Does the GOP Tax Bill Promote Class Warfare?

I have been slogging through the new House tax reform bill, which is being touted by President Trump as the biggest tax cut in American history.  That’s not true, of course, if for no other reason than whether or not this bill amounts to a tax cut for you depends upon how much you earn and where you happen to live.  The tax cuts in the Reagan era, for example, were not only more substantial and simplifying of the tax code, but more importantly, they applied indiscriminately for all income earners as an actual tax cut.  Not so with this bill.

First of all, if you live in a high-income tax state, any benefit you might get from the proposed new marginal tax brackets might be more than offset by this bill’s limiting your state income tax deduction (to $10K only) and/or mortgage interest deduction (only on debt up to $500K on new home purchases after the law takes effect).  This negatively impacts, particularly, upper-middle and upper earners living in high-tax havens like Connecticut, New York, and California, where state taxes can exceed 13% and average home prices for areas near urban centers can be valued at well over $500K. 

I happen to be a fairly high-income earner in just such a highly-taxed state who, frankly, is grandfathered in terms of the mortgage deduction but may be hammered by the state income tax deduction limitation beyond the federal tax cuts.

I’d be lying if I said I wasn’t apprehensive in reading and discovering that this “tax cut” might specifically hurt me by way of eliminating my deductions.  However, none of that sours me in regard to what I believe to be the intended purpose of this bill. 

Such tax reform as is in this bill is necessary, if for no other reason than developing an American resurgence on the global economic stage.  We have the highest corporate income tax rate in the developed world, and repealing this high corporate tax rate to a modest 20% is a top priority for our nation, as far as I’m concerned.  As Walter Williams points out, when corporate taxes are levied, it elicits “some combination” of the following responses: “[The corporation] will raise the price of its product, lower dividends, cut salaries, or lay off workers.”  “In each case,” he goes on, “a flesh and blood person bears the tax burden.  The important point is that corporations are legal fictions and as such do not pay taxes.  Corporations are merely tax collectors for the government.”

I’m in agreement.  So, I’m on board with lowering corporate tax rates.  And I’m okay with the modest limiting or elimination of specific deductions, even though the limiting of deductions may peculiarly harm me, but not people like me in other states.  And I love this tax cut for the middle-class.  Not because it’s a populist thing to say, but in principle - it leaves more money where it should be, which is in the individuals’ hands, and not the government. 

What I’m not on board with, however, is the “soak-the-rich” provisions left in this bill in order to preserve the appearance of some supposed fairness and revenue neutrality.

It’s now coming to light that buried in the bill is a hidden 46% income tax bracket.  Indeed, it’s hard to find in the bill, because it’s not characterized as an actual tax bracket alongside all the other marginal tax bracket delineations, and it’s not progressively applied as other income taxes are.  Rather, it’s retroactively enforced once you reach a specific income level. 

It’s referred to as a “phaseout” of the 12% rate (described on page 16-17 of the House tax reform bill) for any single filers earning over $1M, and married filers earning over $1.2M.  Essentially, a married couple earning $1,199,999 would have their dollars up to $90K taxed at 12% under the new plan.  If that same couple earns over $1.2 million, however, they’re not entitled to have those dollars be taxed at just 12%.  The government will begin applying a 6% tax additional to the 39.6% rate to all those dollars beyond that threshold in order to eliminate the benefit of the 12% bracket for these folks.

One way to describe this boondoggle is to say that some dollars above these thresholds would be taxed at 45.6%, as some in the media have chosen to do.  Another is to say that higher income earners are discriminately stripped of the right to have a the first $90K of their income taxed at the lowest marginal rate of 12%, as all lesser earners will enjoy.

And when you frame it in the latter way, it becomes particularly troubling for me.  Progressive income taxes, as a matter of individual liberty and equal protection of property rights under the law, are problematic enough before introducing such sleight-of-hand mechanisms to discriminately tax higher income earners.

For the record, I personally don’t sniff being subject to this provision.  But that shouldn’t matter, should it?

The fact that I am legally entitled to keep fewer of my earned dollars because I happen to earn more of them than someone else, and that this arrangement is enshrined and protected in law, is an absolute travesty.  The 16th Amendment, however, is quite broad, so it’s hard to argue that it’s unconstitutional.  But on a basic level of morality, this point should hold among reasonable people with the slightest interest in preserving individuals’ property rights.  As such, I would argue that there is nothing which should entitle me to keep more of my dollars than someone who has the wherewithal to earn more.

This should be the simplest of truths, but it is lost the sea of envy that we call politics. 

Millions of Americans, for example, collect an “earned income tax credit” every year, which is little more than a form of welfare built into the federal tax code.  I’m of the opinion that one should never collect new income as the result of a government’s assessment of the income tax obligations of a populace.  To point out that this practice is the purest socialism seems too obvious to even be necessary.  But the GOP kept this item in the tax code.

Understanding why should be equally obvious.  To the person collecting an “earned” income tax credit, which would be the bigger travesty?  The million-dollar earner being fleeced at a higher rate to pay for that earned income tax credit, or that his earned income tax credit (i.e., annual welfare payment) would go away?

This effort to uniquely, and underhandedly, segregate high-income earners as a separate group which is more obligated to pay a higher share of their income than the rest of Americans runs afoul of everything that I believe as a conservative, and as a person.

And ultimately, this kind of immoral, targeted governmental seizure of wealth and disregard of our individual property rights contradicts the very purpose we conservatives have always held to be the truest value of tax cuts – that having money in the hands of American individuals is far better than money in the hands of government to redistribute to its special interest groups as it would see fit.

William Sullivan blogs at Political Palaver and can be followed on Twitter.