by Al Simpson
December 24, 2017
The Tax Cuts – What’s Going to happen to ordinary people.
Congress recently passed a tax bill that showers billions of dollars on the wealthy. Most, but not all, working class households will have lower taxes for a while, but tax benefits expire in 2025. After 2027, taxes for working class households will likely go up. There were no public hearings on the bill, and no open discussion was permitted at all. The tax cut bill was brought forward in a completely undemocratic fashion. Details of the final bill are in appendix A, near the end of this article. Let’s discuss some of the falsehoods that are being used to popularize the bill.
The “it will stimulate the economy” lie.
One of the favorite pet sayings of conservatives is that the tax cuts will lead to more prosperity for everyone. Let’s see if this is true. The Bush tax cuts occurred in 2001 and 2003. The chart below (“Did the Bush Tax Cuts Raise Incomes”) covers the years 2004 through 2016, inclusive. It provides a graph of median family incomes for all races in blue and for blacks in red. For all races, the median income in 2004 was $56,332 and for 2016 it was $59,039 an increase of only 4.80 percent over 12 years. For blacks, the median income in 2004 was $38,418 and for 2016 it was $40,065 an increase of only 4.28 percent over 12 years. This amounts to a minuscule average increase of just 0.392 percent a year for all races and 0.350 percent a year for blacks. Of course, the deep recession that started in 2007 held everyone back, but during the recovery, the Treasury stimulated the economy with trillions of dollars of low interest money. Most of that money went to the top 1 percent of earners. So, we can say with confidence that the Bush tax cuts further fattened the rich and did very little, if anything, for anyone else. A 65-year study found that tax cuts do not lead to economic growth.[i] Observe, in the chart below, that the curve that represents incomes for blacks is always below that for all races; this is clear evidence of racism.
Chart created by author using data from the U.S. Census Bureau 2017
The Tax Cuts Will Not Increase the National Debt Because It Will Pay for Itself Lie
Congress tried twice to pass a health care cutback bill that would have increased the number of uninsured persons by 22 million and would have ended Medicaid. It was openly discussed that this was needed to help pay for the tax cuts, so that the tax cuts would not further increase the National debt. But the health care cutback bills were voted down. And guess what? They voted in a tax cut (for the wealthy) anyway. The repeal of the individual mandate will make health insurance unaffordable to 13 million people over a 10-year period, so they got part of what they wanted, but it’s worse than that.
If this were a bill to improve health care, build or replace infrastructure, or create a better safety net for the working class, then there would be loud screams that this would increase the deficit and so there would be no money for it. But the rich paymasters of Congress get whatever they want, regardless of the circumstances. The tax cuts will increase the national debt by about $1 trillion and will further skew the income distribution towards the wealthy. The national debt now stands at about $20 trillion; this will increase it to at least $21 trillion. Who is going to pay? Answer: The ones who always pay! The working class will suffer cutbacks in Social Security, Medicare, Medicaid and other programs. The bosses’ politicians, Democrat and Republican, will use the enormous national debt as a bludgeon to reduce or eliminate programs that assist the working class.
Skewed Income Distributions Cause Social Distress
The United States is the most unequal of all advanced counties for income distribution. Income inequality was greatly worsened by the recession that began in 2007. See chart below.
On December 14, 2017, economists Thomas Piketty, Emmanuel Saez, Gabriel Zucman, Facundo Alvaredo and Lucas Chancel published the inaugural World Inequality Report that documents the rise in global income and wealth inequality since 1980. The report shows the enormous increase in wealth of the top 1% of earners at the expense of the bottom 50% of earners in the United States. See chart below.
Top 1 percent vs. Bottom 50 percent national income shares in the US 1980–2016
A skewed income distribution creates terrible, desperate situations for people. In March 2017, Anne Case and Angus Deaton, both of Princeton University, wrote that deaths of despair (drug overdoses, alcohol related liver disease, and suicide) made mortality rates for people in midlife so great as to overcome mortality improvements for children and the elderly. A study by epidemiologists Richard Wilkinson and Kate Pickett found a direct correlation between social inequality and a series of social ills, including homicides and violent crime, poor school achievement and high dropout rates, teenage births, lower life expectancy and higher infant mortality, obesity, mental illness, and more. There is rampant abuse of opioids. You don’t have to work hard to see the problem. About a mile from where I live, a drugstore has a large sign in its window saying that it will not fill any prescriptions for Oxycodone. The number of deaths from opioid overdoses is increasing all over the country. Recent Centers for Disease Control and Prevention statistics also found a significant rise in the number of deaths due to firearms, to more than 38,000. The mortality rate from gunshot wounds also increased sharply in 2015, after staying relatively constant in previous years. While, as in years past, the vast majority of these deaths were due to suicide, the increase in 2016, however, was mostly due to an increase in homicides.
