A Tax Cut That Makes George W. Bush Look Like a Progressive

The Atlantic | Data: TPC

The upshot: The Trump tax cuts are worse for low-income people, worse for the middle class, and better for the 1 percent (and 0.1 percent) than the tax cuts of the last Republican president. Alternatively, one could say that the Bush tax cuts were twice as generous to the middle 20 percent—and 20 percent less generous to the top 0.1 percent.

So, what would a government policy to help the middle class actually look like?

The most sweeping and effective ideas are also the most politically hopeless. These are proposals like a basic income for all adults or a child allowance for all Americans under 18. They have several benefits. First, they would dramatically reduce poverty. Second—and this is still up for debate—they could grow the economy by putting more money into the hands of cash-needy families. Third, universal programs should please conservatives, because they eliminate the implicit marginal tax rates that come with means-tested programs (i.e., when a raise disqualifies someone from receiving government welfare). But the downside of these programs is obvious, too: They could cost many trillions of dollars. The Trump tax plan could also expand the deficit by several trillion dollars, but it’s improbable that this Republican-controlled Congress would enact anything like a universal basic income.

Imagining a more realistic middle-class tax cut isn’t hard to do. It begins with the acknowledgement that tens of millions of households don’t owe the government anything through the federal income tax, because their incomes are too low. (Most still contribute payroll, state, and local taxes.) A good way for Washington to reduce these families’ tax burden would be to increase tax benefits, like the child tax credit and the Earned Income Tax Credit (EITC), which supplements the wages of lower-income workers and their families.

For example, Representative Ro Khanna has proposed a $1 trillion expansion to the EITC. The plan would give about 50 million households an average tax benefit of roughly $3,000; Americans earning more than $1 million would get nothing. In the graph below, the nonpartisan Center for Budget and Policy Priorities compares the distributional effects of a trillion-dollar EITC expansion versus Trump’s $6 trillion tax cut.

The Trump Tax Cut vs. an Expansion of the Earned Income Tax Credit

Such an EITC expansion would raise by 5 percent the after-tax income of households making less than $30,000. That’s 10 times more than what those households would get under the Trump tax plan. And the program would cost 67 percent less than the Trump tax cuts that go to the 1 percent alone.

The GOP could still revamp its blueprint to help the middle class. Republicans in Congress could reduce the bottom tax rate, expand the EITC, or introduce another benefit that would boost post-tax incomes for middle- and lower-income households. But the current framework does not specifically do any of that. However, it is rather specific about reducing the top individual tax rate (which Trump probably pays each year); about eliminating the Alternative Minimum Tax (for which Trump paid an extra $30 million in his last publicly available tax return); and about cutting taxes for closely held companies (just like Trump’s).

In short, the tax plan is, at best, vague about helping the people it is supposed to benefit and specific about helping people just like the president, for whom it is supposed to, in the words of the Treasury secretary, “hurt.”