Puzzle this out:
In the original tax-cut bill passed by the House in November, the top income tax rate remained unchanged at 39.6%.
In the Senate bill that passed in early December the top rate came down to 38.5%.
Then, House and Senate negotiators met to hash out a final bill both chambers would vote on. In most negotiations, when there are differences, you meet in the middle and compromise. That might have produced a top rate of 39% or so.
But the final tax-cut bill Congress has come up with reportedly cuts the top rate all the way to 37%--lower than either the House or the Senate proposed in its initial legislation. Imagine such bargaining over the price of a house, with the seller asking $300,00 and the buyer offering $275,000—and both parties, in the end, agreeing on a final price of $250,000. Does. Not. Compute.
It does in Washington, however, since lobbyists and megadonors, rather than common sense or public interest, seem to be calling the shots. There’s nothing inherently wrong with cutting the top income-tax rate, as long as it’s done as part of a package that spreads the goodies around more or less fairly.
The GOP tax plan doesn’t do that, however. About two-thirds of the $1.5 trillion in total tax cuts will go toward businesses, with much of the rest benefitting the highest earners. The middle class will enjoy a relatively small portion of the overall windfall—and some families will actually end up paying more.
Cutting the top individual rate to 37% is especially audacious given that Americans already think the tax cuts heavily favor the wealthy at the expense of the middle class. And that was before GOP leaders outlined the final bill, with the new cut in the top rate. The wealthy will already benefit from other provisions, such as the sharp curtailment of the alternative minimum tax and reductions in the tax burden for privately owned businesses. Piling one more goodie into the gilded grab bag of the 1 percent won’t bring many skeptical voters around.
This comes as President Trump is attempting to send the opposite message—that the GOP tax cuts will directly benefit the middle class. In a White House speech on Wednesday afternoon, Trump highlight five families in attendance whose tax bills, he claimed, would shrink under the GOP tax plan. And he repeated a White House claim that corporate tax cuts alone would boost the take-home pay of a middle-class family by $4,000 (but not until several years down the road, which Trump didn’t mention).
The showmanship is unlikely to sway voters who are running the numbers on their own taxes, and growing increasingly worried about losing tax breaks that help them get by today. Among the potential losers: Grad students who get a tax break on debt used to help pay for tuition, people who deduct costly medical expenses, and business owners in high-tax states such as New York and California who depend heavily on a deduction for state and local taxes, which Congress plans to slash.
Worry not! That seems to be the message from Republicans in Washington. With little time to spare, Congress seems likely to pass the tax cuts by the end of the year, with Trump signing them and declaring that they will bring unprecedented prosperity to the American people.
Or at least a few of them.
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Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman
