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Analysis

13 ways the Trump-GOP tax plan will hurt working people

According to tax experts, the proposed legislation will benefit the wealthiest Americans—like President Donald Trump, his cabinet and members of Congress—at the expense of working families with children.

in Tax Reform

The House voted today to pass the Trump tax plan, which critics have labeled a tax scam, and the measure now returns to the Senate yet again. A new analysis by tax experts details 13 ways the proposed tax cuts for corporations and wealthy individuals will negatively impact American families and the U.S. economy while lavishing rewards on corporations and the rich.

The analysis by Americans for Tax Fairness (ATF)—a coalition of more than 425 groups that advocate for progressive tax reform—found that the Republicans’ plan would give more than 80 percent of tax cuts to the nation’s richest one percent while also raising taxes on 92 million middle-class families; increasing healthcare premiums; encouraging the outsourcing of U.S.-based jobs; and limiting deductions for state and local taxes.

Here are 13 ways the proposed legislation will hurt working people and the dwindling middle class:

1. The bill would give the richest 1 percent of taxpayers one-fifth (21 percent) of its proposed tax cuts in 2018. But that figure dramatically increases to 83 percent by the year 2027. This tax cut for the richest Americans will average in at $51,000 in 2018. Meanwhile, the bottom 60 percent of taxpayers will get about a dollar per day.

2. The bill will raise taxes on 92 million middle-class families by 2027 to pay for tax breaks for the wealthy and corporations. That is more than one-half (57 percent) of all households making less than $200,000 a year. And 69 million households making less than $100,000 a year would also pay more in taxes after the temporary tax cuts for individuals expire.

3. The bill mandates automatic Medicare cuts of at least $25 billion in 2018 and $400 billion over the next 10 years. In effect, seniors will pay for tax breaks for corporations and the wealthy as automatic spending cuts are triggered, because the tax cuts add $1.5 trillion to the national debt. Automatic cuts altogether will total $136 billion in 2018 and include reductions in agriculture subsidies, student loans, military retirement and more.

4. The bill increases health care premiums and leaves 13 million families without health coverage, to raise revenue for tax breaks that mostly benefit the wealthy and corporations. The plan also repeals a key part of the Affordable Care Act: the requirement for individuals to have health coverage if they can afford it. That frees up $314 billion for tax cuts to the rich. This will lead to 13 million more people being uninsured and cause a 10 percent increase in health insurance premiums for people getting insured on the individual market.

5. The bill provides a corporate tax rate cut of $1.4 trillion and makes those cuts permanent, but makes tax cuts for individuals and families temporary. The corporate tax rate is slashed from 35 percent to 21 percent, and the corporate Alternative Minimum Tax (AMT) is eliminated. The $1.4 trillion corporate-tax-rate cut is nearly equal to the $1.5 trillion by which the whole tax plan increases the national debt, and to the $1.5 trillion cut the Republican budget makes to Medicare ($473 billion) and Medicaid ($1 trillion). Tax cuts that benefit working families will expire after 2025. However, one individual tax cut, made permanent, changes the way tax brackets are adjusted for inflation, resulting in growing tax increases over time.

6. The bill adds $1.5 to $2.2 trillion to the national debt, jeopardizing critical services. The plan includes at least $1.5 trillion in tax cuts that are not paid for, such as by closing loopholes used by the wealthy and corporations. Because the bill contains several budget gimmicks that obscure the true cost of the tax cuts, the cost could be as much as $2.2 trillion. This will balloon the national debt and further endanger funding for Social Security, Medicare, Medicaid, public education and more.

7. The bill prioritizes the wealthiest taxpayers over working families with children. The plan lowers the top individual tax rate from 39.6 percent to 37 percent, giving more tax cuts to the richest 518,000 households. The GOP chose not to fully adjust changes in the Child Tax Credit so that some 24 million children in working families could fully benefit. Both of these changes would cost roughly the same amount, about $80 billion over 10 years.

8. The bill prioritizes wealthy business owners and real estate developers like Donald Trump. They get a net $265 billion tax cut from a new 20 percent deduction for “pass-through” business income combined with a tightening of rules on losses. Applied to the new 37 percent top individual tax rate, this 20 percent deduction on business income will drop the top pass-through business tax rate from 39.6 percent to 29.6 percent. More than 80 percent of this tax cut will go to the top 5 percent in 2019. Trump owns more than 500 pass-throughs. Pass-through owners—which include sole proprietorships, partnerships, LLC’s and S corporations—pay taxes due on their business income on their personal returns at individual rates.

9. The bill kills American jobs by encouraging outsourcing and profit shifting. The plan creates a territorial tax system, which exempts foreign profits from U.S. taxes. While the plan will tax some of those offshore profits, the effective tax rate will be far below the U.S. rate. U.S. multinationals will have even more tax incentives to outsource more jobs and shift more profits offshore.

10. The bill hands a $400 billion tax cut to offshore tax dodgers. American corporations have $2.6 trillion in profits stashed offshore on which they owe $750 billion in U.S. taxes. Rather than make them pay what they owe, like all the rest of us do, the tax plan will charge them only $339 billion—over a $400 billion discount. Apple will save $44 billion and Microsoft $25 billion, based on their Securities and Exchange Commission tax filings.

11. The bill limits the federal deduction for state and local taxes (SALT), hurting the middle class. The bill caps at $10,000 the amount of state and local property and income or sales taxes that can be deducted from federal taxable income. This is one of the reasons that nearly 8 million families will see tax increases in 2018. The impact of this change will be felt especially in the 20 states that claim an average SALT deduction of more than $10,000. Limiting SALT will put pressure on state and local budgets, likely forcing cuts to education, health care and infrastructure.

12. The bill lets many wealthy heirs avoid paying the estate tax. The estate tax is substantially weakened, losing $83 billion and allowing very rich families to inherit wealth tax-free. Under current law, the tax only applies to estates worth over $5.5 million per person or $11 million per couple—about 5,500 estates. Under the bill, only estates worth at least $11 million per person or $22 million per couple (about 1,800 estates) would pay the tax.

13. The bill personally enriches President Trump and his family. In addition to cutting the top individual income tax rate and creating a tax break for income from pass-through business entities (of which Trump owns 500), the bill preserves the many existing tax loopholes for real estate investors and even creates a new one. The final bill exempts real estate owners from a provision meant to limit abuse of the new pass-through income deduction.

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