The U.S. is now experiencing higher levels of economic inequality than we’ve seen at any time since the Gilded Age. Roughly 4 out of 10 Americans can’t afford a $400 emergency expense, and for the first time in modern history, life expectancy is going down for large parts of our population. If trends continue, the wealthiest 10 percent could own all U.S. wealth in a little over three decades.
So, what are Republican lawmakers proposing to address the crisis? More tax cuts for the rich, of course.
Recently, a group of 21 Republican senators led by Ted Cruz wrote a letter pushing the White House to index capital gains taxes to inflation, a move that would save wealthy investors like me billions of dollars a year — while normal working Americans would get nothing.
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Here is how the proposal would work. Say I bought a house in 1974 for $37,200 with the intention of renting it out. Things were going great, but this year, I decided to sell the house, and sell it for $320,000. Assuming I depreciated the original value and had to pay capital gains on the profit, I would owe the government $36,188. Under the GOP senators’ new proposal, $193,276 of the house value would be attributed to inflation, so I would only pay tax on the remaining $126,724. This means that I would only pay a tax of $7,196.
In other words, the Republican proposal would cut my tax by about 80 percent. What would I do with that extra money? Almost all of it would go into my personal investment portfolio, not into creating jobs — the pretense Republicans use to justify giving tax cuts to the rich.
Decades of experience have proven trickle-down economics are a fantasy; the wealthy tend to pocket benefits from tax breaks, not reinvest the money into job creation and economic productivity.
Nonpartisan economic analysis of the Republican proposal, and its damning conclusion, should be enough to stop it dead in the water: According to the University of Pennsylvania’s Penn Wharton Budget Model (PWBM), indexing capital gains to inflation will not lead to economic growth. PWBM found, in the first decade, we would lose $100 billion in tax revenues — for the overwhelming benefit of the wealthy. A jaw-dropping 86 percent of the benefits of indexing capital gains to inflation would go to the top 1 percent of income earners, and 63 percent of the benefits would go to the tippy top: the 0.1 percent.
The current proposal has a chance of becoming the Trump administration’s interpretation of current law.
Why? Because it benefits the rich by design, not by accident. Giving tax cuts to the donor class has long been a core (if unspoken) priority for the GOP, and they are only getting more brazen. Public opinion of tax cuts for the rich were deeply unpopular when the Tax Cuts and Jobs Act passed in late 2017, a bill that overwhelmingly benefited the wealthy, and public perception of the bill remained so negative during the 2018 midterm elections that many Republicans were forced to distance themselves from it.
Even still, many Republican lawmakers are already and will continue to get behind this most recent attempt to push a handout to the rich through Congress.
The Republican Party will continue to promote this idea in the name of “fairness.” But there are different concepts of fairness. Some people believe that fairness means that wealthy real estate developers should pay a much lower percentage of their income in taxes than do Americans who work for a living. Their basic argument is that wealthy people can threaten to move to Mars … or something. So, we must have an appeasement policy. Working-class people have no choice but to work and pay taxes, so there is no need to appease them.
That’s not the way I was raised to understand fairness, and I’m not alone. Most Americans believe that our tax system should reflect a simple principle: People should pay taxes based on their ability to pay taxes. There is no reason public school teachers should pay a higher tax rate than wealthy investors. True fairness would be making the tax code work for all, not just the wealthy few.