Politics & Government

Democrats plot ‘collision course’ with Trump’s tax plan

In this photo March 22, 2013 file photo, the exterior of the Internal Revenue Service (IRS) building in Washington. Politicians love trying to use the tax code to highlight their goals to voters.
In this photo March 22, 2013 file photo, the exterior of the Internal Revenue Service (IRS) building in Washington. Politicians love trying to use the tax code to highlight their goals to voters. AP File

Congressional Democrats say they’ll try to thwart Republican plans to overhaul the U.S. tax code by portraying them as a boon for the rich that betrays President-elect Donald Trump’s campaign promise to fight for working Americans.

“There’s going to be opposition if these tax cuts are directed to the people at the top again,” said Rep. Richard Neal, D-Mass., who represents his party’s first line of defense as the ranking Democrat on the House’s tax-writing Ways and Means Committee. “We’re going to be pretty united.”

Neal and others say they’ll zero in on upper-income tax breaks pitched by Trump and Republican House leaders in an attempt to make it politically difficult for them to support large parts of the emerging plans. Their initial comments suggest that the 115th Congress, which convenes Jan. 3 with a Republican-led agenda of instituting a broad tax overhaul and repealing Obamacare, will be peppered with debate over income inequality.

Trump and House Speaker Paul Ryan of Wisconsin have endorsed across-the-board cuts in individual income tax rates. After Republicans took the White House and kept majorities in Congress in November’s elections, both say they aim to achieve the most far-reaching overhaul of the U.S. tax system in a generation. Details remain to be filled in; for example, Ryan and others envision significan changes for corporate taxation that Trump’s economic team has yet to embrace.

Trump has sought to portray his plan as a pro-growth simplification of the tax code that would benefit the middle class. In a “Contract with the American Voter” published before the election, his campaign said of his proposal: “The largest tax reductions are for the middle class.”

Democrats plan to challenge this claim. “His populist image and the reality of his policies are on a collision course,” said Rep. Keith Ellison of Minnesota, a candidate for Democratic National Committee chairman. “And they’re going to crash.”

Consider two major provisions on which Trump’s and Ryan’s plans agree: First, they’d compress the existing seven individual tax brackets to three, cutting rates generally across the board. Yet the largest cut would be in the top rate, to 33 percent from 39.6 percent. That rate applies only to those with incomes well within the top 1 percent. Second, their plans would abolish the estate tax, which applies only to estates worth more than $5.45 million for individuals and $10.9 million for couples. Data from the Internal Revenue Service and the U.S. Census Bureau show that far less than 1 percent of the people who die each year pay any estate tax.

An independent analysis of House Republicans’ “blueprint” found that while households at all income levels would pay less tax, “the highest-income households would receive the largest cuts, both in dollars and as a percentage of income.” After-tax incomes of the very rich — the top 0.1 percent of U.S. earners, or those with incomes over $3.7 million – would rise by almost 17 percent. At the same time, the bottom three-fifths of households would gain on average 0.5 percent or less, according to the analysis by the Tax Policy Center, a a joint venture of the Urban Institute and the Brookings Institution. Three quarters of the total tax cuts would go to the top 1 percent, that study found.

Another study of the House Republicans’ plan, by the more conservative Tax Foundation, came to a similar, if less pronounced, conclusion: On a “static” basis – that means, without accounting for the tax plan’s effects on the larger economy – after-tax income of the bottom 80 percent of taxpayers would increase no more than 0.5 percent, while it would increase 5.3 percent for the the top 1 percent. After factoring in macroeconomic effects, the Tax Foundation ffound that for all taxpayers after-tax income would increase at least 8.4 percent — but the top 1 percent would get 13 percent more .

Democratic leaders haven’t proposed a tax plan to counter the House Republican proposal. Neal said Democrats intend to introduce alternatives soon but didn’t provide details, saying only that any tax breaks should be targeted at the middle class.

The party will draw lessons from earlier fights when it was able to block changes despite lacking control of the White House and Congress, said Drew Hammill, deputy chief of staff for House Minority Leader Nancy Pelosi of California. He cited the example of Democrats defeating Republican efforts to privatize Social Security in 2005.

Replicating that feat may prove difficult. Democrats successfully framed the privatization push as one that would imperil the popular program and hurt senior citizens’ benefits, while their opponents struggled with internal divisions over the plan. Republicans today are more united, at least in principle, when it comes to reducing taxes.

Moreover, the tax plan’s promise of rate cuts for all may be attractive enough to survive arguments that it favors those with higher incomes.

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