There's one really good reason middle-class Americans should hope Trump fails on tax reform

There's one really good reason middle-class Americans should hope Trump fails on tax reform


donald trump steven mnuchinAlex Wong/Getty Images

The failure of Trumpcare — and now an ill-considered attempt at reviving it — have indefinitely delayed President Donald Trump's plans to reform the US tax system. For Wall Street, this is a source of trepidation. For Main Street, it's really good news.

That's because Trump's tax plan overwhelmingly favors the rich, according to various independent analyses.

The Tax Policy Center in Washington says, "The plan would cut taxes at every income level, but high-income taxpayers would receive the biggest cuts, both in dollar terms and as a percentage of income."

That would exacerbate a decadeslong trend that has pushed US inequality to levels not seen since before the Great Depression, almost a century ago.

Screen Shot 2017 04 21 at 6.44.44 AMBusiness Insider/Andy KierszTrump, who campaigned on a populist, pro-worker platform, could seize the moment to introduce changes to the tax code that address the disconnect between soaring corporate profits and CEO compensation on the one hand, and stagnant wages for most workers on the other. That could include substantially higher taxes on the wealthy and a boost to subsidies for the poorest, including an expansion of the earned income tax credit.

"Our findings suggest that tax progressivity changes influence pre-tax income inequality," economists Enrico Rubolino of Uppsala University and Daniel Waldenstrom of the Research Institute of Industrial Economics wrote in a new study. "Focusing on large, progressivity-reducing tax reforms in the 1980s and 1990s, we can show that they had a positive, increasing effect on top income shares in all the countries we studied."

Instead, an administration padded with Goldman Sachs bankers like economic adviser Gary Cohn and Treasury Secretary Steven Mnuchin is pitching the same trickle-down, supply-side economics that has failed Americans for so long. They're even now saying the tax cuts will pay for themselves.

"'Tax reform' will in the end likely just become a deficit-financed tax cut for the rich and corporations that expires in 10 years — a decade of free money for groups that don't really need it and a problem for policymakers to deal with in the future," said Hunter Blair, a budget analyst at the Economic Policy Institute, a liberal think tank in Washington.

epi1Economic Policy Institute

Moreover, Blair says, the notion that tax cuts for the middle class will provide a serious boon to their bottom line is also dubious because stagnant pay, not exorbitant tax rates, is the underlying problem.

"The federal income tax rates faced by middle-class Americans have nothing to do with their struggles to maintain economic security amid stagnating living standards in recent decades," said Josh Bivens, the director of research at the EPI.

epi2Economic Policy Institute

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