Democrats, don't be complicit in GOP tax plan

Democrats, don't be complicit in GOP tax plan
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The Democrats’ pitiful response to the Republicans tax plan is enabling them to perpetrate a legislative fraud on America’s middle class. Nor are Democrats energizing their base or winning back those they alienated with meaningless mantras. They need to pound home the hard data that will expose the GOP plan for what it is.

Start with the myth of job growth. Republicans claim lower corporate taxes will generate higher profits. They will. They also claim that the profits will be used to invest, hire and increase wages. They won’t.

Corporations use lots of their profits to buy their stock back instead of hiring because buybacks increase stock prices, and that’s when CEOs get paid the most. More than $6.9 trillion of profits have been used for stock buybacks since 2004. They’ve drained our economy of money that could have been used for investment, growth, hiring and wage increases.

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Corporations also use profits to buy or merge with other companies. Then they fire employees to eliminate redundancies. These job losses fall hardest on small communities, where there are few other job opportunities.

Corporations used $10 trillion to buy other companies since 2008. 2015 set the record for a year. October 2016 set the record for a month. Does the success of mergers and acquisitions justify the job loss? According to Harvard, 70 to 90 percent of them were failures for stockholders.

Data also show no consistent link between lower corporate and income taxes and job growth. Between 2008 and 2016, median job growth was negative 1 percent for the 92 corporations that paid taxes at or less than the GOP-suggested 20 percent and were among the most profitable. And 48 of them eliminated 483,00 jobs by downsizing.

The Republicans’ projection that economic growth will pay for the tax cuts is uncertain at best and unlikely at worst. If it doesn’t, the tax cuts would hit low-income taxpayers worst if the cuts were simultaneous financed by tax increases or spending cuts. Families in the bottom 90 percent would have lower after-tax income while the top 5 percent would have more. Delaying payment for tax cuts would run bigger deficits, more debt and make people worse off.   

The GOP also intends to pay for their tax cuts by repealing the ObamaCare mandate. But that will mean the loss of health insurance for 4 million Americans and a 10 percent increase for individual policies.

The repeal or limitation of deductions for state and local income and property taxes (SALT) and home mortgage interest is an attack on states that voted democratic in the 2016 presidential election — it’s national gerrymandering. The District of Columbia has 27 percent of their mortgages over $500,000, followed by Hawaii, California, New York, Connecticut, Virginia, New Jersey, Maryland, Massachusetts, Washington and Illinois. Out of the 18 states hit hardest by the repeal of the SALT deductions, 15 voted democratic and 3 voted Republican.

The proposal in the House bill to cap income taxes at 25 percent for owners of pass-through entities (other than professional ones) is a boon to the wealthy. Sole proprietors in the 35 percent bracket — those with incomes of $416,700 and up — will convert to pass-throughs to get the lower rate. The provision will also to lead to higher deficits and debt as the wealthy lower their tax rate.

Corporate tax revenue has fallen  in the US because pass-throughs’ share of business income has risen from 13 percent in 1980 to almost 40 percent recently, and from 2.6 percent of gross domestic product in 1979 to 1.7 percent now. The trend is likely to continue thanks to the Republican tax plan.

Perhaps the most blatant deception is the repeal of the estate tax because, as the Republicans claim, “the death tax penalizes small businesses and farmers the most.” “A lot of families go through hell because of the death tax,” Trump said. House Ways & Means Chairman Kevin BradyKevin Patrick BradyHouse Democrats poised to set a dangerous precedent with president’s tax returns IRS issues guidance aimed at limiting impact of tax on nonprofits' parking expenses On The Money: New director takes helm at troubled consumer agency | Trump’s economy teetering on trade tensions, volatile markets | Brexit crisis deepens | House report scolds Equifax over breach MORE and Senate Finance Chairman Orrin HatchOrrin Grant HatchHatch warns Senate 'in crisis' in farewell speech Senate confirms Trump's pick to be deputy Treasury secretary Brzezinski: It’s ‘despicable’ for GOP lawmakers to dismiss Cohen memo implicating Trump MORE have joined the deceit. Know that only 0.2 percent of Americans pay estate tax and nearly all of them are among the wealthiest 5 percent.

The GOP has also raised taxing unrealized capital gains upon death. So, if you own $500,000 of stock that cost $100,000, your estate or heirs will have to pay a tax on $400,000 increase. It’s a death tax on the middle class.

House Majority Leader Paul RyanPaul Davis RyanOn The Money: House GOP struggles to get votes for B in wall funds | Fallout from Oval Office clash | Dems say shutdown would affect 800K workers | House passes 7 billion farm bill GOP struggles to win votes for Trump’s B wall demand House GOP blocks lawmakers from forcing Yemen war votes for rest of year MORE claims that the House bill will reduce income inequality. How, given: repeal of the estate tax, a pass-through tax that lowers taxes for high earners, that the bottom 90 percent will earn less, the top 5 percent more? Indeed, studies show just the opposite.

By not hammering these points to the electorate, the Democrats will be complicit if the Republicans succeed in widening the shameful inequality that plagues our country.

Neil Baron advised the SEC and congressional staff on rating agency reform. He represented Standard & Poor’s from 1968 to 1989, was Vice Chairman and General Counsel of Fitch Ratings from 1989 to 1998, and was on the board of Assured Guaranty for a decade.