Just Taxes Blog by ITEP

White House Incredibly Still Believes Tax Cuts Are the Answer to America’s Problems

White House Incredibly Still Believes Tax Cuts Are the Answer to America’s Problems

June 2, 2020

Steve Wamhoff
Steve Wamhoff
Director of Federal Tax Policy

While many are discussing how to reform our public policies so they work better for everyone and also dismantle systemic racial injustices, the White House continues to discuss proposals to cut taxes, according to a Wall Street Journal report. The following is an updated version of ITEP’s previous roundup of the tax cuts that the president’s team is considering and why each of them is bad policy in ordinary times and particularly egregious during a national crisis and economic recession. 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. All would be less helpful than extending and improving unemployment insurance benefits, which the administration is seeking to limit.

Corporate Tax Cuts to Encourage Bringing Jobs to the U.S.

Another ITEP blog post describes the various corporate tax breaks floated by administration officials as incentives to return operations and jobs to the U.S. and why they are doomed to fail. No new tax breaks will encourage American-based corporations to bring jobs back to the United States when the Trump-GOP tax law provides even bigger tax breaks for moving operations and jobs offshore. The Trump-GOP tax law even provides a 0 percent tax rate for many offshore profits. The only real answer is to repeal the Trump-GOP law and replace it with real tax reform, not enact even more corporate tax cuts.

Expensing

Expensing is a business tax break that is already in effect, under the Trump-GOP tax law, through 2022. Making this tax break permanent, as some Republicans propose, would have no effect until 2023 at the earliest and is clearly unrelated to the current crisis. A new ITEP report shows how 20 large corporations that together paid an effective tax rate of just 6.7 percent from 2018 through 2019 did so partly with expensing and other types of accelerated depreciation. The expensing provision is supposed to encourage investment, but it mainly rewards companies for investments they would have made anyway.

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 because so many unemployed people, who may be concentrated among low-wage occupations, would receive no benefit.

Capital Gains Tax Cut

Capital gains are profits from selling assets and should be taxed like any other income. The federal 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 (and stock dividends) are subject to 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 do little to encourage investment because it would reward those who already own appreciating assets.

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.