Interestingly, suicide rates among blacks are half of those of whites. The reason given is: “African Americans score higher on measures of both individualism and collectivism than do whites. Individualism may give them more self-esteem, and collectivistic values offer more community support in times of distress … both of which may play into the lower suicide rates.”[ii]
Compared to other developed countries, the United States is way in front on all measures of social distress. It is simultaneously the most unequal and the most socially distressed. The proposed tax cuts are designed to make the rich even richer, at the expense of the working class, and will cause even more misery.
During the early 20th century, the American ruling class responded to the eruption of class conflict and the threat of socialist revolution, represented, above all, by the Russian Revolution, with social reforms—Roosevelt’s New Deal (including Social Security), increases in taxes on the wealthy, and the Great Society programs of the 1960s (including Medicare and Medicaid).
These measures, however, were implemented within the framework of preserving a social and economic system based on private ownership of the banks and corporations. Furthermore, they were premised on the strength of American capitalism and its dominant position in the world economy, especially in the post-World War II period when the U.S. had little or no competition.
The shift in ruling-class strategy corresponded to a shift in the position of American capitalism. Over the past half-century, the ruling class has sought to offset the decline in its economic position externally through military aggression and internally through the upward redistribution of social resources from the great mass of the population to the financial oligarchy. The results can be seen in the chart above, which shows the top one percent steadily amassing a greater share of wealth and income.
How is the working class going to fight back against cutbacks in living standards and who can it depend upon for help? Can it depend upon the Democratic Party for help? The Democratic Party is generally a party of the liberal bosses. Even this is not historically consistent. Until the 1980s the Southern Democrats were quite racist and conservative. Then, around the mid-1980s many of them joined the Republican Party. Even now, there are some very conservative Democrats. The important thing to observe is that the Democratic Party is one of the two twin parties of the bosses. The two parties have very similar policies and they are NOT for working people. Some examples will make this clearer.
Anti-labor attacks in Wisconsin
In 2011, the State of Wisconsin passed some vicious anti-union laws that curtailed the collective bargaining power of unions, banned teacher strikes, and barred the collection of union dues through workers’ paycheck deductions. Predictably, public-sector union misleaders rushed to sign contracts with most of the economic concessions sought by Wisconsin Governor Walker in order to delay the impact of his anti-union law. But amongst rank and file workers there was talk about a general strike. However, after 3 weeks of protests the momentum for a general strike was dissipated as union misleaders and Democratic Party hacks pressured and cajoled union members to approve contracts that contained at least a 7 percent pay cut in order to keep the dues money coming. A general strike at that time would have been an enormous blow against the bosses and their plans to control and impoverish us. Also, they would not have had to accept a pay cut.
Let’s get some more insight into this from the writings of William Z. Foster, an outstanding 20th century labor leader. Here are some of his views regarding the struggle against the steel trust in 1937.
… a further elementary question of good strike strategy is to proceed upon the general principle of the offensive. Workers like soldiers fight best on the attack. A defensive strike is a losing strike. The steel workers should never allow themselves to be put on the defensive. Every halt must be utilized to organize a new attack and every attack by the employers or the government must be offset by some form of renewed counter offensive.[iii]
He also says:
The steel workers should not trust their cause into the hands of the Roosevelt government [the Democrats]. The government is allied with many great capitalist interests, and it cannot be depended upon to force the steel trust to make a settlement favorable to the workers.[iv]
What happened? The workers put their faith in the Democratic party – a party of the bosses – and halted their movement towards a general strike – on the false promise that they would somehow save the day for the workers. This is precisely what they should never do. The workers can only depend upon themselves and their own struggles to fight the bosses. Also, the last thing you would want in this situation is to kill the momentum towards a general strike. The workers were then on the defensive and squandered an opportunity for an even greater offensive. The governor, Scott Walker, a vile reactionary, was subjected to a recall election in 2012, but the election was bought and paid for (Walker outspent the Democratic candidate, Barrett, $36.1 million to just $6.6 million) and he had no trouble winning the recall election. Even if the Democrat would have won, it is doubtful that he would have done much for the workers because Democrats represent the bosses as well.
