David Leonhardt: A Tax Plan to Turbocharge Inequality


The Republican tax bill is an audacious attempt to accelerate the economic trends of the last half-century.

If you’re a fan of these trends — rapidly rising inequality and stagnant middle-class incomes — you should love the bill. If you’re not a fan, you can at least take comfort in knowing that you’re in the majority of Americans, as polls consistently show.

During the last few decades, the rich have not only enjoyed the largest pretax raises, by far. They have also received big tax cuts. The middle class and poor, meanwhile, have suffered from slow-growing incomes — and from overall tax rates that are higher today than in the mid-1960s.

The first part of that story is widely known. The rich have gotten richer, for a whole variety of reasons. The second part is less known. But it’s also crucial. The great tax-cutting revolution of the last half-century hasn’t actually been a tax-cutting revolution for most Americans.

True, they have benefited from a series of cuts in income-tax rates, signed by Lyndon B. Johnson, Ronald Reagan, George W. Bush and Barack Obama. At the same time, though, another tax has been rising. It is the quiet giant of federal tax policy: the payroll tax.

It funds Social Security and Medicare, and it has been rising in response to the aging of society and rising medical costs. It increased from 2 percent just after World War II to 6 percent in 1960 to 12.4 percent in 1990, where it is today. It has risen so much that it’s now the largest tax that 62 percent of American households pay — larger than the income tax, which gets much more attention.

The increases in the payroll tax have more than offset the declines in the income tax for most middle-class and poor families. They now face higher total tax rates than a half-century ago.

This makes no sense in an economy where wealthy households have enjoyed the largest pre-tax raises. They are bringing home many more dollars, and each of those dollars is being taxed less than in the past. The middle class and poor are on the unhappy end of both trends.

Obama tried to reverse these broad trends and had some success. The core of his domestic policy, in fact, was fighting inequality. He substantially raised taxes on the rich, while keeping the Bush tax cuts for the middle class and poor. He also expanded health care and other middle-class programs. Before Obama, there were also bipartisan efforts to expand Medicare and low-income tax credits.

But these efforts haven’t been nearly enough to make up for the soaring pre-tax inequality — or even to make the tax code more progressive than it used to be. Middle-income families face a higher rate than a half-century ago: 28.6 percent in 2014, versus 24.8 percent in 1964. The economist Gabriel Zucman notes that the increased taxes on lower-income families have made it harder for them to save and invest. “It’s part of the reason you have such high wealth inequality,” he said.

Now President Donald Trump, Mitch McConnell and Paul Ryan are trying to widen inequality even further. Their tax bill doesn’t touch the payroll-tax rate — again, the single biggest tax that most households pay. The bill does cut income taxes for the middle class, but only modestly and only temporarily.

The tax cuts benefiting the wealthy, including cuts to the inheritance tax and the corporate tax, are much larger and permanent.

Researchers at the Tax Policy Center, a vital source of independent analysis on a plan that’s been rushed through Congress, have estimated the long-term effects on each income group. Crucially, their estimates don’t ignore the bill’s impact on the deficit — and thus include the spending cuts that will eventually need to follow.

Even if those cuts fall equally on each household (and, in reality, Republican leaders favor cuts that fall disproportionately on the middle class and poor), the tax bill amounts to an enormous effort to increase inequality.

Republican leaders have evidently decided that most Americans deserve more of what they’ve had during the past few decades — more income stagnation and more inequality. Polls have repeatedly shown that most Americans disagree, but Congress is forging ahead anyway. It’s an affront that deserves to be a defining issue in next year’s midterm campaigns.



Reader Comments ...


Next Up in Opinion

Why Austin isn’t getting as much affordable housing money as you might think

Facing an urgent need to fund more affordable housing in Austin, the City Council set its sights on some tax dollars it figured no one would miss. New tax dollars. Specifically, the shiny new tax revenue that materializes when government-owned land, which doesn’t pay property taxes, becomes private housing, commercial...
Commentary: The danger behind North Korea’s jiu jitsu diplomacy
Commentary: The danger behind North Korea’s jiu jitsu diplomacy

After months of frantic brinkmanship with North Korea, President Donald Trump is now preparing for a summit meeting with North Korean leader Kim Jong Un. This would be comical if it wasn’t so dangerous. He has played right into North Korea’s hands. Trump no doubt thinks that his tough rhetoric has struck fear into the heart of the North...
Letters to the editor: April 25, 2018
Letters to the editor: April 25, 2018

Every time I endeavor to enter MoPac Boulevard at Enfield Road going south during the afternoon-evening rush “hour,” I feel screwed yet again. The backup of traffic from downtown at the southbound Winsted Lane entry ramp causes at least a 15- to 25-minute wait to enter the horribly backed-up freeway. In the meantime, those few drivers who...
Commentary: Asphalt is the last crop
Commentary: Asphalt is the last crop

Missed in the coverage of the recent release of the 2018 Farm Bill is an obscure program that will significantly impact the future of Texas. It is not a commodity program nor does it deal with nutrition assistance. It is smaller in scope and cost than those programs, yet is just as far-reaching. The Agricultural Conservation Easement Program (ACEP)...
President Bill Clinton coming to Bass Concert Hall on June 10
President Bill Clinton coming to Bass Concert Hall on June 10

Bass Concert Hall will host “A Conversation with President Bill Clinton” at 7:30 p.m. June 10. Clinton will discuss “The President is Missing,” his new novel co-authored with bestselling writer James Patterson. This is the first time a president has collaborated with a bestselling novelist on a work of fiction.  Tickets...
More Stories