AP FACT CHECK: Trump’s ‘middle-class miracle’ favors wealthy
WASHINGTON (AP) — You wouldn’t know it from President Donald Trump’s rhetoric, but the tax overhaul coming into effect is heavily tilted to the rich. It also leaves “Obamacare” in place, despite his assertion that the tax plan repeals the health care law. Nothing about the plan provides the fuel to achieve economic growth at the levels he’s predicted.
Trump’s penchant for exaggeration and sometimes pure fiction has clouded the realities of the overhaul as it has shaped up over months. As for Democrats, you wouldn’t know to hear them talk that middle-class people are getting a tax cut out of the deal, too.
A look at remarks made Wednesday and earlier about the tax plan Trump will shortly sign into law.
TRUMP: “It’s the largest tax cut in the history of our country.” — remarks Wednesday.
THE FACTS: It isn’t. For months Trump has refused to recognize larger tax cuts in history, of which there have been many, or to grant that other presidents have enacted big tax cuts since Ronald Reagan in the 1980s.
An October analysis by the Committee for a Responsible Federal Budget found that it would be the eighth biggest since 1918. As a percentage of the total economy, Reagan’s 1981 cut is the biggest followed by the 1945 rollback of taxes that financed World War II. Trump’s plan is also smaller than cuts in 1948, 1964 and 1921, and probably in other years.
Valued at $1.5 trillion over 10 years, the plan is indeed large and expensive. But it’s much smaller than originally intended. Back in the spring, it was shaping up as a $5.5 trillion package. Even then it would have only been the third largest since 1940 as a share of gross domestic product.
VICE PRESIDENT MIKE PENCE: “You’re delivering on that middle-class miracle.” — to Trump at a Cabinet meeting Wednesday.
THE FACTS: Modest doesn’t make for a miracle. Pence’s praise to the boss reflects Trump’s assertion that “it’s a tax bill for the middle class,” as he put it earlier and many times, but average people are not the prime beneficiaries of the tax cuts. Aside from businesses, rich people get the most.
The nonpartisan Tax Policy Center estimates the biggest benefit of the new law will go to households making $308,000 to $733,000. Households making over that should get a tax cut worth 3.4 percent of their after-tax income. For the richest 0.1 percent (making over $3.4 million), the tax cut should be worth 2.7 percent of their after-tax income. For middle-income earners: 1.6 percent, the center estimates.
Moreover, only high-income people would get a meaningful tax cut after 2025, when nearly all of the plan’s individual income tax provisions are due to expire.
Republicans argue that the middle class will also see benefits from the business tax cuts, in the form of more jobs and higher wages.
DEMOCRATIC SEN. CHARLES SCHUMER: “Their bill increases taxes on lots of middle-class people. ... According to the Tax Policy Center, the top 1 percent of earners in our country gets 83 percent of the benefits.” — remarks Tuesday.
THE FACTS: The tax cuts are not nearly as lopsided as many Democrats are portraying them. Almost all of the middle class would initially pay less in taxes.
For the next eight years, the vast majority of middle-class taxpayers — those earning between $49,000 and $86,000 — will receive a tax cut, albeit a small one. In 2018, nine-tenths of the middle class will get a cut, according to the Tax Policy Center. In 2025, 87 percent will. The tax cut won’t be very big: just $930 next year for the middle one-fifth of taxpayers, the center’s analysis concludes. For those paid twice a month, that’s about $40 a paycheck.
Schumer and other Democrats are basing their assertions on the fact that nearly all personal tax cuts expire after 2025, which would result in a slight tax increase for about two-thirds of the middle class by 2027. The top 1 percent would still get a cut that year.
Only in 2027 do the wealthiest taxpayers get 83 percent of the benefit, as Schumer says. In 2018, roughly 21 percent of the tax cut’s benefits go to the richest 1 percent, a much smaller figure, though still a disproportionate share. Just 11 percent will go to the middle one-fifth.
REP. NANCY PELOSI, House Democratic leader: “86 million middle class families get a tax hike.” — tweet Wednesday.
THE FACTS: She’s ignoring all the middle class tax cuts before 2027; that year, taxes will be slightly higher for the middle class unless the cuts are extended.
TRUMP on his tax legislation: “Obamacare has been repealed in this bill.” — remarks Wednesday.
THE FACTS: It hasn’t. The tax plan ends fines for people who don’t carry health insurance. That’s a major change but far from the dismantling of the law.
