Newly passed Republican tax plan exacerbates wage inequality in US
After the worst financial downturn since the Great Depression, the job market has finally started to strengthen, which is good news for soon-to-be graduating Baruch College students and all U.S. citizens. Unfortunately, this growth has been overwhelmingly uneven. Many people felt left behind, which led some of them to vote for a confident man who promised to improve the economy.
“The forgotten men and women of our country will be forgotten no longer,” said President Donald Trump. However, Trump’s tax plan does nothing to address the growing income inequality problem that society is currently facing.
William G. Gale, co-director of the Tax Policy Center told Vox, “It exacerbates preexisting and longstanding trends, rather than aiming to partially compensate for them.”
The biggest winners of the new tax plan will be the wealthy. The centerpiece of the tax plan is the drastic drop in the corporate tax rate from 35 percent to 20 percent. This specifically benefits those who own corporations and top executives whose compensation is linked to the performance of the stock market.
These are not your average citizens by any stretch of the imagination. The overhaul to the individual tax code also disproportionately benefits those who are better off. A person in the bottom 10 percent gets a $50 cut. On the other hand, a person in the top 1 percent would get a tax cut of $34,000. This bill also removed the inheritance tax. This would only go into effect if the money or property inherited was over $5 million.
Proponents of the tax plan sincerely believe that the lower tax rates will ignite exponential growth and investment in the economy. This same idea was tried in 2002 under President George W. Bush. The results were an inegalitarian period of economic growth and an increase in U.S. jobs being shipped overseas.
Americans in middle and lower classes will see small drops in their taxes, but most of these individual tax breaks will expire in 2026.
This was done to adhere to Senate rules so the bill could be passed under reconciliation. A bill passed under reconciliation must not add to deficit over the next 10 years and only needs a simple majority vote to pass. Unless the 2027 Congress extends the individual breaks, most citizens will see their taxes rise again.
If the Republican Party and Trump really wanted to put a stop to inequality, they would target the payroll tax, not the income tax.
The payroll tax funds Social Security and Medicare. It was only 2 percent after World War II. Since then it has ballooned to 15.3 percent.
According to the Tax Policy Center, the payroll tax is the largest tax a majority of families in the United States pay. These increases have offset any decreases in the income tax rate. In fact, most middle and lower-class families now face higher total tax rates than families in the 1960s.
A recent report came out showing that wages have in fact increased, especially among lower income workers. The pay gap between men and women even closed a little.
These trends have been occurring since 2015. Twenty-one states also raised their minimum wage. The author of the report warned not to be too optimistic. “The recent pay raises for the poor and middle class don’t come close to erasing the inequality in pay increases of the 21st century," the report in The New York Times read.
"High-income workers have still done much better since 2000 than middle-or low-income workers. And the Trump tax law will worsen the situation,” the article said. This is par for the course of the Trump presidency: broken promises and flawed policies that are doing more harm than good.
Take Trump’s planned 25 percent tariff on steel, withdrawal from the Trans-Pacific Partnership and reported attempts to scrap the North American Free Trade Agreement. These are all moves that are supposed to protect the U.S. worker. Instead, they are leading to even more financial pain.
The European Union already has plans to retaliate against any U.S. tariffs, and China has unchecked trading influence in the Pacific. Even pulling out of the Paris climate accord has damaged the United States.
The world stage has been seceded to China and France. The U.S. is no longer the world leader. Other nations used to look to the United States for guidance, but now they do not know if Trump is being serious or “joking,” as White House Press Secretary Sarah Huckabee Sanders so eloquently put. Trump wants to win so badly that he does not care that the country is losing.