Ugly numbers of Trump’s tax cuts serve a warning for Scott Morrison

Finance & Tax||
Trump's tax cuts favour the rich
Image: Alex Anstey

Radical Republicans rammed the Trump tax law through Congress without a single hearing or Democratic vote. And the results, which you won’t see in major news organisations, are in: the rich made out like bandits and the rest got three-fifths of bugger all, writes David Cay Johnston.

Donald Trump claims he is the champion of the “forgotten man” and vows that “every decision” on taxes “will be made to benefit American workers and American families”.

The first tax data is now available for the first year of the radical Republican tax system overhaul that was passed in December 2017. The Trump tax law, the most significant tax policy change since 1986, was passed without a single public hearing or a single Democratic vote.

The data show the poor and working classes sinking slightly, the middle-class treading water, the upper-middle class growing and the richest luxuriating in rising rivers of greenbacks.

Rich luxuriate in greenbacks

Trump policies overwhelmingly favour the top 7% of Americans. And, oh, do they benefit! The number of households enjoying incomes of $200,000 or more soared by more than 20%, while the number of taxpayers making $10 million or more soared 37% to a record 22,112 households.

The figures come from my annual analysis of Internal Revenue Service data known as Table 1.4. The income figures are pre-tax money that must be reported on tax returns. I adjusted the 2016 data to reflect inflation of 4.1% between 2016 and 2018 (slightly more than 2% a year).

More than half getting by on even less

In 2018 more than half of Americans had to make ends meet on less money than two years earlier, my analysis shows. The nearly 87 million taxpayers making less than $50,000 had to get by on $307 less per household than in 2016, the year before Trump took office.

For those making between $50,000 and $100,000, their annual income taxes declined on average by $143. For those declaring $500,000 to $1 million, their tax reduction averaged $17,800.

Put another way, a group that made nine times as much money enjoyed about 125 times as much in income tax savings.

This disparity helps explain Trump’s support among money-conscious high-income Americans. But given the tiny tax benefits for most Americans, along with cuts in government services, it is surprising Trump enjoys significant support among people making less than $200,000.

Trump’s claims taken on face value

But none of the biggest news organizations do this kind of analysis, at least not since I left The New York Times a dozen years ago. Instead, the major organisations quote Trump’s claims without citing details.

The figures I cite actually understate actual incomes at the top for two reasons. Loopholes and Congressional favours allow many rich and super-rich Americans to report much less income than they actually enjoy. Often they get to defer for years or decades reporting income earned today.

Second, with Trump’s support Congress has cut Internal Revenue Service staffing so deeply that the service cannot pursue the growing armies of rich people who have stopped filing tax returns. The sharp decline in IRS auditing means tax cheating — always a low-risk crime — has become much less risky.

No action on rich tax cheats 

In the three years ending in 2016, the IRS identified 879,415 high-income Americans who did not even bother to file a return. These tax cheats owed an estimated $45.7 billion in taxes, the treasury inspector general for Tax Administration reported on May 29.

Under Trump more than half a million cases of high-income Americans who didn’t file a tax return “will likely not be pursued”, the inspector general wrote.

One of the Koch brothers was under IRS criminal investigation until Trump assumed office and the service abruptly dropped the case. DCReport’s five-part series last year showed that William Ingraham Koch, who lives one door away from Mar-a-Lago, is collecting more than $100 million a year without paying income taxes.

Services go to pay for tax cuts

At least $1.5 trillion will be added to federal debt because Trump’s tax law falls far short of paying for itself through increased economic growth even without the pandemic. Most of the tax savings were showered on rich Americans and the corporations they control. Most of the negative effects fall on the middle class and poor Americans in the form of Trump’s efforts to reduce government services.

The new tax data also shows a sharp shift away from income from work and toward income from investments, a trend that bodes poorly for working people but very nicely for those who control businesses, invest in stocks and have other sources of income from capital.

Overall the share of American income from wages and salaries fell significantly, from almost 71% in 2016 to less than 68% in 2018.

There’s one more enlightening and perhaps infuriating detail. The number of households making $1 million or more but paying no income taxes soared 41% under the new Trump tax law. Under Obama, there were just 394 such households. With Trump, this grew to 556 households making on average $3.5 million without contributing one cent to our government.

Again, Trump seems to have forgotten all about the Forgotten Man. But he’s busy doing all he can to help the rich, then stick you with their tax bills.

Radical Republican tax cuts are bankrupting America

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