Congress pushes through new tax cuts for the super-rich

<> on November 2, 2017 in Washington, DC.

House Speaker Paul Ryan touts the new tax bill.

By NICOLAS BRANNON

Massive tax cuts for the wealthy are moving forward in Congress, with the Senate passing its own version on Dec. 1. All that is left now is for the House and Senate to combine their two very similar bills and smooth out the minor differences. Once that is done, the plan will gift hundreds of billions more dollars to the wealthy every year.

The tax plan is designed to further enrich billionaires, Wall Street, corporate executives, stock owners, and even mere millionaires, while taking money away from the poor and working class, immigrants, and Medicare. Taxes on the wealthy and corporations are slashed across the board, while tax deductions used by working people will be eliminated or phased out.

In fact, the official analysis of the Senate bill shows that, by 2027, it will raise taxes for everyone making under $75,000. That is because many deductions are eliminated right away and others eventually expire. For example, the bill would slightly raise the child tax credit for a few years, before eliminating it altogether. Another change would make all immigrants ineligible for the child tax credit.

The elimination of the personal exemption will lead to many families paying higher taxes right away, as an increase in the standard deduction won’t make up the difference. Taxes for everyone else will go up in 2025, when the increased standard deduction also expires. Many other deductions, such as for medical expenses or student loan debt, will likely be eliminated in the final bill as well.

The tax plan uses many accounting gimmicks to mask the true costs of the tax cuts for the wealthy—for example, setting some tax breaks for the rich to expire, such as the estate tax cut, which would very likely be renewed. But even after all of the measures to make it look like the tax cut won’t cost as much, there is one group whose tax cuts only go up and up and up: the 0.1 percent super-rich.

Those costs will be paid for by cutting programs and deductions that benefit poor and working-class people. For example, the projected increase in government deficits of $1.5 trillion over 10 years will automatically trigger major annual cuts to Medicare to pay for it. That means that next year, $25 billion will be taken from Medicare and given to the ruling class.

The elderly aren’t the only ones whose health care will be cut by the law in order to give more money to the rich. The Senate tax bill makes changes to Obamacare that are intended to keep 13 million people from signing up for subsidized health insurance or Medicaid—increasing the number of Americans without health insurance to 41 million, and paying for $338 billion worth of tax cuts for the rich.

The bill also continues the capitalist attack on the environment by opening the Arctic National Wildlife Refuge in Alaska for oil and gas drilling, a longtime goal of oil companies.

Some of the tax plan’s biggest giveaways to the rich are in corporate taxes. The corporate tax rate will be cut almost in half, from 35 percent to 20 percent, though what companies actually pay is often much less than that. They have endless loopholes, tax deductions, and ways of reclassifying or hiding their profits in order to pay the lowest taxes possible.

A recent study of Fortune 500 companies’ taxes showed that one in 10 paid “less than nothing” in income tax over a five-year period, actually receiving tax credits, despite reporting profits into the tens of billions of dollars. The new House and Senate bills scrupulously maintain these loopholes and opportunities to cook the books—and they create new ones.

Corporations also won’t owe taxes on overseas profits anymore. If any American companies decide they’d like to repatriate some of the $2.6 trillion in untaxed profits that they are holding overseas, the bill will allow them to do so at a considerably reduced tax rate. Otherwise, they can have their accountants move their windfall profits to a country with very low corporate taxes—or none at all—and very friendly policies.

Apple, for example, kept their overseas profits in Ireland, where in 2014 they paid a tax rate of 0.005%. After the European Union (EU) found this basically tax-free arrangement to be illegal and ordered Apple to pay $14.5 billion in back taxes, Ireland appealed, saying Apple shouldn’t have to pay anything. The recently released Paradise Papers show that the company has since decided to move its $252 billion in overseas profits the to nearby island of Jersey, where they pay no taxes and EU tax laws don’t apply.

