Connect with us

Republicans

What Trump, GOP Do Not Want You to Know About their New Tax Plan

Donald Trump speech to the U.N. General Assembly

To hear President Donald Trump and Congressional Republicans talk about the tax plan unveiled Wednesday, it is aimed squarely at middle class American families.



That is hogwash.

At the top of the nine-page tax plan, Trump wrote that “It is now time for all members of Congress — Democrat, Republican and Independent — to support pro-American tax reform. It’s time for Congress to provide a level playing field for our workers, to bring American companies back home, to attract new companies and businesses to our country, and to put more money into the pockets of everyday hardworking people.”

That is nonsense.

The tax framework continued that “President Trump has laid out four principles for tax reform: First, make the tax code simple, fair and easy to understand. Second, give American workers a pay raise by allowing them to keep more of their hard-earned paychecks. Third, make America the jobs magnet of the world by leveling the playing field for American businesses and workers. Finally, bring back trillions of dollars that are currently kept offshore to reinvest in the American economy.”

If you believe the tax plan unveiled by the GOP meets all these conditions, let me know because I have a piece of land I want to sell you for a billion dollars. For the record – I do not.

Let’s get one thing straight – Trump has not read the tax plan, has no idea what it contains, who benefits and who loses. And he has no interest in reading the plan. He just wants to pass a bill, any bill, through congress. And if you write a bill that sells the State of Louisiana back to the French and Trump believes it will pass the House and Senate, and give him a win, he will be in support.

RELATED: Trump, GOP Tax Plan Gives Away $2 trillion to the Wealthy, Corporations – Raises Taxes for Poor Families.

The Republicans are worried that you will read and understand what their tax plan is about, and who it actually benefits. They are so worried about it, they are willing to lie to your face in the hope that you will believe them and don’t bother to read it.

For those of you inclined to read the GOP tax plan, we have it here.

Before you buy into their spin, we took a look at the plan and below is what we found. Read our analysis carefully and if you disagree, leave a comment below.




Low and middle class Americans will not get a tax cut from this plan. If they do, it will be marginal at best. For starters, streamlining the tax brackets – from 7 to 3 – does not dramatically change who pays what in taxes so it in no way benefits the average American worker.

For the wealthy, this is a plan made in heaven. Trump and the GOP went to work and created a plan that gives the wealthy everything they asked for, and more. Their most cherished benefits will be protected, more tax breaks will be added and their top marginal tax rates will be halved, well almost.

What’s there not to like about this plan if you are wealthy?

For poor and middle class Americans, and most workers, get ready to get fleeced if this framework becomes the law.

Trump and the GOP wrote that “by lowering the tax burden on the middle class, and creating a healthier economy, we can give American families greater confidence and help them get ahead. America’s tax code should be working for, not against, middle class families.”

“The Republicans are worried that you will read and understand what their tax plan is about, and who it actually benefits. They are so worried about it, they are willing to lie to your face in the hope that you will believe them and don’t bother to read it.”

OK. Now let’s examine the facts.

1. Capital Gains Tax –

If you are not familiar with this, the Internal Revenue Service (IRS) says that “when you sell a capital asset, the difference between the adjusted basis in the asset and the amount you realized from the sale is a capital gain or a capital loss.” So for example, if you buy and sell stocks, bonds or other financial instruments, the difference between how much you paid for the asset and the amount you sold it for is your gain or loss.

For the average American worker, this does not apply. They don’t trade stocks or have capital to invest. However, if you are wealthy and have funds to invest, this is great and the Republican plan made sure to preserve this benefit for you.



For years, wealthy Americans have been willing to give up a lot of the tax breaks they enjoy as long as the government does not touch their capital gains tax benefit. That is how lucrative it has been for them. Do you want to know how great the wealthy have it? The current tax rate for ordinary income is 39.6%, the GOP tax proposal reduces it to 35% – but the top rate for capital gains is 23.8%, about half of what ordinary Americans pay on their income.

The 16% (39.6% minus 23.8%) gives the wealthy a huge $120 billion every year. Over 75% of this benefit goes to the top 1% earners in America.

Something else you need to know – Americans who earn $1 million or more every year get over 50% of their income from capital gains while working American families – those who earn between $75,000 to $120,000 receive about 75% of their income from wages and pay between 25% and 28% depending on whether they are filing as single or married filing jointly.

American tax law is written to favor the rich who get most of their income from investments. Now you understand why GOP and Trump left capital gains untouched in their framework.

But there is more. As University of Southern California (USC) tax expert Ed Kleinbard said, capital gains is the only voluntary tax in America. “Those with accumulated capital gains liabilities can choose when to pay them simply by deferring the sale of the capital asset because that’s when they’re collected. Hold the asset long enough to bequeath to one’s heirs, and the tax is extinguished. No other U.S. tax encompasses such an enormous benefit.”

