Managing Middle-Class Cuts: the Good, the Bad, & the Grattons

(OCT 1st, 2017) — Even with a Senate and House of Representatives weighted in his political favor, Donald Trump still is finding difficulty getting Republicans to agree on his newly formalized tax structure. A surprisingly easy read (even for those less fluent in mathematics and tax codes), the tax plan values simplicity and ease-of-understanding. At face value, an effort for tax reform is long overdue and something that a majority of Americans support. Whether this reform is the one to rule them all remains to be seen. These efforts supposedly stem from a desire to grow the middle class, an assuredly noble goal for any politician, and one that has shown to spur baseline economic growth. Yet some Senate Republicans are still unruly in the matter, and almost half of all Americans oppose Trump’s tax reform, at least that which he outlined before assuming the presidency. (Interestingly enough, a majority of those who responded also identified as Independent, with equal representation from both Republicans and Democrats.) So why is it that so many find issue with these newly restructured tax codes, while others drool over its potential to grow the middle class? Hopefully this article can help us to make sense of the good, the bad, and grattons (for those uninformed, a Cajun term colloquially used to refer to extra tidbits) in Donald Trump’s new tax structure.

Possibly owed to the simplicity of the man himself, is the Republican effort to simplify the way we are taxed based on our income. As our tax code currently stands, there are seven income tax brackets which you could fall into: 10 percent, 15, 25, 28, 33, 35, and 39.6 percent; these rates vary depending on both your yearly income and how you filed your taxes (whether claiming dependents, being claimed as a dependent, etc.). On average, even those making more than $10,000 dollars per year are subject to a flat 10% income taxation. Furthermore, the current tax code implements a standard deduction of between around $6,000 (for those filing as single) up to almost $12,000 (for those married and filing separately). This means that, if we were to round up, at least $10,000 dollars of a person’s income is left untaxed yearly, and this is of particular importance when we continue on to look at how Trump plans to change the status quo. Particular details on our most recent tax codes can be found here, for those interested.

Rest assured, many details of this new tax structure are still yet to be hashed out in Congress and the Senate. For these reasons, it’s important that we maintain an open line of communication with our local congressman and senators, and keep them informed as to what we expect from this tax reform. If you don’t know your elected officials, please refer here so that you can begin this line of communication.

The Good

First, let’s take a look at what good can be found within Trump’s tax outline. First and foremost, Trump makes efforts to increase the amount of untaxed income that the average American faces. As stated earlier, the current tax bracket is made up of seven subsections. Rather than this, the Republican tax brackets would be limited to only three, with these percentages at 12, 25, and 35. The report goes on to detail: “Typical families in the existing 10 percent bracket are expected to be better off under the framework due to the larger standard deduction, larger child tax credit and additional tax relief that will be included during the committee process.” As someone whose head always begins to ache come tax season, this makes it much easier for the average American to understand just where they fit in this newly structured tax code. The report also details that a higher-income tax bracket may be added later on, but that would only reduce the net taxation that those underneath said bracket would face.

Furthermore, the proposal aims to lower the amount of middle-class income subject to taxation. As we stated before, on average there is at least $10,000 dollars of a person’s income left untaxed yearly. This new Republican tax plan makes efforts to “roughly double the standard deductible” to at least $12,000 for single filers, and up to $24,000 for those married and filing jointly. This is one of the changes that the new plan hails as fundamental to the new tax code: tax reductions for those that need it most. More conservative estimates say that this increase is more along the lines of 15 percent, but ultimately the largest increases are made for those in the middle class. In conclusion, while our deductibles may not actually double in all cases, most of us will see an increase in the amount of untaxed income each year (especially those who are married and have dependents).

The Bad

And yet, with the good comes the bad. The new plan also aims to eliminate estate taxes (tax levied on heirs when they become inheritors) as well as partially decreasing tax cuts for the wealthy. As we can see, when comparing the status quo tax code to the proposed changed, the largest tax bracket shrunk from 39.6 percent to 35 percent. While this small percentage does not affect a vast number of those taxed, it is still a tax cut for those that are wealthiest. As you can imagine, this is drawing mire from those whose platform contains a redistribution of wealth and increased taxation on high-income individuals. No matter which side of the fence you sit on, most people find this particular issue to be of primary concern; whether we believe those who earn more should be taxed or not, it is important to understand why someone would believe that. There also exists the argument that raising estate taxes spurs spending at the higher tax brackets, but that argument is an inefficient and inconsistent form of proper wealth redistribution.

Whether or not we pass tax reformation, it is important that we begin to take better note as to how our tax dollars are being spent. Our country’s deficit very recently totaled 20 trillion dollars, an unbelievable amount. It wasn’t but a few hundred years ago that revolutions were fought due to excessive taxation, and as George Santayana said, “those who cannot remember the past are condemned to repeat it.” If we do manage to pass board-clearing tax cuts that everyone agrees upon, these efforts still must be bolstered by an increase in the government’s fiscal responsibility.

Less taxes with increased spending can only lead to one thing: detritus for our already massive national debt, and a breaking down of already burdened local infrastructure. We must make efforts to control government spending, just as we are making efforts to simplify and restructure the tax code. But, one cannot be done without the other!

The Grattons

And here’s your grattons, just a little food for thought: an excerpt from Christian Barry’s work in the Stanford Encyclopedia of Philosophy, “Redistribution.”

“There are, no doubt, reasons for considering certain economic systems just, and others unjust, but it has turned out to be difficult to use the concept of redistribution to mark out differences between them… Redistribution as tax and transfer or as rights infringement may indeed have basic moral significance. The classification of policies and institutional arrangements as redistributive in either of these senses, however, has been shown to depend on our moral assessment of these practices, and cannot thus be used as a basis for such assessments.But couching discussions of distributive justice in terms implied by redistribution smuggles in associations of forceful takings and rights infringements, which are not obviously appropriate in the context of evaluating social programs funded through taxation, or to discussions of reforms of the global economy. Moreover, focusing on the permissibility of ‘helping’ and ‘aiding’ poorer people through ‘redistributive’ transfers seems tacitly to accept the existing distribution of holdings as a morally unproblematic benchmark. This focus will tend to privilege the status quo, and foster resistance to more egalitarian social arrangements.”