Tax Cuts For Many in Trump's Tax Reform Will Be Reversed in Later Years

The Tax Policy Center is out with its calculations of President Trump's tax reform plan based on the preliminary bill released by the Hosue Ways and Means Committee.

It really is, for the most part, a tax break for
the very rich. And many of the tax breaks for the non-super rich taxpayers will be reversed over time.

According to the Center, the largest cuts, in dollars and as a percentage of after-tax income, would accrue to higher-income households. However, not all taxpayers would receive a tax cut under this proposal even at the start—at least 7 percent of taxpayers would pay higher taxes under the proposal next year.

 And those in the first two quintiles would see little in tax cuts; $10 to $40 per year,

Then it gets worse. At least 25 percent of taxpayers would pay more by 2027.  But the increased burden would be greatest on middle-income households. According to the Policy Center, by 2027, about 31 percent of middle-income households would pay an average of $1,150 more in taxes than under current law.

In reality, if price inflation heats up it will be a much much more and for a much larger percentage.

Notes the Center:

[M]any of the 2018 tax reductions would disappear over time in part because some are scheduled to expire in five years, and in part because much of the individual income tax code would be indexed for inflation using a less generous formula than today. Over time, that formula, called chained CPI, would push more people into higher tax brackets...

  Ron Paul recently explained the chained CPI scam:

 The worst part of the tax plan is that it adopts the chained consumer price index (chained CPI). Chained CPI is a way of measuring CPI that understates inflation’s effects on our standard of living. It does this by assuming inflation has not reduced Americans’ standard of living if, for example, people can buy hamburgers when they can no longer afford steak. This so-called full substitution ignores the fact that if individuals viewed hamburgers as a full substitute for steak they would have bought hamburgers before Fed-created inflation made steak unaffordable.

Chained CPI increases the inflation tax. The inflation tax may be the worst of all taxes because it is hidden and regressive. The inflation tax is not even a tax on real wages. Instead it is a tax on the illusionary gains in income caused by inflation. The use of chained CPI to adjust tax brackets pushes individuals into higher tax brackets over time.

Politicians love the inflation tax because it allows them to increase taxes without having to vote for higher rates. Instead, the Fed does the dirty work.

And what is worse, is that the all-important child tax credit will not be adjusted for price inflation at all.

In short, the tax reform is exactly what you would expect from a New York City street hustler. There is lots of flash and dazzle but before you leave the arena there is going to be a good chance you will have less buying power in your pocket.

As Howard Gleckman, Senior Fellow at the Tax Policy Center, puts it:

The bill now being debated by the House Ways & Means Committee would fall far short of President Trump's promise of a historic tax cut. Indeed, for many, it would mean a higher income tax bill, especially over time. 

  -RW