The next big gift in the House and Senate tax bills go to the owners of companies whose income can be re-classified as personal income. These are the so-called “S corporations,” whose income is not taxed as corporate income but instead “passed through” to shareholders and counted as personal income. They are often referred to as “small businesses,” but in reality many of them are holding companies, hedge funds, and real estate companies. More than two-thirds of “pass-through” income goes to the top 1 percent, according to a 2015 study by economists at the Treasury Department and two major universities, not to “Mom and Pop” stores.

However, the “small business” label is used to justify low taxes on these companies. Under the new plan, income from this type of business would receive a huge tax cut. In the House version, it would have a maximum tax rate of 25 percent in the House bill—way below the current top rate or 39.6 percent. The Senate plan has a tax deduction for the first 23 percent of pass-though income. Either way, the tax cut is enormous.

One person who would benefit is Donald Trump himself, who has more than 500 pass-though corporations. The Trump Organization, with $9.5 billion in reported revenue in 2016, qualifies as a pass-through entity. On Trump’s 2005 tax return—the most recent one available—he reported $109 million of this kind of income. Both versions of the new plan would save him tens of millions of dollars in taxes, on this one portion of his income alone.

This is also one of the biggest loopholes in the new tax plan. Simple accounting maneuvers will allow the wealthy to switch their income from regular income to “pass-though” business income and save billions in taxes. This loophole is not accidental or due to “haste,” as The New York Times described it. It is entirely intentional and just another way that this bill will cut taxes for the rich in ways that go far beyond the officially projected amounts.

In addition to what the bourgeoisie stands to gain from the business tax cuts, they will also get large cuts on their personal income. The House and Senate bills have different ways of giving the rich these tax cuts, but both bills mainly benefit people making more than $500,000—right about where the 1 percent starts. And, of course, the higher you go, the bigger your tax cut gets. The 0.1 percent and up are the real beneficiaries.

The estate tax is slashed and possibly repealed, depending on how the House and Senate combine their versions. Either way, the amount of tax-exempt inheritance will immediately double from $5 million to $10 million per person, an amount that would only affect 0.1 percent of estates. Although, as Gary Cohn, Trump’s chief economic advisor and former president of Goldman Sachs, said earlier this year, “only morons pay the estate tax,” because there are so many way of getting around it.

Meanwhile, the bills raise taxes on the poor and the working class. Both bills eliminate all kinds of tax deductions used by working people, in order to offset some of the cost of the huge tax cuts for the extremely rich.

The bourgeoisie tells us that all of this will result in a better economy for everyone, with more jobs and higher wages. They’re giving themselves huge tax cuts for our benefit, they say. At an event hosted by The Wall Street Journal with Gary Cohn, Trump’s economic advisor, a journalist asked a roomful of CEOs how many would use the money from these tax cuts for hiring and expanding their businesses, rather than lining their pockets. Only a few raised their hands. “Why aren’t the other hands up?” Cohn demanded. They forgot to lie.

American companies are already getting record profits, while wages are at a historic low and falling. Income inequality has never been higher, but everywhere the ruling class looks for more. Whether it’s cutting retirees’ pensions out from under them, raising the price of insulin 300 percent, or closing down schools and packing more kids into overcrowded classrooms, they squeeze a little bit more every time because capitalism demands profit at the expense of human life, and driving down the average quality of life of the workers increases profits.

As Marx wrote, the way capitalists see it, “a quick succession of unhealthy and short-lived generations will keep the labor market as well supplied as a series of vigorous and long-lived generations.” Only a socialist society, in which production is not based on profit but on human needs, can change this.

Capitalism will always seek to pull ever-greater profits out of the hides of the workers. It is the nature of the system. Only by having the means of production not in the hands of a tiny few—the 0.1 percent or less—but in the hands of the many, deciding democratically how to meet their needs, can we break capitalism’s need for increasing impoverishment of workers in order to suck ever greater wealth upwards.