By Yuqi Wang, Policy Analyst, Economic Policy Project
Unfortunately for the millions of individuals and families who continue to feel the brunt of stagnating wages, eroded overtime policies, and a flatlining federal minimum wage, the newest tax framework that has been proposed would only make it more difficult for them to make ends meet. The Trump administration and Congressional Republicans’ latest tax reform framework threatens to exacerbate working families’ struggles, providing massive tax cuts to wealthy individuals and corporations disguised as a plan to help the working class.
Among other things, this latest framework would:
- Eliminate the estate tax. This tax only applies to estates worth above $5.49 million, which means only 0.2% of estates are required to pay the tax at all. Repealing the estate tax will benefit wealthy heirs while eliminating an estimated $19.7 billion in tax revenue that the government could use to help workers and their families.
- Decrease the corporate tax rate from 35% to 20%. Research has shown that very little of the money corporations save when the corporate tax is decreased is passed on to workers, meaning workers will not be heavily impacted by a reduction in the corporate tax rate. People who will largely benefit from a reduced corporate tax rate are individuals in the top quintile, or those who earn more than $112,262 a year.
- Decrease the tax rate for pass-through businesses to 25%. Pass-through businesses are entities where the profits earned are taxed at its owners’ individual income tax rates, which could range from 10% to 39.6%. Most pass-through businesses are small businesses. Their owners gain moderate profits, and currently pay less than a 25% marginal tax rate. In fact, almost 70% of taxpayers who have a pass-through business pay at the 15% or less marginal tax rate. Reducing the top tax rate for pass-through businesses from the current 39.6% to 25% will only provide a windfall for high-earning businesses.
- Move the United States to a territorial tax system. Under the territorial tax system, U.S.-based multinational corporations would have a 0% corporate tax rate when they bring their foreign profits back to the United States. Such a tax advantage would invite corporations to prioritize foreign profits over domestic profits, and would be detrimental to the U.S. economy and to our workers because it would make domestic businesses less competitive than multinational corporations.
- Create a “larger” child tax credit (CTC) for children under 17. How “large” the CTC would be was undefined. However, the new framework did indicate that a CTC above $1,000 per child would no longer be refundable. If implemented, millions of working-class families would see little benefit from such changes.
If enacted, these tax cuts for the wealthiest individuals and corporations will hurt the economy and cost jobs, by enacting big cuts to education, health care, rebuilding infrastructure, and other critical investments. This comes at a time when we should be investing in the systems that benefit working families, not raiding them to pay for giant tax cuts on the wealthy and corporations.
For tax reform to truly benefit working families, it should:
- Expand the earned income tax credit (EITC).The EITC helped more than 26 million families make ends meet in 2016 by increasing the earnings of lower-income workers and reducing child poverty. More workers could benefit from the EITC by expanding it to include workers not raising children.
- Change the mortgage interest deduction (MID) to a tax credit. The Trump administration’s proposal keeps the MID intact. However, most of the benefits of this subsidy accrue to upper-income households—taxpayers with incomes of $100,000 or more received 77% of MID’s total benefit in 2011. One potential reform is changing the MID from a deduction to a credit, with a cap on the maximum amount of interest it covers.
- Make the retirement savings contributions tax credit (saver’s tax credit) refundable. This credit is designed to help low- and middle-income workers save for retirement, but half of all workers—and two-thirds of Hispanic workers—do not have access to employer-sponsored retirement plans and largely do not benefit from this tax credit. The Saver’s Credit should be redesigned to be refundable.
Rather than focusing on the needs of the average American, President Trump and Congressional Republicans’ proposal to reform the tax code puts the needs of the wealthy and corporations first. As Congress and the administration continue to push for tax reform, UnidosUS vows to continue fighting for tax reform that focuses squarely on the needs of working-class families in the United States.