Trump’s Great Middle-Class Tax Cut: A Nothingburger?

President Donald Trump often uses superlatives to describe deals that he proposes. So why should “the biggest tax cut in history” being drawn up by House and Senate Republicans be any different?

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Should the tax bill currently being considered by Congressional Republicans pass, it will rank far behind the tax cut in 2013, and possibly the ones in 2010 and 1981. But why quibble?

By far, the most important part of the bill is lowering the income tax rate paid by large corporations from 35 percent to just 20 percent. This will certainly make American goods and services considerably more competitive in the global marketplace.

A secondary effect will be to raise the wages of the tens of millions of people working for these companies. Estimates range from a few hundred dollars a year to several thousand dollars.

Despite the promises of a large tax cut for the middle class, the lion’s share of the cuts will clearly go to the rich and the near-rich. Because these folks hold most of the corporate stock, they will benefit the most from the rise in corporate after-tax profits.

The estate tax will be lowered or eliminated for the richest five or ten thousand American families, and the so-called small business pass-through tax reduction may provide a windfall not just to small business owners, but to millions of well-healed doctors, lawyers, and accountants, who may be able to cut their tax bills by about one-third.

The alternate minimum income tax, which falls entirely on the rich and the near-rich, will very possibly be eliminated – saving some families tens of millions of dollars.

And finally, the tax cut will give the stock market a tremendous shot in the arm. Initially, corporations holding hundreds of billions of untaxed profits overseas will bring most of those funds home. Rather than use these funds to hire new workers, these companies will raise dividends, buy back stock, and raise the salaries of their top executives.

So how will “the largest tax cut in history” affect our economy? Most likely, it will provide a mild stimulus, perhaps raising our annual rate of economic growth by a couple of tenths of a percent. And middle-class Americans will be left to wonder when more of the benefits from this great middle-class tax cut will trickle down to them.

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.