The Trump Administrations Main Legislative Accomplishment Is A Hugely Regressive Tax Cut
The tax bill that President Trump signed into law in 2017 dramatically cut taxes for wealthy individuals and corporations. It slashed the top individual income tax rate, carved out a special new deduction mainly benefiting wealthy business owners, gutted the tax on large inheritances, and significantly reduced taxes on corporations. Taken together, the changes this law made will dramatically reduce tax bills for the very wealthy, leaving the working and middle class with little benefit. In 2020, the average household in the 1 percent will receive a tax cut of $50,00077 times larger than the average cut for the bottom 80 percent of Americans.
Interference With Irs Audit
On July 29, 2019, a career IRS official filed a whistleblower complaint with the House Ways and Means Committee, Senate Finance Committee, and Treasury Inspector General for Tax Administration, stating that at least one Treasury Department official had inappropriately interfered in the audit process for the tax returns of the president and vice president, which takes place annually in accordance with IRS policy. The possibility that political appointees interfered with audits conducted by career civil servants alarmed former IRS officials and legal experts. Due to stringent laws regarding disclosure of tax information, the details of the complaint have not been made public. However, Representative Richard Neal, the Democratic chair of the House Ways and Means Committee, said in September 2019 that he was consulting legal counsel on whether the whistleblower’s complaint could be publicly released.
The whistleblower’s report was referred to by Neal and other House Democrats in the federal lawsuit regarding Trump’s refusal to comply with a House Ways and Means Committee subpoena for the returns in a filing, Neal wrote that the whistleblower’s complaint presents credible evidence of potential inappropriate efforts to influence “the mandatory audit program” and raises “serious and urgent concerns”, thereby bolstering the committee’s case for obtaining the tax returns.
Trumps New Capital Gains Tax Proposal Would Give 99 Percent Of Its Benefits To The Top 1 Percent
President Trump has recently floated a proposal to cut the top capital gains ratea tax paid on the profit received from selling a capital asset such as stocks, bonds, or propertiesfrom 20 percent to 15 percent. Capital gains taxes already receive preferential tax treatment compared with ordinary income from wages or salaries. According to IRS data from 2018, only the wealthiest 0.8 percent of Americans had any capital gains or dividends in the current 20 percent tax bracket. As such, cutting the top rate on these assets would almost exclusively benefit the wealthy. The Institute on Taxation and Economic Policy estimates that a full 99 percent of the tax cut would go to the richest 1 percent.
The uber-wealthy within the top 1 percent would see the largest benefits from each of these two policies. According to a Center for American Progress analysis based on 2017 tax data, if the top capital gains rate were reduced to 15 percent and the net investment income tax were repealed as part of the Trump administrations efforts to repeal the ACA, the highest-income 0.001 percent of Americansthose with incomes exceeding $63.4 million per yearwould receive a windfall of nearly $14 billion: an average tax cut of more than $9.6 million per person.
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How Did We Get Here
The investigation began in 2018, when Mr Trump was still president.
At first, the investigation examined the Trump Organization’s role in hush-money payments made during the 2016 presidential campaign to two women who said they had had affairs with Mr Trump.
Michael Cohen – Mr Trump’s former personal lawyer – was jailed for his role in the scheme under federal, or national, laws in 2018.
Meanwhile, the district attorney has been assessing whether the Trump Organization broke any state laws in New York in relation to the payoffs.
So that’s it? No, not quite.
The investigation has widened to include other possible crimes.
The New York Times, citing unnamed sources, said last year that Mr Vance, the district attorney at the time, had “been examining whether Mr Trump, his company and its employees committed insurance, tax and banking fraud, among other crimes”.
This is where the tax and financial records come in.
The investigating team needs them to establish if any crimes have been committed.
For months they have been trying to obtain eight years’ worth of Mr Trump’s personal and corporate tax returns.
