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Tell the middle class the truth — this tax plan isn’t for them

Ortbals Headshot 1 1 16By ALAN J. ORTBALS
    Recently, conservative PACs have been running ads in support of the Republican tax reform plan. They all follow a similar vein.
    In one, a mom tells us how her family lives paycheck to paycheck. It’s very stressful, she says, and they just can’t get ahead. She wants Congress to provide tax cuts for middle class families like hers and she’d like to see a simpler, fairer tax code, too. She says closing loopholes will mean that everyone pays their fair share.
    In another, a mom tells us how she read the tax reform plan and that middle class families will save more than $1,200 per year. She says the new tax plan has the good ideas America’s working families need.
    Sounds great! Middle class tax cuts would be a huge boost to the economy. People who have ever lived paycheck to paycheck like the family in the ad know how extra money in their paychecks impacts their lives. Those extra dollars would be spent on goods and services and, when you multiply that by the millions of families who would benefit, it would translate into heightened demand which would in turn translate into business investment and job creation. The more you could cut taxes on the middle class, the bigger the boost to the economy. Unfortunately, the middle class will get a tiny sliver of what Trump boasts will be the biggest cut in American history.
    An analysis by the Tax Policy Center reveals that, yes, there is an average tax reduction of $1,810, but that is highly skewed to the rich. Three-fourths of the tax cuts would benefit the top 1 percent who would keep an extra $213,000 on average. The top one-tenth of 1 percent would receive an average tax cut of a whopping $1.3 million. Meanwhile, households in the middle fifth of the income distribution would average just $260 and those in the lowest fifth would see a whole $50 of extra cash in the pockets — per year not per paycheck.
    The Republican tax plan is just a huge giveaway to the wealthy. It eliminates the Alternative Minimum Tax and the Inheritance and Gift Taxes. It also cuts taxes on pass-through income. Most corporations —  everything from the Illinois Business Journal to Koch Industries — are S corporations or LLCs, etc., and do not pay income taxes. Their profits “pass-through” to the owners and they pay income tax on that revenue at the same rate as their salaries.
    But, under the GOP plan, that passthrough income would be treated differently and taxed at no more than 25 percent. C corps would receive a cut from 35 percent to 20 percent. Also, something that hasn’t garnered much attention are the various taxes levied under the Affordable Care Act to generate money to subsidize the health-care premiums of lower income folks. Those would be eliminated. Assumedly, so would those subsidies. But they shouldn’t worry. They’ll have that extra $50 a year mentioned above.
    This is how trickledown economics works. The idea is that tax cuts for the wealthy will so stimulate the economy that growth will generate more tax revenues for the government than it was receiving before. But the Tax Policy Institute isn’t buying that malarkey (maybe they talked to folks in Kansas). They estimate that this plan will reduce federal revenue by $3.1 trillion over the first decade of implementation and by an additional $2.2 trillion in the second decade. Suddenly, the national debt isn’t such a big deal anymore.
    The Tax Policy Center projects that the national debt will balloon if this plan is implemented and that rising debt will push up interest rates, crowd out private investment and slow growth. They estimate that by 2036 GDP will be 2.6 percent lower than if the tax cuts had not been enacted.
    Back to those PAC ads with the worried moms. Don’t sugar coat it, give it to them straight. If you want to pay off your fat cat political contributors with tax cuts, say so. Since Citizens United, it takes huge sums to get elected and stay in office. They’ll understand that. And if you really believe in trickledown economics despite all evidence to the contrary, say so. But don’t lie to middle class families and tell them that you’re doing this all for them. Sooner or later, they’ll find out that they’ve been had.
    Alan J. Ortbals is president and publisher of the Illinois Business Journal. He can be reached at or (618) 659-1977.

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