The Broken Promises of the Congressional GOP Tax Plan
By Seth Hanlon, Alex Rowell and Galen Hendricks
House and Senate Republicans struck a final deal on their tax plan this past Friday, and plan to jam the bill through both chambers this week. The final bill breaks numerous promises that President Trump and Congressional Republicans have made to their constituents and the American public. Below is a list of just some of the claims and promises they made and how the final tax bill breaks those promises:
CLAIM — Trump: The Rich Will Not Benefit from Tax Plan
In September, President Donald Trump stated that rich Americans “will not be gaining at all” from his tax reform plan. This has been a long-standing claim from the administration. During a November interview after Trump’s election, Treasury Secretary Steven Mnuchin set a rule for tax reform: “there would be no absolute tax cut for the upper class.”
REALITY — The Richest Americans in Every State Get a Large Tax Windfall
Every iteration of the Trump tax plan and Congressional majority tax bills have showered enormous tax cuts on the wealthy, and the final bill is no different.
The conference report confers large tax cuts on the richest 1 percent in every state in the country, according to estimates by the Institute for Taxation and Economic Policy. Households in the richest 1 percent will receive an average tax cut of $55,190 in 2019 — almost equal to today’s median U.S. household income. The total amount in tax cuts for the richest 1 percent is more than the cumulative tax cuts for the bottom 80 percent of taxpayers.
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CLAIM — Trump: I Will Not Benefit from the Tax Plan
President Trump has repeatedly asserted that he will not benefit from the tax plan, or that his taxes will actually go up.
In September, for example, when asked if he stood to benefit from the Congressional majority tax plan. Trump responded emphatically that he did not: “No, I don’t benefit. I don’t benefit. In fact, very very strongly, as you see, I think there’s very little benefit for people of wealth.” In November, Trump claimed that his accountant had told him “you’re going to get killed in this bill.”
REALITY — The Final Conference Agreement Added a New Loophole to Help Trump Even More
President Trump has refused to release his tax returns as promised, and therefore it is difficult to determine exactly how much he stands to benefit from the tax bill. But it is
wealthy real estate investors like Trump are the clear winners of the tax bill. Many provisions of the House and Senate plans would benefit real estate, including pass-through businesses like the Trump Organization and Kushner Companies. And, in a last-minute change to the bill, conferencees added a new carve-out to the passthrough loophole to the final bill that would further cut taxes for owners of real estate LLCs like President Trump.
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CLAIM — Trump: Tax Plan Will Move from “Offshoring Model” to “American Model”
President Donald Trump claimed that his tax proposal would “be a dramatic change from a failed tax system that encourages American businesses to ship jobs to foreign countries that have much lower tax rates.” The tax plan that he campaigned on in 2016 would have taxed corporate profits at the same rate whether earned in the United States or overseas.
REALITY — The Tax Bill Further Encourages Outsourcing
The new tax bill would further incentivize outsourcing, according to tax experts. It creates a system where, in general, the U.S. tax rate on domestic earnings is 21 percent and the tax rate on foreign earnings is zero. The bill includes a global minimum tax to prevent artificial shifting of income, but the design of the tax gives companies even more incentive to move physical assets like factories overseas. For example, the Tax Policy Center’s Steve Rosenthal explains that if a corporation built a $100 million plant in the U.S. and earned a $20 million profit, they would pay four times more in taxes than had they built the plant overseas.
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CLAIM — Trump: Tax plan Focused on Working- and Middle-Class People … “the people who like me best.”
In a November 29 speech, President Trump stated “Our focus is on helping the folks who work in the mailrooms and the machine shops of America. The plumbers, the carpenters, the cops, the teachers, the truck drivers, the pipe fitters. The people who like me best.”
REALITY — Tax Plan Gives More to Foreign Investors than Working- and Middle-Class Families in Every State that Voted for Trump, Combined
In reality, the tax plan is a corporate giveaway that would result in big benefits for foreign investors. Under the final tax bill, foreign investors would receive a $48.5 billion windfall from the bill in 2019, according to estimates from the Institute on Taxation and Economic Policy. By contrast, families in the bottom 80 percent of income earners in every state won by President Trump would receive just $43.3 billion.
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CLAIM — Ryan: The Tax Plan is Focused on the Middle Class
The bill’s proponents often claim that their tax plan puts the middle class first. Speaker Paul Ryan (R-WI) repeated this mantra: “The focus is on middle-class tax relief. The focus is on directing that tax relief to the people in the middle and the people who are trying to get there. And that is why we put our emphasis on that tax relief for those people who are in the middle.”
REALITY — The Tax Plan Raises Middle-Class Taxes in the Long Run
Far from putting the middle class first, the congressional majority tax plan actually raises their taxes over time to pay for permanent corporate tax cuts. After 2025, the individual tax code would nearly entirely revert to its current form, but with a less generous inflation measure. This means that over 90 million working- and middle-class families making under $200,000 would see a tax hike in 2027.
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PROMISE — Sen. Collins: Health Care Fixes Will Come Before Final Tax Vote
Just last month, Senator Susan Collins said that she was opposed to undermining the Affordable Care Act by repealing its individual mandate, without other fixes to the health care system. She explained that “When you take out that one provision from the ACA it causes premiums to go up as healthier, younger people leave the market place.” She has also acknowledged that the premium increases would cancel out tax cuts for some middle-class families.
Collins conditioned her support of final passage of the tax bill on two separate health care bills being enacted first. She stated “I’m pushing to make sure [the Alexander-Murray and Collins-Nelson bills] are passed and signed into law prior to the conference report coming back.”
