Congress just passed the most consequential tax legislation in over three decades. It’s been sold by the White House as a “middle-class tax cut”, but is it really? What’s actually in this bill? We speak with UNLV Boyd Law Professor Francine Lipman on how federal tax law is changing, and Nevadans can expect from this tax bill in the years ahead.
“[Republicans] are now trying to sell it to the public through soundbites. Unfortunately, it doesn’t fit on a postcard.”
– Professor Francine Lipman, UNLV Boyd School of Law
While the Senate was debating the Trump-GOP Tax Plan bill that the House had just sent them, Senator Dean Heller (R) rose to defend his imminent vote for it. “We’re near the finish line in providing Nevadans the tax relief they deserve,” Heller proclaimed. He then made this accusation against opponents: “If you’re against this bill, you’re against tax cuts for the middle class, as that’s what this bill is all about.”
Professor Francine Lipman, a bona fide tax law expert who was appointed by Governor Brian Sandoval (R) to the Nevada Tax Commission in 2016, takes issue with Heller’s missive. “[Republicans] are now trying to sell it to the public through soundbites. Unfortunately, it doesn’t fit on a postcard.”
While an average worker who makes $50,000 to $75,000 annually can expect an average of $870 in benefits by 2019, those earning $1,000,000 or more get an average benefit of $69,660. Why’s this? In addition to the rate cuts, the bill dramatically changes the rules on deductions. Lipman explained how a higher standard deduction is effectively canceled out by the elimination of various itemized deductions, such as mortgage interest and moving expenses.
“You’ll be in a higher bracket even though the nominal dollars are not that high.”
– Francine Lipman, on the hidden “Chained CPI” tax increase
Despite Donald Trump’s promise of “middle-class tax cuts”, the actual bill that Trump championed directs 82.8% of its benefits to the top 1% of income earners. The bill will also ultimately lead to low and middle-income households paying more in taxes in 2027 while the wealthiest Americans continue to benefit from permanent corporate tax cuts.
In addition, the tax plan contains a hidden time bomb of “Chained CPI” that’s set to detonate in 2027. Lipman explained how “Chained CPI” will result in higher taxes for many middle-class households: “The rates come up, and we’re using a different indexing for inflation, […] so you’ll be in a higher bracket even though the nominal dollars are not that high.”
“Someone has to pay for society. If businesses aren’t doing it, guess who it has to be? Individuals.”
– Francine Lipman
While the personal rate cuts are set to expire in 2025, the corporate rate cuts are permanent. Trump has argued that everyone will ultimately benefit from the corporate tax cuts, but Lipman wasn’t buying it: “It’s counter to empirical research that you’d have that much of a trickle down to individuals.”
One of the provisions tucked deep into this tax bill is “repatriation”, or the allowance of U.S. based multinational corporations to bring back profits they have been storing abroad to be taxed at a far lower rate. Trump has argued that this and the overall change from a worldwide to a territorial based corporate tax system will mean many more jobs for Americans at home. Lipman countered that the less we tax profits that companies hide overseas, the more likely these companies are to hide even more of their profits overseas. According to Lipman, “That is going to bring jobs offshore, not onshore.”
Lipman also noted concern about what this means for the future, as corporations may try to force countries to compete against each other by slashing corporate tax rates further: “[W]hat many of us are concerned about is this will cause a race to the bottom.” Lipman went on, “Businesses are going to keep pushing for even lower rates, yet someone has to pay for society. If businesses aren’t doing it, guess who it has to be? Individuals.”
“When you give tax cuts to someone who has a gross estate of $11 million or more, that additional $4 million won’t be spent. […] It’s not stimulating the economy.”
– Francine Lipman
During his Senate floor speech on Monday, Heller also claimed this tax bill will boost the economy: “If you’re against this bill, you’re satisfied with the anemic 2% growth ushered in by the Obama Administration and accept it as the new normal.” Yet according to Congress’ Joint Committee on Taxation, the Trump-GOP Tax Plan will likely add less than 1% of GDP growth over the next decade, far less than needed for the tax bill to “pay for itself”.
Lipman not only debunked Heller’s and Trump’s claims about economic growth, but she also warned about a deeper, longer-term problem that this tax plan will probably exacerbate. According to Lipman, “Consumer spending grows the economy. […] When you give tax cuts to working and middle-class people, they spend it.”
Lipman continued, “When you give [estate] tax cuts to someone who has a gross estate of $11 million or more, that additional $4 million won’t be spent. […] It’s not stimulating the economy.”
And yet, this is the tax plan that Congress passed, just in time for the winter holidays. As many Americans wonder whether they will have food on the family table or health care for their children, Congress has yet to provide a definitive answer. Still, they managed to pass this tax plan that likely won’t do anything to help these people in need.