For some reason, Steve Mnuchin didn’t want you to know this.
On Thursday, the Treasury Department took a paper off its website that says “82% of the corporate income tax burden is distributed to capital income and 18% is distributed to labour income,” the Wall Street Journal first reported.
In other words, American workers pay for a small chunk of corporate taxes — around 20%. The problem with this for Mnuchin is that he would prefer that you think that number is around 70%.
You can see why this would suit President Donald Trump and his administration — they’re trying to sell a massive corporate tax cut, lowering the statutory rate from 35% to 20%, to the American people. If the bulk of corporate taxes fell on workers instead of capital — the rich — the administration would be able to spin a narrative that allows Trump to remain an advocate of the working class, his base.
But that’s nonsense. The paper Mnuchin removed was from 2012. Before this paper, many economists modelled that absolutely none, or at most a very small portion, of the corporate tax burden fell on workers. Instead, it mainly fell on owners and shareholders of corporations. What little of the corporate tax burden workers did carry came from globalization, or as the Tax Policy Center calls it, “international capital mobility shifts.”
But again, workers’ share of that burden is not as much as Mnuchin would have you think.
Mnuchin is trying to pretend that, to the American corporation, the American worker is more than just COGS. I literally mean the Cost of Goods Sold, which means everything from the cost of materials to labour that goes into selling anything. He wants to pretend workers have more ownership of the country than they actually do.
If he and his cronies can pull this of, it will be a magnificent trip, taking from the working class while making it feel empowered all at once. It’s the trick Trump has been trying to pull of with every one of his tax speeches — claiming that he and his family won’t benefit more than America’s working families.
None of this is for you
There’s almost nothing in Trump’s plan for individual income taxes for middle and working class families. That’s why Mnuchin has to pretend the corporate tax cut would be a big deal for them. Aside from “simplifying the code” to three brackets, it’s unclear how they benefit.
The tax plan released this week doesn’t include the income cutoffs for the three brackets, but if they end up as suggested in Trump’s tax plan from the campaign, they’d look like 12% for the bottom, then 25% starting at $US75,000, and finally 35% starting at $US225,000, for married couples.
As BI’s Josh Barro calculated, under this plan a family of four with two working parents making $US120,000 would see its taxes go up by about $US600, thanks to the elimination of a bunch of personal deductions.
That fact alone should require enough obfuscation to keep a man of Steve Mnuchin’s rare talent for perpetuating drivel busy, but there’s more. What they call a tax cut for “small businesses” is actually a massive tax cut for those in the top income bracket. What this plan classifies as a small business has nothing to do with size, but rather its legal organisation — any business incorporated as a partnership, sole proprietorship, or S corporation. Under the plan the maximum tax rate they can pay is 25%.
Now, under existing law, these entities wouldn’t pay business taxes and instead they would be taxed according to the individual income of their owner — up to a maximum rate of about 40%. For someone like, say, Dallas Cowboys owner Jerry Jones, who is worth $US3.8 billion according to Bloomberg, that meant the income from his business — which as Bloomberg notes is a partnership — was taxed at that higher personal income tax rate.
But under Trump’s proposal, Jones wouldn’t pay any more than 25%. As advocacy group The Small Business Majority
notes, only about 4% of “small businesses” in this country pay a 28% or higher tax rate for their pass-through businesses. So they get a tax cut, while everyone else gets nothing. No change.
If the administration wanted to do something for what most Americans consider a small business — a diner, a mum-and-pop shop, a deli — then they should cut from the bottom, not the top. They could maybe make the first $US25,000 of income from the business tax free. If they wanted to encourage hiring they could double the deduction for employee costs.
But the administration isn’t doing any of that because this isn’t for small businesses or working class people. This isn’t for anyone but corporations. It doesn’t matter how many weekend culture wars Trump fights for his base, he can’t change that he’s selling them out with his policies.
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