REALITY — Sen. Collins Has Not Gotten Her Health Care “Fixes”
There has been no action on Alexander-Murray or Collins-Nelson. Neither is included on the “continuing resolution” the House has introduced.
House Speaker Paul Ryan has pointedly distanced himself from any agreement to get the health care bills passed before the end of the year. The Freedom Caucus is adamantly opposed, and senior Congressional Republicans have said that Collins’ health care bills cannot pass the House.
Moreover, the health care bills are grossly inadequate to fix the damage caused by repealing the individual mandate.
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PROMISE — Sen. Collins: No Cut In Top Tax Rate, Focus More on Middle Class
Sen. Susan Collins stated multiple times that she did not wish to cut the tax rate on high-income families. In October, she told reporters that “I do not believe that the top rate should be lowered for individuals who are making more than $1 million a year.”
And when the Senate cut the top rate to 38.5 percent, in contrast to the House, which kept it at 39.6 percent, she stated “I don’t think lowering the top rate is a good idea. I had hoped that the House position, the original House position, would prevail.” Instead, Sen. Collins stated that she wanted “more of the tax relief skewed to middle-income and lower-income families.”
REALITY — Bill Cuts Top Tax Rate
The final conference report cuts the top tax rate by more than either the House version or the Senate version of the bills — to 37 percent.
The final conference report also gives slightly larger share of the tax cuts to the richest 1 percent and richest 5 percent than the Senate bill, according to analyses of the Senate bill and conference report by the Institute for Taxation and Economic Policy.
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PROMISE — Trump: I Will End the Carried Interest Loophole
During the second presidential debate in October 2016, Trump was asked what specific provisions he would change to ensure the wealthiest pay their fair share. He responded that “One thing I’d do is get rid of carried interest.”
As recently as September, administration officials claimed this was a priority for the president during tax reform, with National Economic Council Director Gary Cohn stating that “The president remains committed to ending the carried interest deduction.”
REALITY — Carried Interest Loophole Protected
The conference report preserves the carried interest loophole, making only a cosmetic change that experts have said will not have any real impact.
At the same time, the conference report carves out the enormous “passthrough” loophole — a potentially lucrative tax avoidance opportunity for fund managers.
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PROMISE — The Bill Would Be Fiscally Responsible And Not Add To Deficits
In May, Senate Majority Leader Mitch McConnell (R-KY) stated that the tax bill “will have to be revenue-neutral.”
Other senators felt similarly. In November, Senator Jeff Flake (R-AZ) expressed his concern “over how the current tax reform proposals will grow the already staggering national debt by opting for short-term fixes while ignoring long-term problems for taxpayers and the economy.”
And Sen. Bob Corker (R-TN), drew a red line on the bill, stating that “If it looks like to me, Chuck, we’re adding one penny to the deficit, I am not going to be for it, okay?” Corker called the debt “the greatest threat to our nation” in that interview.
REALITY — The Bill Increases Deficits By $1.5 Trillion
The conference report would increase deficits by $1.5 trillion over ten years, according to official scorekeepers.
Every dynamic estimate of House and Senate bills has also found that the bill increases deficits by at least $1 trillion.
The bill is also potentially even costlier because of budget gimmicks — costing as much as $2 trillion over ten years.
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PROMISE — Sen. McCain Called For Regular Order
During the health care debate, Sen. John McCain (R-AZ) called for the Senate to stop rushing through legislation, stating “I would consider supporting legislation similar to that offered by my friends Senators Graham and Cassidy were it the product of extensive hearings, debate and amendment. But that has not been the case.”
In November, McCain reiterated that “For months, I have called for a return to regular order…”
REALITY — The Bill Has Been Rushed Through Using A Sham Process
There has not been a single public hearing on the legislation. Congressional Democrats have been excluded from the process throughout. Numerous last-minute, special-interest provisions have been added to the bill. Those provisions include a special carveout now known as the “Corker Kickback” because it would likely personally benefit Senator Bob Corker, other members of Congress, and President Trump.
The congressional majority introduced the final bill text this past Friday evening, and plan to vote on it within days. They are rushing ahead before the elected Senator from Alabama can take his seat.
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PROMISE — Taxes Would be Simpler and Fairer
Speaker Paul Ryan frequently waves a postcard as a reminder that 9 of out 10 Americans will be able to complete their taxes on a postcard.
President Trump has made similar statements about filing taxes on “a single, little beautiful sheet of paper.”
REALITY — The Bill Further Complicates the Tax Code and Includes Numerous Loopholes and Other Ways for Wealthy People to Avoid Taxes
The congressional majority rhetoric about simplification was always a ruse to deliver tax cuts for the wealthy and donors. The New York Times described the final conference report:
“It leaves nearly every large tax break in place. It creates as many new preferences for special interests as it gets rid of. It will keep corporate accountants busy for years to come. And no taxpayer will ever see the postcard-size tax return that President Trump laid a kiss on in November as Republican leaders launched their tax overhaul effort.”
The bill’s new loopholes and special preferences will complicate the tax code further while allowing the wealthy and well-advised to avoid taxes. Tax lawyers and accountants will be enormous beneficiaries of this legislation as they look to take advantage of newly created loopholes for their clients.
Seth Hanlon is a Senior Fellow at American Progress, focusing on federal tax and budget policy. Alex Rowell is a research associate for Economic Policy at American Progress. Galen Hendricks is an intern with the Economic Policy team at American Progress.