In July 2020, the Supreme Court ruled that Mr Trump’s records could be examined by the prosecutor’s office.
But lawyers representing Mr Trump challenged that ruling, suggesting that the court filing was “wildly overbroad” and issued in bad faith.
On 22 February last year, the court rejected that argument.
Increases Income And Wealth Inequality
“Overall, the combined effect of the change in net federal revenue and spending is to decrease deficits allocated to lower-income tax filing units and to increase deficits allocated to higher-income tax filing units.–Congressional Budget Office“
The New York Times editorial board explained the tax bill as both consequence and cause of income and wealth inequality: “Most Americans know that the Republican tax bill will widen economic inequality by lavishing breaks on corporations and the wealthy while taking benefits away from the poor and the middle class. What many may not realize is that growing inequality helped create the bill in the first place. As a smaller and smaller group of people cornered an ever-larger share of the nation’s wealth, so too did they gain an ever-larger share of political power. They became, in effect, kingmakers the tax bill is a natural consequence of their long effort to bend American politics to serve their interests.” The corporate tax rate was 48% in the 1970s and is 21% under the Act. The top individual rate was 70% in the 1970s and is 37% under the Act. Despite these large cuts, incomes for the working class have stagnated and workers now pay a larger share of the pre-tax income in payroll taxes.
In 2027, if the tax cuts are paid for by spending cuts borne evenly by all families, after-tax income would be 3.0% higher for the top 0.1%, 1.5% higher for the top 10%, -0.6% for the middle 40% and 2.0% for the bottom 50%.
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Explaining The Trump Tax Reform Plan
Lea Uradu, J.D. is graduate of the University of Maryland School of Law, a Maryland State Registered Tax Preparer, State Certified Notary Public, Certified VITA Tax Preparer, IRS Annual Filing Season Program Participant, Tax Writer, and Founder of L.A.W. Tax Resolution Services. Lea has worked with hundreds of federal individual and expat tax clients.
For most people, tax season comes to a close on April 15 each year. In 2019, many taxpayers were surprised to find they had to pay more taxes than the previous year, while others received significantly lower refund checks from the Internal Revenue Service even though their financial circumstances didn’t change.
Many tax specialists and accountants urged their clients to update their withholdings in order to avoid a hefty bill at tax time.
But how did this happen? Let’s take a closer look at President Trump’s changes to the tax codethe largest overhaul made in the last 30 yearsand how it impacts taxpayers and business owners.
Tax Cuts And Jobs Act Of 2017Tax Cuts and Jobs Act
|Long title||An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018|
Some critics in the media, think tanks, and academia assailed the law, mainly based on forecasts of its adverse impact , disproportionate impact on certain states and professions and the misrepresentations made by its advocates. Some of the reforms enacted by the Republicans have become controversial within key states, particularly the $10,000 cap on state and local tax deductibility, and were challenged in federal court before being upheld. According to an aggregation of polls from Real Clear Politics, 34% of Americans were in favor of the new plan, 39% not in favor, and 28% unsure.
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If The Trump Administration Succeeds In Repealing The Aca The Wealthy Would Get More Tax Cuts While More Than 20 Million People Would Lose Health Coverage
The Trump administration is actively backing a lawsuit pending before the U.S. Supreme Court that would repeal the Affordable Care Act in its entirety. If the administration is successful, it would likely eliminate the taxes that funded the laws expansion of health coverage, including a tax on high-income individuals investment income and earnings and a tax on pharmaceutical drug companies. The Tax Policy Center estimates that more than half of the tax cuts resulting from the ACAs elimination would go to taxpayers in the top 1 percent, and more than 86 percent would go to the top quintile. The biggest beneficiaries from this change would be Americas billionaires, who have only gotten wealthier over the course of the year: The wealthiest 100 billionaires have seen their fortunes grow by more than $400 billion combined since the start of 2020. If the ACAs tax on investment income is repealed, they would each receive a massive windfall on their gains accrued in 2020reducing their collective tax bill by more than $16 billion. Working- and middle-class Americans, on the other hand, would see negligible tax cuts, while those who are currently receiving tax credits to help them afford health insurance would face much higher premiums, if insurance is available to them at all.