Net Neutrality Abolished
Let’s discuss something that happened recently. Net Neutrality was abolished by the Federal Communications Commission (FCC) on December 14, 2017. Millions of people were opposed to this, as it would give Internet Service providers the ability to censor or otherwise slow down internet traffic to some sites while speeding up others – for a price. This makes democracy on the internet a thing of the past. What have the Democrats done? There is no legislation in the U.S. Senate at all. Here is what they did in the U.S. House of Representatives (notice the dates):
H.R.4585 – Save Net Neutrality Act of 2017
|12/07/2017||Referred to the House Committee on Energy and Commerce.
Action By: House of Representatives
|12/07/2017||Introduced in House
Action By: House of Representatives
Source House of Representatives website.
There’s an old saying: “Never listen to what they say, but watch what they do.” The Democrats knew about the FCC vote coming on December 14th for at least 7 months! But they never lifted a finger until December 7th. Just as in the case of the tax bill, there was almost complete silence about any opposition they supposedly had regarding the vote in the FCC to destroy net neutrality. In short, they have done nothing. In general, they cannot be counted on to work on behalf of working people because of their close association with capitalists in many different industries.
Earlier, we posed the question: who can the workers depend upon to help? The answer is non-other than you and your fellow workers! The bosses will do whatever they can to divide you; they will use racism, sexism, and any other form of discrimination to divide the workers. Unity amongst the workers can defeat that. Some of the things that you can do at work include discussing with other workers and trying to organize – this is with or without a formal union; because you and your fellow workers are the union. You can call it a shop committee or some other name. Another thing you can do is to struggle against racism. Don’t tolerate racist put-downs and other such filth. Little struggles can grow much bigger under the right circumstances. Russian typesetters in 1905 were won to revolution when an employer would not pay for punctuation marks!
Appendix A – Some Details of the Tax Bill
A tax cut for the rich: The final plan lowers the top tax rate for high-end earners. Under current law, the highest rate is 39.6 percent for married couples earning over $470,700. The bill would drop that to 37 percent and raise the threshold at which that top rate kicks in, to $500,000 for individuals and $600,000 for married couples. This is a significant tax break for the very wealthy,
A massive tax cut for corporations: Starting on Jan. 1, 2018, big businesses’ tax rate would fall from 35 percent to just 21 percent, the largest one-time rate cut in U.S. history for the nation’s largest companies. It amounts to roughly a $1 trillion tax cut for businesses over the next decade. Conservatives argue this will make the economy surge in the coming years, but most independent economists predict only a modest and short-lived boost to growth.
Working class families get a bigger child tax credit: The child tax credit would be more generous for the working class. The current child tax credit is $1,000 per child. The House and Senate bills expanded the child tax credit, with the Senate going up to a maximum of $2,000 per child. The final bill keeps the $2,000-per-child credit (families making up to about $400,000 get to take the credit), but it also makes more of the tax credit refundable, meaning families that work but don’t earn enough to owe any federal income taxes will get a large check back from the government. Benefits for those families were initially limited to about $1,100, but it’s now up to $1,400.
You can deduct just $10,000 in any combination of state, local and property taxes: Under current law, the state and local deduction (SALT) is unlimited. In the final GOP plan, people can deduct up to $10,000. The House initially restricted the $10,000 deduction to just property taxes, but the final bill allows any combination of state and local taxes to be deducted, whether for property, income or sales taxes. The move is widely viewed as a hit to high tax states such as New York, Connecticut and California, and there are concerns it could cause property values to fall in high-tax cities and leave less money for public schools and road repairs.
The individual health insurance mandate expires in 2019: Beginning in 2019, Americans would no longer be required by law to buy health insurance (or pay a penalty if they refuse to do so). The individual mandate is part of the Affordable Care Act. This part of the law is unpopular, but it helps keep the insurance markets stable while making other, more popular parts of the law work, such as the requirement that insurance companies cover people with preexisting conditions. Removing it was a top priority for Trump and congressional Republicans in their effort to destroy the Affordable Care Act. The final bill does not start the repeal until 2019, though. The Congressional Budget Office projects the change will increase insurance premiums and lead to 13 million fewer Americans with insurance in a decade, while also cutting government spending by more than $300 billion over that period. This might destroy or severely cripple insurance markets in some states, which is also one of the goals of this legislation.
