a progressive standpoint, because it will hurt everyone.

Even President Obama agreed to reduce the corporate tax rate, referring to it as “one of the highest corporate tax rates in the world” during his 2011 State of the Union Address. And while this bill reduces the rate to 21 percent, it gets rid of a lot of deductions Obama called loopholes. Simply put, most Democrats would have voted for the corporate rate cut had Obama actually delivered on his promise in the State of the Union Address. There is no justification for keeping America’s corporate tax rate as the highest in the developed world.

As for individual rates, this bill takes a progressive tax code and makes it even more progressive. Anyone earning under $200,000 will get a tax cut, while those with dependent children will get a significant cut. In addition, much to the chagrin of many conservatives like myself, the refundable portion of the child tax credit was expanded, thereby ensuring that more people pay no income taxes and many more actually make money off the tax code.

The “wealthy” still ARE paying more … and more …

In reality, the only ones who will see a tax increase under this bill are certain millionaires who don’t earn their income through pass-through entities and who earn a significant amount of their income from capital gains and dividends. Given that investment taxes were not decreased and the deductions for those with many large homes throughout the country were limited, some of the wealthiest will see a tax increase (while others will get a significant decrease). These are the people Democrats lamented for years were supposedly fleecing America with clever “loopholes” that have now been closed under this bill — a bill they oppose.

The core element of the liberals’ dishonesty over the bill is their deceitful arithmetic. They tally the dollar amount of tax cuts and show how most of the benefits go to the wealthy. What they don’t show is the percentage tax cut by income level. If person A pays $1 million in taxes and person B pays $100 in taxes, of course person A will “benefit” enormously relative to current law from even a small rate cut, while person B won’t get a massive dollar cut even from a much larger percentage cut. Anyone who learned math before the advent of Common Core understands this.

The Joint Committee on Taxation already tabulated the distributional effects, and it is quite clear that lower-income individuals and families will receive the larger percentage cut. Despite the fact that those earning over $200,000 pay a tremendous amount more in taxes than those earning below that threshold, the JCT found that in three years of the budget window, households earning more than $200,000 would get less than 50 percent of the overall tax cuts, even though they pay close to 70 percent of the tax burden.

Remember, the system is already highly progressive, and more people in America pay little or no federal taxes than their counterparts in Europe. And the “loopholes” that were closed on some wealthy earners were used to pay for straight-up handouts to those who already don’t pay any income tax.

A somewhat dated but still relevant study from the Organization for Economic Cooperation and Development (OECD) found that the U.S. “has the most progressive tax system and collects the largest share of taxes from the richest 10% of the population.” As the Tax Foundation demonstrates, even though they earn a larger share of the income than their European counterparts, they pay an even greater share of the national taxes, well beyond their share of the income pie.

Who’s the party of the rich, again?

The distributional effects of the national tax burden will shift even more to the wealthy under this bill. The JCT already found that the top 0.3 percent of income earners will pay even more of the tax pie in coming years. And so many more at the lower end, unlike in most European countries, will not pay anything. Between the doubling of the standard deduction, the maintaining of the low 12 percent rate all the way through $77,400 of family income, and the doubling of the child tax credit (plus 50 percent increase in refundable handouts), this is a tremendously progressive tax cut. According to one estimate, under the first version of the bill, which didn’t even include the Rubio handout, the number of filers paying zero taxes would increase from 43.9 percent to 47.5 percent. That is 81 million Americans who pay no federal income taxes!

Yet, amazingly, while playing class warfare out of one side of her mouth, Dianne Feinstein has the nerve to complain out of the other that the mortgage interest deduction would be reduced from $1 million to $750,000. This means that interest on a standard mortgage would be fully deductible up until a $900,000 home, with a significant amount still deductible thereafter.

Next, Democrats cite data showing taxes going up after 2025. Yes, they will go up because the cuts that the Democrats oppose are slated to expire. But they will only go up if Democrats let that happen. They complain that corporate tax cuts are permanent while individual cuts are temporary. But they are only temporary to get around budget reconciliation scoring because Democrats won’t support the bill through the regular legislative process.

So, their only valid excuse for opposing this bill is because of the deficit. But if the only time you care about deficits is when it comes to allowing people to keep some of their own money, I have a $30,000 health insurance policy to sell you in Mexico.


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Author: Daniel Horowitz

Daniel Horowitz is a senior editor of Conservative Review. Follow him on Twitter @RMConservative.