Both sides of the divide agree — income inequality in the U.S. is out of control and something needs to be done about it. This was the key issue that propelled the popular campaign of Bernie Sanders, and candidates as diverse as Ted Cruz and Hillary Clinton believe it’s a major problem. Boldly, Barack Obama stated that he believes income inequality is “the defining challenge of our time: Making sure our economy works for every working American.” When unveiling the tax “reform” plan Trump described it as a way to “cut taxes for the middle class.”
As top earners garner a greater and greater portion of the nation’s wealth, wages for this group continues to ascend; for everyone else, wages have stagnated or gone down. Factor in cost of living increases like rent, healthcare, and other basic necessities, and the picture looks even worse. The top 20% of earners in the U.S. currently garner 53% of the income share, up from 43% in 1979.
Given the rhetoric around income inequality in the U.S.one could be forgiven for being surprised at the current plan (Senate or House) which will unabashedly make the disparities even larger. With other types of policy it’s not always as clear who the winners and losers will be, but tax policy provides no place to hide from the numbers.
Based on both parties’ positions on income inequality, we would expect a tax plan that at least allocates the same percentage of benefits to each income tax group, even if more dollars flow to the top. An argument that allocates more benefits to lower-income families would also make perfect sense. As even Ronald Reagan’s former economic advisor, Bruce Bartlett, puts it, a tax plan:
“…should be distributionally neutral — that is, you shouldn’t help one income class more than the others, and you sure — certainly shouldn’t penalize people at the low end of the economic spectrum.”
Instead, we’ve gotten a plan that is (im)precisely engineered to further exacerbate income inequality in the U.S. The primary cost of the plan is for corporate tax cuts, the benefits of which will flow to CEO’s, managers, and large holders of stock — e.g. rich people. As the New York Times notes:
In 2004, Congress invited American corporations to bring home overseas earnings at a sharply reduced rate, pitching it as a means of bolstering investment. But the corporations spent as much as 90 percent of their windfall buying back their shares, according to Bureau of Economic Analysis research.
In addition to corporate welfare, the plan is skewed to primarily benefit wealthy individuals. The Tax Policy Center finds that “higher income households receive larger average tax cuts as a percentage of after-tax income, with the largest cuts as a share of income going to taxpayers in the 95th to 99th percentiles of the income distribution.” Strikingly, by 2027, tax relief would evaporate for the lowest quintile while the top .1 percent of the income distribution receives the biggest slice of the benefits.
The cherry on top of this shit cake is a (potential) repeal of the Obamacare mandate, which will cause premiums to go up and more medically-induced individual bankruptcies. These are costs not worth saving to provide tax relief for those who don’t need it.
I am not saying that income inequality rhetoric has had no effect — in fact, non-Fox media coverage and the primary lens through which the proposed tax has been viewed is its distributional impact. This is a success. But, critically, it has not translated into a legislative priority.
Both parties’ inability to meaningfully address this issue likely comes down to who funds campaigns with increasingly alarming sums — corporations and the wealthy. The next president should make it his or her top priority to reform the financing of campaigns to dramatically reduce funding from outside interest groups, individuals, and corporations. Trump‘s call to “drain the swamp” should be taken up by someone who actually means it.
Otherwise, we’ll keep getting laws most people would not vote for.
