Here’s something Steve Mnuchin apparently didn’t want you to know.
The Wall Street Journal on Thursday reported that the Treasury Department had taken a paper off its website that said “82% of the corporate income tax burden is distributed to capital income and 18% is distributed to labor income.”
In other words, American workers pay for a small chunk of corporate taxes – about 20%. That’s a problem for Mnuchin, who would prefer that you think that number is about 70%.
You can see why this would suit President Donald Trump and his administration. They’re trying to sell the American people a massive corporate tax cut that would lower the statutory rate to 20% from 35%. If the bulk of corporate taxes fell on workers instead of capital – the rich – the administration would be able to spin a narrative that allows Trump to remain an advocate of the working class, his base.
But that’s nonsense. The paper Mnuchin removed was from 2012. Before this paper, many economists modeled that none, or at most a very small portion, of the corporate tax burden fell on workers. Instead, it fell mainly on owners and shareholders of corporations. What little of the corporate tax burden that workers did carry came from globalization, or as the Tax Policy Center calls it, “international capital mobility shifts.”
But again, workers’ share of that burden is not as much as Mnuchin would have you think.
Mnuchin is trying to pretend that, to the American corporation, American workers are more than just COGS. I literally mean the cost of goods sold, which means everything from the cost of materials to labor that goes into selling anything. He wants to pretend workers have more ownership of the country than they actually do.
If he and his cronies can pull this off, it will be a magnificent trip, taking from the working class while making it feel empowered all at once. It’s the trick Trump has been trying to pull off with every one of his tax speeches – claiming that he and his family won’t benefit more than the median-income American family.
None of this is for you
Trump’s plan contains almost nothing for individual income taxes for middle- and working-class families. That’s why Mnuchin has to pretend that cutting corporate taxes would be a big deal for them. Aside from “simplifying the code” to three brackets, it’s unclear how they benefit.
The tax plan released this week doesn’t include the income cutoffs for the three brackets, but if they end up as suggested in Trump’s tax plan from the campaign, they’d look like 12% for the bottom, then 25% starting at $75,000, and finally 35% starting at $225,000, for married couples.
As Business Insider’s Josh Barro calculated, under this plan a family of four with two working parents making $120,000 would see its taxes go up by about $600, thanks to the elimination of a bunch of personal deductions.
That fact alone should require enough obfuscation to keep a man of Steve Mnuchin’s rare talent for perpetuating drivel busy, but there’s more. What they call a tax cut for “small businesses” is actually a massive tax cut for those in the top income bracket. What this plan classifies as a small business has nothing to do with size but rather with its legal organization – any business incorporated as a partnership, sole proprietorship, or S corporation. The maximum tax rate they can pay under the plan is 25%.
Under existing law, these entities don’t pay business taxes but instead are taxed according to the individual income of their owner – up to a maximum rate of about 40%. That means that, say, the Dallas Cowboys, which Bloomberg notes are a partnership – today are taxed at the higher personal income-tax rate of their owner, Jerry Jones, who Bloomberg says is worth $3.8 billion.
But under Trump’s proposal, Jones wouldn’t pay any more than 25%. As the advocacy group The Small Business Majority notes, only about 4% of “small businesses” in this country pay a tax rate of 28% or higher for their so-called pass-through businesses. So they get a tax cut, while everyone else gets nothing. No change.
If the administration wanted to do something for what most Americans consider a small business – a diner, a mom-and-pop shop, a deli – then the officials should cut from the bottom, not the top. They could maybe make the first $25,000 of income from the business tax-free. If they wanted to encourage hiring, they could double the deduction for employee costs.
But the administration isn’t doing any of that because this isn’t for small businesses or working-class people. This isn’t for anyone but corporations. It doesn’t matter how many weekend culture wars Trump fights for his base; he can’t change that he’s selling them out with his policies.