Back in the 1950s and 1960s, our nation had a much more even distribution of income. There were, of course, a substantial number of rich people, a very large number of poor people, but we were very much a middle-class nation. A blue-collar worker could not just support his family while his wife stayed home to take care of their children, but they could afford a new home in the suburbs, and the children could look forward to being the first in their family to go to college.
Since then, our nation’s income distribution has been growing increasingly unequal. The tax bill just passed by Congress has been hyped as a great middle-class tax cut.
But most of the benefits will be going to large corporations — which are owned primarily by the rich – and to rich individuals as well. Most other Americans will receive relatively small tax cuts, which might be termed veritable “chump change.”
But not to worry: in the coming years, as our rate of economic growth rises sharply, the benefits of the tax cut will “trickle down” to middle- and working-class Americans. Yeah, right.
The tax cut has also been billed as “tax reform.” Indeed, doing our income taxes will become so quick and easy that most of us will be able to do them on a form the size of a post card.
However well intentioned, this claim turned out to be still more hype. And yet, this new legislation does provide some measure of tax simplification.
The main reform is the almost doubling of the standard deduction for both single taxpayers and for couples. That, together with the curbing of some deductions, will encourage millions of Americans to stop itemizing their deductions.
Currently, about 30 percent of all households still itemize, a process which requires filling out additional tax forms. Next year, just 5 or 6 percent will itemize, while the rest of us will opt for the standard deduction with its accompanying short form.
Even so, if tax reform is synonymous with tax simplification, then how do the law’s framers justify the dozens of additional tax loopholes they have added to aid a plethora of special interest groups such as citrus growers and craft beer brewers? These loopholes will not just add billions of dollars to the federal deficit, but thousands of pages to the voluminous Internal Revenue Code.
This brings us to the bottom line. The new law will not provide a substantial tax cut to middle- and working-class families. But it will make doing their taxes a lot easier.
About the Author
Steve Slavin has a PhD in economics from NYU, and taught for over thirty years at Brooklyn College, New York Institute of Technology, and New Jersey’s Union County College. He has written sixteen math and economics books including a widely used introductory economics textbook now in its eleventh edition (McGraw-Hill) and The Great American Economy (Prometheus Books) which was published in August.