GOP won't be able to sell its tax bill to the public

Sottotitolo: 
Various polls find less than a quarter of Americans back the new tax plan.

Opposition to the tax cuts in the bill Republicans just passed is at historically high levels and rising, despite the tens of millions of dollars spent on a sales job by the GOP-aligned American Action Network, the Koch brothers-backed Americans for Prosperity and the Sheldon Adelson-funded 45 Committee.

Republicans are sure they will be able to sell their tax bill to the American people once the cuts go into effect. They’ve done the polling and tested various messages to see which will do the most to move the needle on public opinion.

It’s no surprise that the messages that resonate with the public are completely at odds with the true impact of the new tax code. Here are the GOP’s four most effective arguments to sell the tax bill:

1. “Removes and eliminates many loopholes so special interests start paying their fair share."

Not only does this bill leave in place well-known tax dodges, like the carried interest loophole, it creates many new ones. There’s a new loophole for real estate companies so they can pay lower taxes on the rents they collect. Pipeline companies building the contested Keystone XL and Dakota Access pipelines get their own special tax break.

Self-employed financial advisors get a tax break denied to their colleagues working at financial institutions. Every wage earner that can find a way to become a partnership will be eligible for new special tax advantages. The alternative minimum tax, that used to assure that profitable corporations paid some tax, has been repealed.

2. “Levels the playing field for American businesses to better compete against foreign competition.”

Very few large corporations ever paid the 35 percent tax rate. The 21-percent rate enshrined in the new tax code is very close to what large businesses already paid, on average. But here’s the rub; some of these companies assigned the profits they earned to offshore entities.

Bringing them back to the U.S. would have triggered the 35-percent rate. Now the estimated $2.6 trillion in profits held offshore will be taxed at 15.5 percent on cash and 8 percent on equipment if they are brought to the U.S.

In the future, corporations would pay about 10 percent in taxes on offshore profits higher than a “routine rate of return” on assets like factories, call centers and equipment. The more of these a company locates overseas, the more income it can earn tax-free

Corporations now have even more incentives to move their operations to foreign locations. This will increase the after-tax profits of these companies, but not because their U.S. operations are better able to compete with foreign firms. Their U.S. operations will shrink, to the detriment of American workers whose jobs are on the line. 

3. “It’s estimated that more than one million jobs would be created over the next 10 years with higher wages for workers.”

One million jobs sound like a big number and may impress the public. What most people don’t know is that the economy added more than a million jobs in just the first six months of the Trump administration and is on track to finish 2017 with about 2 million additional jobs — the same as the 2 million-plus jobs added in each of the last six years of the Obama administration.

As White House National Economic Council Director Gary Cohn learned at a Wall Street Journal ‘CEO Council’ meeting, these corporations are not planning to use their tax savings to increase investment and create more high paying jobs.

Instead, they plan to use them to increase dividends and buy back company stock. This will make their wealthy investors even richer, but there is unlikely to be much in the way of additional job creation or wage increases as a result of this tax bill.

4. “Simplifies and reduces taxes for most Americans by doubling the standard deduction.”

The largest tax cuts will go to the wealthiest Americans and have nothing to do with the doubling of the standard deduction. For example, the new tax code lets the federal government double-tax income that taxpayers spend on state and local taxes.

The very richest people living in these high-tax states get a special break — their top marginal tax rate has dropped from 39.6 percent to 37 percent to make sure their taxes don’t go up. Not so for families in high-tax states headed by a police officer and a nurse, for instance. They will pay higher taxes now that the Republican tax bill is law. 

The standard deduction has been doubled and this will result in a temporary tax cut for many households, with most low- and middle-income households getting a break, at least until this provision sunsets in 2026. But not even all of these households benefit. That’s because the personal exemption has been eliminated.

For a four-person family with two young children, the increase in the standard deduction and the loss of the personal exemption are largely a wash. Not much in the way of a tax saving, but also no tax increase. For a family with three or more children, however, the loss of the personal exemption means they are likely to see a tax increase.

In 2027, following the 2026 expiration of the tax changes in the personal income tax code, half of the taxpayers will face a tax increase.

Democrats can easily rebut the false claims Republicans plan to make about who benefits from their changes to the tax code if they focus on better reasons to increase the deficit than making the rich even richer.

Eileen Appelbaum

Senior Economist at Center for Economic and Policy Research
Senior economist at the Center for Economic and Policy Research(Washington)and coauthor of Unfinished Business: Paid Family Leave in California and the Future of U.S. Work-Family Policy.(appelbaum@cepr.net)