Shawn Vestal: Trump’s trickle-down tax plan a boon to the rich

One in four Spokane County households lives on $25,000 or less a year.

More than half of those households live on $15,000 or less, according to census data. And more than half of those live on $10,000 or less.

These are the people – with all due respect to the 6 percent of county residents earning $150,000 or more – who need the most economic relief. And they are the ones likely to get the least under tax cuts taking shape in Washington, D.C.

The plans are not final, and supporters say that it’s premature to draw conclusions. Tax policy analysts, using previous House proposals and the outlines of President Trump’s sketchy plan, say they can see the shape of the reforms, and that shape will not surprise you: massive cuts for the wealthiest Americans and corporations, and little help – or even tax increases – for the poorest.

Add to that the fact that huge tax cuts are budget-busters. When it comes time to deal with that, programs helping the poorest Americans are certain to be targeted.

The Tax Policy Center – a research organization that frequently undercuts magical thinking about tax cuts – evaluated the Trump tax cuts as proposed so far, and concluded that the average tax bill would go down by $2,940, resulting in an increase to after-tax income of 4.1 percent.

These cuts tilt heavily toward top earners: The top 0.1 percent, who make more than $3.7 million a year, would get a 14 percent tax cut. Households in the middle fifth of the income distribution would see a 1.8 percent cut. Those in the poorest fifth would see a 0.8 percent cut.

The TPC estimates that a household with an income of $25,000 would get a cut of $40.

“There’s no significant benefit for low-income families,” Elaine Maag, a senior research associate at the Tax Policy Center, told the Washington Post. “It’s important because when low-income families get money they tend to spend it, putting it right back into the economy. High-income families tend to save it.”

Still, 40 bucks is better than nothing, right? Advocates for the poor say not if it comes with cuts to health care or other safety-net programs. That’s already the direction that the GOP majority in D.C. is heading, even without digging the kind of budget hole that huge tax cuts would create.

The TPC conducted two estimates of the Trump plan and tried to evaluate the effect of the cuts, as well as any economic boost that might result. It did not find the kind of stimulative effect that tax cutters often say will result.

“Both sets of estimates indicate that the plan would boost gross domestic product (GDP) in the short run, reducing the revenue cost of the plan,” the center’s analysis says. However, “the federal debt would increase by at least $7 trillion over ten years, even with these positive macroeconomic feedback effects on revenues.”

In other words, big tax cuts would stimulate the economy. It’s just that the cost would be much greater than the stimulation.

Those “macroeconomic feedback effects” are the supposed payoffs for tax cuts in the nosebleed bracket: to fuel investment and employment. To, you know, trickle down. Many of the faithful say that tax cuts pay for themselves with increased economic growth and will lead to substantial wage increases for workers. Many of the faithful also criticize the TPC as an unreliable, partisan organization whose conclusions are to be doubted and dismissed – essentially the same argument they make about the Congressional Budget Office, or anyone who does the math and discovers that the emperor is naked.

Reagan’s tax cuts, for example, are believed to have had an almost magical effect on the economy. But they also coincided with – and probably contributed to – the widening canyon of wealth inequality. Not every boat rose. And while there are plenty of economists who favor tax cuts as a spur to economic activity, there is reason to wonder how much of that activity reaches the people at the bottom.

In 2015, an economist at the University of California, Berkeley, Danny Yagan, published a paper in the American Economic Review evaluating the tax cuts on dividend income in 2003. Those cuts are exactly the kind that are supposed to trickle down – big savings at the top, meant to spur investment and job creation and wages.

Yagan looked at corporate tax returns between 1996 and 2008 and found that he could not find support for the idea that the tax cuts – as opposed to other economic factors – had stimulated investment or wages.

His conclusion: “I estimate that the tax cut caused zero change in corporate investment and employee compensation.”

Talk about a trickle.

A lot of people in this county need help. More than 17 percent of Spokane County families with children live below the poverty level – and most of them work at least part time. Around a quarter of households can’t afford an average two-bedroom rental, and there is a tiny vacancy rate for affordable housing, according to the Spokane Low-Income Housing Consortium.

These are the families who get subsidized health care or food stamps. Whose kids get free lunch at school or rely on Pell Grants to go to college. Who may depend on a housing voucher, Head Start or a grant to pay the heating bill.

As Congress strives to eliminate the estate tax for millionaires, these are the people who need relief.

But relief may not be what’s trickling their way.