Did you read that? Hold capital gains long enough to bequeath it to your children and the rich pay zero in capital gains taxes.






2. Repatriation Tax –

If you are not familiar with this tax, let me explain. Most large American companies – think Apple, Microsoft, IBM – hold large sums in overseas accounts and have been pushing for years, since the last “one-time” repatriation amnesty in 2004, for favorable rates so they can repatriate these profits back to the U.S.

Estimates of the vast amount held offshore by U.S. corporations range from anywhere from $2.6 trillion to over $4 trillion. These corporations have resisted bringing these vast profits home because they will pay taxes at the normal corporate rate. Now the GOP plan is granting them the lower tax rate they have been clamoring for. To make things even better, the plan didn’t specify the rate meaning Congressional Republicans get to set that rate. Can you see 4%? In 2004, they received a preferential 5.25% tax rate.

The rationale here is that if the profits are repatriated, corporations will invest the funds in the U.S. economy which would lead to a booming economy which would lead to more hiring of American workers.

On paper, that sounds really good, doesn’t it? On paper! In the real world, that is not what usually happens. I mentioned earlier that in 2004, corporations got a “one-time” repatriation amnesty and guess what they did with the profits – they paid dividends to their shareholders, bought back their stocks and paid their executives higher salaries and benefits, all of which did not lead to hiring of more workers or a booming economy.

In fact, companies like Pfizer and IBM, once they brought the profits back, fired some of their workers, cut research budget and gave the rest to their shareholders. “Once the holiday ended, the multinationals went right back to accumulating earnings off-shore, anticipating another tax holiday,” Steven M. Rosenthal of the Tax Policy Center wrote this week.






3. Estate Tax –

Republicans like to spin this as a tax on the American worker. Nothing could be further from the truth. The wealthy like to call this the “death tax” that supposedly hits family farmers and businesses. In 2016, then candidate Trump called the estate tax a burden on the “American worker.” It is not.

The estate tax affects just a few multimillionaires and billionaires with an average wealth of $30 million. The rate is currently set at 40% of estates with some exemptions. Republicans want to repeal this – change it from 40% to zero. Yes, 0% and who would this benefit if it became law? Ivanka Trump, Eric Trump and Donald Trump, Jr. Yes, the president’s family will benefit handsomely.

So when you hear President Trump say his family won’t benefit from this tax plan, he is lying.




4. Pass-through Tax Rate –

For the average American who does not own businesses, “pass-through” sounds like French. It simply means that if you own a business, you can report your small business income on your (the owner) individual tax return. This allows you to avoid double taxation – business and individual income tax – and Republicans want to cap this at 25%.

Before you scream why not, remember Trump owns over 500 LLCs and other small businesses structured to let him take advantage of pass-through rates no matter his business profit so by lowering it, he hopes to enjoy millions of dollars in tax breaks.

SEE ALSO: Trump, Establishment GOP take a Hit with Moore’s Victory in Alabama.

The state of Kansas under tea party governor Sam Brownback tried doing this a few years ago. The state went broke because everybody from millionaires to freelancers and contractors, figured out ways to redefine their ordinary income (taxed at 39.6%) as business income (taxed at 25% if Republicans have their way.) In some instances, they did not pay taxes at all.

The Republican framework does not spell out how it plans to ensure this does not happen if it becomes law except to ask Congress to “adopt measures to prevent the recharacterization of personal income into business income to prevent wealthy individuals from avoiding the top personal tax rate.”






5. For Middle Class and Poor Workers –

The GOP plan does two things for middle class and poor American families – raises the marginal bottom rate from 10% to 12% and eliminates most standard deductions. If you live in most blue states – California and New York, for instance – and you like to write off your state and local taxes, the GOP plan ensures you cannot do that anymore.

The plan will also eliminate the personal exemption for dependents which comes to about $4,050 per child. For a middle class family of four, you will lose the ability to deduct about $17,000 from your income every year. How is that for helping you?

In the next few weeks, you will hear Trump and Republicans talk about how wonderful this tax plan is for the middle class – it is not. It is a huge giveaway to the rich and powerful.

Updated – We updated this article to reflect that most American wage earners between $75,000 to $120,000 do not pay the top marginal rate of 39.6%. They pay between 25% and 28% depending on whether they are filing as single or married filing jointly.

If you believe we missed anything important, let us know below.

 

 

The Staff of The Liberal Advocate News

Advertisement
Advertisement

WHITE HOUSE NEWS

Advertisement
Advertisement

More in Republicans