So, according to Senate Minority Leader Chuck Schumer “Under this bill, the working class, middle class, and upper middle class get skewered while the rich and wealthy corporations make out like bandits. It is just the opposite of what America needs, and Republicans will rue the day they pass this.”
His statement is, of course, patently absurd. Then again, many of his statements are. Actually, no one really gets “skewered” other than some high earners who live in high tax states. But then, again, Schumer has maintained party discipline so the mantra from Democrats has, for weeks, uniformly been “horrors!” That is why the new tax bill has polled so poorly. No one, including us, knew what the final bill would look like so public opinion polls about the bill were, by and large, meaningless. “Windfall for the rich. Windfall for the rich.” has been a steady drumbeat so, the surprise of all surprises, polls have been less than enthusiastic.
Now let’s get serious.
The new tax bill may or may not turn out to be great (that will depend on how much its business-related provisions actually stimulate economic growth, which remains to be seen), but it is far from the horror show Schumer and his acolytes are screaming it is. The liberal Tax Policy Center acknowledges 93 percent of taxpayers will see a tax cut, while some would see no change in 2019.
The bill nearly doubles the standard deduction by raising the standard deduction for singles to $12,000 from $6,350 currently, and it raises it for married couples filing jointly to $24,000 from $12,700. Significance? Plenty. About 70 percent of Americans fall into this category. A near doubling of that deduction to $12,000 for individuals, $18,000 for heads of household, and $24,000 for joint filers—combined with some more-generous tax brackets and rates—means less tax taken from most individuals’ and families’ paychecks, according to the non-partisan, Consumer Reports.
The child tax credit is doubled in the new tax bill to $2,000. Furthermore, $400 of the additional $1,000 is refundable (all of the existing $1,000 is currently refundable) so qualifying families who owe no taxes with their returns will receive a check euphemistically called a “refund” for $1,400.
While much has been made of the elimination of the Obamacare mandate, the little-reported secret about the mandate is that the penalty it imposes has been paid almost entirely by low-income individuals and families. Let us repeat that. It is the very low-income individuals who have chosen to skip the ACA mandated coverage and pay the penalty instead. Why? Because the penalty is somewhat less than the premium they would otherwise pay even with the subsidies that are provided. It wasn’t supposed to work that way. The initial assumption was that upwardly mobile, so-called millennials, would be taxed by the mandate to induce them to buy insurance so that coverage would be affordable (with subsidies) to lower income citizens. But it has been a preponderance of low-income earners who have skipped coverage and paid the penalty instead. It seems somewhat logical to us that those low-income families that have been buying insurance will maintain their coverage because they will still be eligible to access the same subsidies as before. That hasn’t changed in the new tax bill.
So, when there is a reduction in tax rates, do they disproportionately favor the wealthy? Of course, they do. Here’s the rub. The top 20% of taxpayers pay 95% of all the individual taxes paid in the United States. It’s time Chuck Schumer and his minions stopped treating these Americans as pariahs.
According to the Cato Institute, the Senate tax bill cuts income taxes for people making $40,000 to $75,000 a year by about 37 percent. People making over $1 million see a tax reduction of 6 percent, and some will see significant increases in taxes, especially if they live in high-tax states such as California, New York or New Jersey.
So, why all the grumbling on the left? Well, truthfully, it will be justified if trillions of new dollars that rapidly accumulate in corporate accounts as a result of lower taxes and repatriation of corporate dollars held abroad have little or no effect on economic growth. This administration believes that a robust economy will create robust demand for labor and that robust demand for labor will drive up wages, and, thereby, drive up tax revenues. Similarly, corporate earnings should soar and corporate taxes revenues should increase accordingly. Logically, that’s exactly what should happen.
If, however, the Trump Administration squanders economic growth and spends wildly as did the Reagan Administration a quarter century ago, then this entire tax venture may prove that Chuck Schumer was right after all. That, in our opinion, would be the result of spending policy rather than tax policy.