The wealthy can inherit up to $22 million tax-free: The estate tax (often called the “death tax” by conservatives) would remain part of the U.S. tax code, but far fewer families will pay it. Under current law, Americans can inherit up to $5.5 million tax-free ($11 million for married couples). Now the first $11 million that people inherit in property, stocks and other assets will not be taxed ($22 million for married couples). This is a step towards the dynasties of the 19th and early 20th centuries where huge estates passed to heirs without being taxed, as if they were royalty.
“Pass through” companies get a 20 percent reduction: Most American businesses are organized as “pass through” companies in which the income from the business is “passed through” to the business owner’s individual tax return. S corporations, LLCs, partnerships and sole proprietorships are all examples of pass-through businesses. In tax bill, the majority of these companies get to deduct 20 percent of their income tax-free, a large reduction. Service businesses such as law firms, doctor’s offices and investment offices can take only the 20 percent deduction if they make up to $315,000 (for married couples.
Corporate [Alternative Minimum Tax] “AMT” tax abolished: The final bill gets rid of the corporate alternative minimum tax, a big relief to the business community. The corporate AMT makes it difficult for businesses to reduce their tax bill much lower than 21 percent. CEOs complained that this was a backdoor tax that would make them less likely to build new plants, buy more equipment and invest in more research, since the corporate AMT made the tax credits for those investments essentially null and void. However, excess profits are currently being used for dividends and stock buybacks, not for new plants or equipment.
Territorial System: Exempts U.S. corporations from U.S. taxes on most of their future foreign profits, ending the present worldwide system of taxing profits of all U.S.-based businesses, no matter where the profits are earned.
Repatriation of profits made abroad: Sets a one-time mandatory tax of 8 percent for illiquid assets and 15.5 percent for cash and cash equivalents on $2.6 trillion in U.S. business profits currently held overseas. That foreign cash hoard was created by a rule that allowed foreign profits to be tax-deferred if they were not brought into the United States, or repatriated, a tax rule that would be rendered obsolete by the territorial system.
Changes in the home mortgage interest deduction. Residences purchased from Jan. 1, 2018, through Dec. 25, 2025, it caps the deduction for mortgage interest at $750,000 in home loan value. After Dec. 31, 2025, the cap will revert to $1 million in loan value. It also suspends the deduction for interest on home equity loans.
Fewer families will have to pay the individual [Alternative Minimum Tax] AMT: The AMT for individuals started in 1969 as a way to prevent rich families from using so many credits and loopholes to lower their tax bill to almost nothing. But what started out as a way to prevent the wealthiest Americans from tax dodging started to hit more and more families over time. The AMT begins to apply to singles earning over $54,300 and couples earning over $84,500, although nearly everyone who ends up paying the AMT earns six figures. The new tax bill lifts the threshold so very few will have to pay.
The $4,050 individual personal exemption is abolished.
What is NOT changing:
The bill keeps in place the student loan deduction, the medical expense deduction and the graduate student tuition waivers.
Retirement accounts such as 401(k) plans stay the same. No changes to the tax-free amounts people are allowed to put into 401(k)s, IRAs and Roth IRAs.
Religious nonprofits cannot express political views. Churches, synagogues, mosques and other nonprofits (the Johnson Amendment stays in place) can’t get political and endorse candidates in elections. Trump and conservative Republicans wanted to “totally destroy” (Trump’s words) the Johnson Amendment, which has been in place since 1954 and prevents religious institutions and nonprofits from getting involved in elections via fundraising or endorsements. The Senate parliamentarian to determine that including the repeal in the bill didn’t comply with the rules of the Senate.
About the author.
Al Simpson is a mathematician who lives in the United States.
[i] The Atlantic magazine, September 16, 2012, Tax Cuts Don’t Lead to Economic Growth, a New 65-Year Study Finds.
[ii] Suicide rate for minorities much lower, Census data indicate By KELLY BURNS School of Communication University of Miami.
[iii] American Trade Unionism. Principles, Organization , Strategy, Tactics by William Z. Foster. Page 220.
[iv] Ibid. Page 221.