As conservatives have taken over the legislative and executive branches of the federal government, the question of tax reform has emerged with full force. Tax reform is one of the major pillars of the conservative movement. According to Corey Robin, political scientist and commentator, it is even baked into the reasoning behind repealing the ACA, as repealing Obamacare entails huge tax cuts for upper echelon earners. Now, heading into another fiscal year, Republicans are ramping up for major changes to the tax system. One important question surrounding this movement is that of the divergent forms of taxation for investors and workers.
Widening Gap
Starting in the 1980s, investors and workers were put on the same level in terms of taxation. But since then, taxes have been transformed to benefit the former, while leaving the latter in the dust. This is part of the reason 99 percent of new income currently belongs to the top 1 percent. Investors make more and more money and are held back by fewer and fewer tax constraints, while workers’ wages have remained virtually unchanged for nearly forty years.
Specifics
In a Bloomberg report, it is made clear that a working doctor making $300,000 annually would pay $38,500 more in taxes than an heir making money through long term capital gains – that’s assuming there are no additional deductions. The heir also can also lower his tax burden through various strategies. In fact, the heir can avoid paying $24,000 in taxes. The doctor in this scenario has no such option.
Furthermore, according to Bloomberg, an investor making billions of dollars could pay the same tax rate as a worker making $40,000 a year. This is the result of years of legislative efforts to curtail tax constraints on long-term investments. And if Paul Ryan’s effort to reduce the tax filing system to a postcard prevails, workers will assuredly pay twice as much in taxes as their investor counterparts.
The Future
The tax reform plan, as it currently stands, is a matter of much debate. According to Forbes, the plan has gaping holes. Though the plan calls for fewer tax brackets, it doesn’t indicate what income levels those brackets would contain. Many rail against the plan due to its favoring the rich. However, it is entirely unclear whether the capital gains tax will remain as low as it is.
Conservative Narrative
Kevin Hassett, the chief economist at the White House, argues that the plan would greatly benefit workers, claiming that reducing the corporate tax rate from 35 to 20 percent would help increase the average income by $4,000 in the short term and $9,000 in the long term. Additionally, according to Hassert, the plan would likely result in 3 percent overall growth, a much sought after metric for conservatives.
His projection relies on an old trick. Hassert claims, with conservatives, that employees also suffer from corporate taxes. In fact, Hassert asserts that they share 50 percent of the burden. Thus, reducing corporate taxes would raise wages. But other, nonpartisan, organizations (like the Tax Policy Center) take another point of view. They estimate that workers only take on 20 percent of the corporate tax burden, which means they are not affected by corporate rates. Thus, wages would remain unaffected. The Tax Policy Center also estimates that the GOP plan would result in a major ballooning of the federal deficit and that the those with high incomes would be the main beneficiaries of the plan.
In short, under our current system, workers tend to get short shrift when it comes to taxation. That situation will likely get worse under the proposed GOP plan. Whether conservatives can successfully pass the tax plan is another question entirely.
Leave a Comment