Both as a candidate for president and again as recently as mid-September, Donald Trump promised that his tax program wouldn’t help rich people “at all.” His Treasury Secretary Steve Mnuchin vowed as much in January.
These pledges have always been at odds with the plain text of Republican Party tax promises. Trump rolled out three or four different tax plans over the course of the campaign, and they all involved huge tax cuts for the rich. House Republicans’ “Better Way” tax framework released last year involved huge tax cuts for the rich, and the conceptually rather different tax framework they are uniting around this fall also involved huge tax cuts for the rich. But the administration has always at least been committed to pretending that these plans didn’t involve huge tax cuts for the rich.
Now, however, there’s a new story. They really wanted to avoid a huge tax cut for the rich but they couldn’t figure out how.
“So when you’re cutting taxes across the board, it’s very hard not to give tax cuts to the wealthy with tax cuts to the middle class,” Mnuchin tells Politico’s Ben White in a new podcast. “The math, given how much you are collecting, is just hard to do.” A rather credulous Washington Post article noted that among the hurdles still facing tax reform is that Republicans “haven’t sorted out how to ensure that the majority of any tax cuts don’t benefit primarily the wealthy.”
The truth, however, is that avoiding a tax cut for the rich is really easy. The reason Republican plans cut taxes for the rich is that Republicans believe rich people are paying far too much in taxes, not because there’s some conceptual barrier to not cutting their taxes.
The GOP plan has lots of tax cuts only for the rich
Consider that the GOP’s unified tax framework contains the following provisions:
- A cut in the top tax rate that only applies to households with well over $400,000 in annual income.
- A tax cut for business owners that you only get if your business delivers your family more than $150,000 a year in take-home profits.
- A tax cut for people who inherit estates that are worth more than $5 million.
- A steep cut in the corporate income tax rate, whose benefits primarily flow to stock owners rather than wage earners.
A person who did not want to cut rich people’s taxes would, rather clearly, simply not include those provisions in the tax bill.
It is true that since rich people also pay the same taxes that middle-class people pay, a tax cut for the middle class will likely also benefit rich people. Shortly after his reelection, for example, Barack Obama agreed to extend the portion of George W. Bush’s tax cuts that benefitted households earning less than $400,000 a year but not those that benefitted exclusively those who earned more than $400,000 a year. This program was much less lucrative to people with seven-figure paychecks than the GOP alternative of extending all tax cuts. But it did deliver lower taxes to very rich people along with middle-class people, because it cut broadly applicable taxes.
That said, it’s certainly possible to do a tax plan rich people don’t benefit from.
How to do a real middle-class tax cut
If you wanted to give Americans’ take home pay a boost but didn’t want to cut taxes for the rich, it would be pretty easy.
You’d start with some tax policy measures that benefit people at the bottom and the middle of the economic hierarchy. An expanded Child Tax Credit, something that some Republicans support, would help an enormous number of poor and middle-class families — especially if it were made fully refundable. An expanded Earned Income Tax Credit, including provisions to allow childless men to benefit, would do the same.
And then of course you could add in an old-fashioned rate cut. Drop the 10 percent bracket to 9 or 8 or 7 depending on your taste. Or modestly cut the payroll tax.
Some of this would help rich people, too, but you’d neutralize that effect by offsetting the cost with higher taxes on the rich. That could mean creating a new top tax bracket, raising the existing top tax bracket, or (as the Obama administration proposed) capping the value of tax deductions at 28 percent. The result would be a tax cut for the vast majority of Americans that didn’t cut taxes for the top 1 percent. It’s very easy to do if you want to do it.
The reason Republican tax plans aren’t structured this way is that Republicans think structuring a tax plan that way would be a bad idea. They believe that, morally speaking, rich families are unfairly overtaxed and they believe that, economically speaking, the growth benefits of tax cuts for the rich are enormous. Consequently, they reduce taxes on the rich whenever possible. They’re not trying and failing to avoid this outcome, they’re enthusiastic about it.