Other marquee components of Obama’s law remain, such as the Medicaid expansion serving low-income adults, protections that shield people with pre-existing medical conditions from being denied coverage or charged higher premiums, income-based subsidies for consumers buying individual health insurance policies, the requirement that insurers cover “essential” health benefits, and the mandate that larger employers provide coverage to their workers or face fines.
Also, the tax bill doesn’t repeal fines for uninsured individuals until the start of 2019, meaning the “individual mandate” is still in force for next year unless the administration acts to waive the penalties.
TRUMP: “When the individual mandate is being repealed, that means Obamacare is being repealed because they get their money from the individual mandate.” — remarks Wednesday.
THE FACTS: This is also wrong. The fines on people who don’t carry health insurance only provide a small fraction of the financing for the program. Most of the money comes from higher taxes on upper-income people, cuts in Medicare payments to service providers, and other tax increases.
The Congressional Budget Office estimated that fines from uninsured people would total $3 billion this year, while the government’s cost for the coverage provided under the health law would total about $117 billion.
TRUMP: “So we’re at 3.3 percent GDP. I see no reason why we don’t go to 4 percent, 5 percent and even 6 percent.” Speaks of GDP “getting up to 4, 5, and even 6 percent, because I think that’s possible.” — Cabinet meeting last week.
THE FACTS: There are no signs the economy is capable of delivering a phenomenal and rarely achieved growth rate in the order of 6 percent, or 5 or even 4. Federal Reserve officials and most mainstream economists expect economic growth to hew closer to 2 percent. The economy last cleared the 6 percent hurdle in 1984 and only for that fleeting year, at 7.3 percent. This was a different time, when baby boomers were at prime working ages, instead of today when they’re starting to retire. The Federal Reserve had boosted growth by steadily slashing a key interest rate from its 1981 peak of 20 percent, while the Fed today is slowly increasing the same rate. Also, the national debt was much lower.
Trump’s tax cuts are forecast to max out at roughly $280 billion in 2019, says Congress’ Joint Committee on Taxation. Yet to generate growth of 6 percent, those cuts would have to spur a massive $1.2 trillion gain to the gross domestic product. No administration analysis emerged to show how this could be possible.
HOUSE SPEAKER PAUL RYAN: “We are making things so simple that you can do your taxes on a form the size of a postcard.” — remarks when the tax bill came out Nov. 2.
THE FACTS: Don’t count on it. Few accountants would agree that simplification has been achieved. The combination of temporary provisions, partial elimination of deductions and other loopholes, and differing tax rates for business income and wages in the new law has, if anything, added further complications.
Some middle-class taxpayers may see simpler returns because the standard deduction has doubled in size, to $24,000 for a married couple. Some families will probably stop taking deductions for things like mortgage interest as a result, making their tax returns easier to file. But people who give heavily to charity, for example, will still have to run through their receipts to see if they’re better off with the standard deduction or itemization.
Many business owners and upper-income taxpayers are faced with a host of new complexities: Should high-paid employees try to reclassify their salaries as business income, which will now be subject to a lower tax rate? If so, what will they do in eight years, when the lower rate on business income is set to expire? Are they losing their deduction for state and local taxes, which can be worth tens of thousands of dollars for wealthier taxpayers? Many will, but it may not matter if they paid the alternative minimum tax in previous years, which overrode those deductions.
These types of questions will keep accountants busy for months, if not longer.
TRUMP on the tax plan: “So there’s a great spirit for it, people want to see it.” — Fox Business interview in October.
THE FACTS: Polling doesn’t find that spirit.
In an NBC-Wall Street Journal poll this week, 41 percent said the tax plan is a bad idea, 24 percent said it was good. That’s a deterioration in support over two months.
A Quinnipiac University poll this month found that registered voters, convinced that the benefits will flow mainly to corporations and the wealthy, oppose the plan 55 percent to 26 percent.
In a Gallup poll in September, just 2 percent of respondents named taxes as the country’s most important problem. Dissatisfaction with government, race relations and immigration were among the issues at the forefront.
A survey this month by CBS News found that 53 percent Americans say they pay about the right amount in taxes, while 40 percent say they pay more than their fair share. That same survey found 52 percent said corporations pay less than their fair share. The president’s plan will cut the corporate tax rate to from 35 percent to 21 percent.
Associated Press writers Josh Boak and Ricardo Alonso-Zaldivar contributed to this report.
Find AP Fact Checks at https://apnews.com/tag/APFactCheck