May 6, 2020
Federal Policy Director
May 6, 2020
On Tuesday, the nation learned that the Trump administration is again shifting attention to tax breaks and away from the health crisis that is killing people and devastating the economy. The public needs leadership and laser focus on health and economic interventions that will help the most vulnerable. None of the tax proposals considered by the administration would provide help to those who need it or do much, if anything, to boost investment.
Payroll Tax Cut
In March, ITEP estimated that Trump’s proposal to suspend the Social Security and Medicare payroll taxes for the rest of the year would send 65 percent of its benefits to the richest fifth of Americans and send 25 percent of its benefits to the top one percent of Americans. Given the enormous increase in unemployment since then, the reality would likely be even worse than we projected because so many unemployed people, who may be concentrated among low-wage occupations, would receive no benefit at all.
Capital Gains Tax Cut
Capital gains are profits from selling assets and they should be taxed like any other income. Our tax code already taxes capital gains, which mostly go to the rich, more lightly than income that most of us earn from work. For example, capital gains are taxed at lower income tax rates, and more than three-fourths of this benefit goes to the richest 1 percent of Americans. Cutting taxes for capital gains even further would be wildly unfair and also would do little to encourage investment because it would reward those who already own appreciating assets.
Full expensing is a business tax break that is already in effect, under the Tax Cuts and Jobs Act, through 2022. Making this tax break permanent, as some Republicans propose, would, therefore, have no effect until 2023 at the earliest and is clearly unrelated to the current crisis. Aside from that problem, it is unlikely that expensing encourages investment as its proponents claim. Expensing is the most extreme form of accelerated depreciation, the ability to write off the cost of investments in equipment more quickly than the equipment wears out. An ITEP report explains why expensing, like other forms of accelerated depreciation, likely rewards businesses for making investments they would have made even in the absence of any tax break.
Deductions for Meals and Entertainment
The problem with the restaurant industry right now is that going out to eat heightens the risk of contracting the coronavirus. It is difficult to imagine that anyone’s decision on whether to take that risk would be changed by a tax break, but this is what the president claims to believe. Increasing the deduction for business meals from 50 to 100 percent, as Trump apparently wants to do, would (eventually) pad the bottom line of business leaders who patronize high-end steakhouses, but would do nothing to help the businesses most in danger of not surviving the ongoing shutdown.