Dueling Tax Plans: House Vs Senate
Under the House plan, a portion of net income distributed by a pass-through entity to an owner/ shareholder may be treated as capital attributable to the business and subject to a maximum rate of 25%. The remaining portion of net business income would be subject to ordinary tax rates. To avoid abuse, owners can elect to apply a capital percentage of 30% to net income to determine the amount of business income eligible for the 25% rate. The remaining 70% would be characterized as earned income/compensation subject to ordinary individual tax rates. This has the effect of reducing the top rate on flow-through income from 39.6% to 35%.
The Senate version for pass-through businesses is dramatically different by focusing more on tax cuts. Its plan allows individual taxpayers to deduct 17.4% of qualified business income. This deduction is limited to 50% of wages paid to the owner by the business to discourage owners from not paying wages in favor of flow-through income taxed at a lower rate. This has the effect of reducing the top rate on flow-through income from 38.5% to 32%.
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Who The Expanded Child Tax Credit Helped
The Tax Cuts and Jobs Act of 2017 greatly expanded the child tax credit . The maximum value of the CTC doubled from $1,000 to $2,000 per child, and it increased the income limits so that more taxpayers could qualify.
IRS data from February 2020, shows that the CTC was claimed on 31.4 million more tax returns in 2018 than 2017. That means the child tax credit was claimed 478% more after Trumps tax reform. The biggest increase came from tax returns with an AGI of less than $10,000. However, all AGI ranges up to $500,000 claimed the CTC significantly more.
However, the expanded child tax credit still may not have helped everyone for two main reasons:
Low-income individuals claimed the additional child tax credit less, so they may not have gotten the full value of their CTC.
The CTC may have been needed by some taxpayers just to offset the loss of the personal exemption.
Internal Revenue Code Of 1986
References to the Internal Revenue Code in the and other statutes of Congress subsequent to 1954 generally mean Title 26 of the Code as amended. The basic structure of the Title 26 remained the same until the enactment of the comprehensive revision contained in , although of course individual provisions of the law were changed on a regular basis.
Section 2 of the provides :
- Redesignation of 1954 Code. â The Internal Revenue Title enacted August 16, 1954, as heretofore, hereby, or hereafter amended, may be cited as the “Internal Revenue Code of 1986”.
- References in Laws, Etc. â Except when inappropriate, any reference in any law, Executive order, or other document â
- to the Internal Revenue Code of 1954 shall include a reference to the Internal Revenue Code of 1986, and
- to the Internal Revenue Code of 1986 shall include a reference to the provisions of law formerly known as the Internal Revenue Code of 1954.
Thus, the 1954 Code was renamed the Internal Revenue Code of 1986 by section 2 of the . The 1986 Act contained substantial amendments, but no formal re-codification. That is, the 1986 Code retained most of the same lettering and numbering of subtitles, chapters, subchapters, parts, subparts, sections, etc. The 1986 Code, as amended from time to time , retains the basic structure of the 1954 Code.
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A Change In Priorities
This increase in the federal debt means that formerly budget-conscious Republicans in Congress have done an about-face on fiscal policy.
For example, in 2011, Republicans supported the Budget Control Act, which automatically cut spending across the board between 2013 and 2021. These mandatory spending cuts were called “sequestration.”
In 2013, Republicans threatened to not raise the debt ceiling to force budget cuts. That would have forced the U.S. to default on its debt. Fortunately, better-than-expected revenue meant that the debt ceiling debate was postponed until the fall.
In these instances, congressional Republicans were focused on limiting debt and deficit growth at the expense of government functioning. However, with the TCJA, Congress passed a law that significantly increased both deficit spending and the federal debt.