The New York Times recently reported that President Donald Trump paid no income taxes for most of the last two decades and only $750 in 2016 and 2017—spotlighting how a wealthy and unscrupulous business owner can take advantage of a broken tax code and weak tax enforcement.
Since taking office, President Trump’s administration has only made the tax code worse. Here are six ways the administration’s tax policies—particularly the Tax Cuts and Jobs Act of 2017 (TCJA)—further rig the tax code in favor of corporations and the wealthy and powerful.
1. The Trump administration’s main legislative accomplishment is a hugely regressive tax cut
The tax bill that President Trump signed into law in 2017 dramatically cut taxes for wealthy individuals and corporations. It slashed the top individual income tax rate, carved out a special new deduction mainly benefiting wealthy business owners, gutted the tax on large inheritances, and significantly reduced taxes on corporations. Taken together, the changes this law made will dramatically reduce tax bills for the very wealthy, leaving the working and middle class with little benefit. In 2020, the average household in the 1 percent will receive a tax cut of $50,000—77 times larger than the average cut for the bottom 80 percent of Americans.
Figure 1
2. The TCJA opened up new loopholes for the wealthy
Although labeled “tax reform,” the 2017 tax law actually opened up major new loopholes for the wealthy to exploit. One of the biggest loopholes within the bill is the so-called pass-through loophole, which created a 20 percent deduction of business income for owners of businesses such as S corporations or LLCs—opening up a number of new gaming opportunities. The deduction effectively lowered the top tax rate on most business income of high-income individuals by 10 percent—from the pre-2017 rate of 39.6 percent down to 29.6 percent. The largest beneficiaries of this provision by far are the richest 1 percent of Americans, who will see nearly two-thirds of the windfall. Moreover, in the final hours before the bill was passed, lawmakers added a last-minute provision to expand the pass-through loophole, especially for real estate owners.
3. The TCJA slashed corporate taxes by one-third
At the heart of the 2017 tax law is a large cut for corporations. The law slashed the corporate tax rate from 35 percent to 21 percent. And unlike the tax cuts for individuals—most of which will expire in 2026 and 2027—most of the cuts for corporations are permanent. Immediately after the law went into effect, corporate tax revenue began falling off a cliff. Before the 2017 tax bill was enacted, the Congressional Budget Office projected that corporations would pay roughly $668 billion in taxes over 2018 and 2019. After the law was passed, however, corporations only ended up paying $435 billion over that period—a 35 percent drop. The primary argument from proponents of the bill was that corporations would take this $233 billion tax cut and reinvest it in new equipment, facilities, and their workforce. But instead, corporate investment declined, as companies took those gains and funneled them back toward their wealthy shareholders through stock buybacks and dividends.
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4. Wealthy estates got large tax cuts in the TCJA
The 2017 tax law also gave large tax cuts to the wealthiest estates. Before the law, only 0.2 percent of decedents’ estates paid any estate tax because of the generous exemption. The 2017 law doubled the exemption so that more than $22 million of a couple’s wealth can be transferred to heirs tax-free—meaning that the wealthiest estates will pay more than $4 million less each than they would have under the pre-TCJA tax code. The estate tax cuts are estimated to cost $83 billion in revenue over 10 years, and the number of wealthy estates subject to the tax each year is estimated to fall by more than two-thirds—from 5,500 to just 1,900 extremely wealthy heirs.
5. If the Trump administration succeeds in repealing the ACA, the wealthy would get more tax cuts while more than 20 million people would lose health coverage
The Trump administration is actively backing a lawsuit pending before the U.S. Supreme Court that would repeal the Affordable Care Act (ACA) in its entirety. If the administration is successful, it would likely eliminate the taxes that funded the law’s expansion of health coverage, including a tax on high-income individuals’ investment income and earnings and a tax on pharmaceutical drug companies. The Tax Policy Center estimates that more than half of the tax cuts resulting from the ACA’s elimination would go to taxpayers in the top 1 percent, and more than 86 percent would go to the top quintile. The biggest beneficiaries from this change would be America’s billionaires, who have only gotten wealthier over the course of the year: The wealthiest 100 billionaires have seen their fortunes grow by more than $400 billion combined since the start of 2020. If the ACA’s tax on investment income is repealed, they would each receive a massive windfall on their gains accrued in 2020—reducing their collective tax bill by more than $16 billion. Working- and middle-class Americans, on the other hand, would see negligible tax cuts, while those who are currently receiving tax credits to help them afford health insurance would face much higher premiums, if insurance is available to them at all. (The loss of premium tax credits is not reflected in Figure 3.)
Figure 3
6. Trump’s new capital gains tax proposal would give 99 percent of its benefits to the top 1 percent
President Trump has recently floated a proposal to cut the top capital gains rate—a tax paid on the profit received from selling a capital asset such as stocks, bonds, or properties—from 20 percent to 15 percent. Capital gains taxes already receive preferential tax treatment compared with ordinary income from wages or salaries. According to IRS data from 2018, only the wealthiest 0.8 percent of Americans had any capital gains or dividends in the current 20 percent tax bracket. As such, cutting the top rate on these assets would almost exclusively benefit the wealthy. The Institute on Taxation and Economic Policy estimates that a full 99 percent of the tax cut would go to the richest 1 percent.
The uber-wealthy within the top 1 percent would see the largest benefits from each of these two policies. According to a Center for American Progress analysis based on 2017 tax data, if the top capital gains rate were reduced to 15 percent and the net investment income tax were repealed as part of the Trump administration’s efforts to repeal the ACA, the highest-income 0.001 percent of Americans—those with incomes exceeding $63.4 million per year—would receive a windfall of nearly $14 billion: an average tax cut of more than $9.6 million per person.
Conclusion
The Trump administration’s tax policies have substantially reduced revenues and funneled tax breaks to the wealthiest households. Instead of genuine tax reform that would end loopholes and gaming opportunities to ensure that large corporations and the wealthy pay their fair share, the Trump administration’s tax policies cut rates and carved out new loopholes for the wealthy to exploit. Reversing these harmful tax policies should be a top priority for Congress and the next administration.
Galen Hendricks is a research assistant for Economic Policy at the Center for American Progress.