American citizens who believe in a fair and equitable tax system should be incensed by the Republican tax plans.
The Republican establishment still fails to understand that our citizens are tired of a government run for powerful corporations and the super-rich instead of our hard-working citizens.
The Republican Senate proposal and the bill that passed the House have some differences but one commonality — they are fraudulently marketed as “middle class tax cuts” when in reality they disproportionately benefit the wealthy and corporations.
Under both the House bill and Senate proposal the maximum corporate rate is cut from 35 percent to 20 percent (a 42 percent reduction) while income tax rates on citizens would be reduced by a much smaller percentage at all income levels. Not only are the corporate rate reductions much larger, they are permanent while the individual rate cuts are phased out after 2025 under the Senate proposal, while the corporate rate reductions are permanent.
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Under the Senate proposal, self-employed individuals with incomes as low as $39,000 would pay a marginal income tax rate of 22 percent (not counting a 15 percent self-employment tax). Yet corporations earning millions would pay a top rate of 20 percent.
Why should hard working citizens earning a middle-class income pay a higher tax rate than Apple, Google or J.P. Morgan Chase? Don’t believe the argument that corporations deserve a rate lower than working people because they will create jobs. A recent Bank of America survey of 300 large corporations found that 65 percent said they would use tax savings to pay down debt or buy back shares, only 14 percent would use the savings to expand their business.
Even to the extent tax savings would be used to create jobs, small businesses and entrepreneurs can use lower taxes to create them just as well as large corporations. In fact, small businesses create more jobs in America in the aggregate than large corporations.
Other aspects of the Republican proposals disproportionately benefit the super wealthy.
They include abolishing the estate tax, which would only benefit the richest wealthiest 0.2 percent of estates, while keeping the “stepped-up basis” rule that allows some capital gains to completely avoid tax. For example,the estate of if a taxpayer at death owns stock that cost $1 million but has a market value of $10 million would completely avoid tax on the $9 million gain. At death his heirs could sell the stock, pocket the $10 million and pay no estate, income or capital gains tax on the $9 million gain.
A case can be made for repeal of the estate tax if the wealth accumulation has been taxed once, but if the estate tax is repealed without also repealing the stepped-up basis rule billions in capital gains will forever escape any taxation. This is criminal.
Here are elements of a tax reform plan that would truly help working class Americans and make our system more fair and equitable:
▪ Progressive tax rates that apply equally to all forms of income — wages, interest, dividends and capital gains, instead of the current system that taxes income from work at higher rates than passive and investment income. For example, a tax rate system beginning with 10 percent on , 15, 20, 25 and 30 percent on incomes of $50,000, rising to 30 percent up $75,000, $100,000, $200,000 and $500,000 respectively up to $1 million and 40 percent thereafter. And no, progressive rates aren’t to punish success, they are necessary to fund the government services our citizens demand and need;
▪ Abolish the payroll tax on wages, funding Social Security and Medicare from general tax revenues;
▪ No preferential rates for corporate taxes — all taxpayers, both corporations and individuals pay the same progressive rates;
▪ A fully refundable per-child tax credit of $5,000 to help American families grow;
▪ Eliminate the deductability of the state and local tax deduction and the mortgage interest deduction on debt over $500,000 — the federal government has no business subsidizing state and local governments nor McMansions;
▪ Preserve estate tax on estates over $20 million and abolition of the stepped-up basis rule for all estates (discussed above) which allows wealthier taxpayers to avoid any tax on capital gains;
▪ And finally, a new idea — a tax credit of $1,000 against wage income for American citizens only.
Our tax system needs reform, but reform focused on helping hard working American citizens, not corporations or the wealthiest among us.
Dan M. Rose and Ron Vissing are the founders of Americans First, Inc.