Through most of the 20th century, income tax rates paid by the wealthiest Americans were much higher than they are today, topping out at a marginal rate of more than 90 percent for a long stretch after World War II. These top tax rates were significantly reduced during the late 1980s and, under the The Tax Cuts and Jobs Act (TCJA), the highest marginal income tax rate has been further decreased to 37 percent.
Passed at the end of 2017, the TCJA continues to provide large tax cuts to the country’s wealthiest individuals. Even foreign investors reap considerably more benefit from this law than middle- and low-income wage earners in the United States.
As a result, the TCJA has made the American tax system less effective at securing national revenues from the people most able to provide them. According to a new analysis from the Institute for Taxation and Economic Policy, the national treasury will lose $324.2 billion in revenues with tax breaks distributed as shown in Figure 1.
Figure 1. The TCJA will continue to disproportionately benefit the wealthiest in 2020.
Similarly, tax cuts will be a lot bigger for Hawaiʻi’s richest taxpayers in 2020, as shown in Figure 2.
Figure 2. Hawaiʻi’s richest tax payers will get the biggest TCJA tax cuts in 2020
The tax revenues lost because of the TCJA are adding to the deficit, which is prompting proposals to cut benefits for low-income Americans, such as making thousands of low income families ineligible for help from the Supplemental Nutrition Assistance Program (SNAP). These are the very same people for whom the “trickle-down” economics of the past 40 years have utterly failed to provide the opportunity that proponents of tax cuts for the wealthy have continually promised.
Figure 3 shows the trend in wage growth in Hawaiʻi since 1985, and it hasn’t been kind to low- and median-wage earners.
Figure 3. Wages have grown three times higher for Hawaiʻi’s high-income workers compared to low- and median-wage earners between 1985 and 2018. The figures are adjusted to 2018 dollars.
The TCJA, by design, will enrich the top earners in the country further without providing any significant benefits for anyone else, widening the income and wealth gaps in America. And, because the TCJA will dramatically increase the federal deficit, the result will almost surely mean harsh budget cuts to social programs meant to help people living in poverty. It has become increasingly clear that tax-cuts for the wealthy simply do not equate to opportunity for low- and middle-income Americans, or a healthy economy.
After four decades, it’s high time we adopted strategies to strengthen the economy from the bottom up. Government investments in communities—in schools, healthcare services, job training programs, walkable neighborhoods, small businesses, family care, civic engagement and environmental protection—are the foundation for a better society and greater income equity. But to pay for these investments, we will need to undo problematic tax schemes like the TCJA and ensure the proper investment in America by high-earning individuals and corporations.
[See: “What makes a good tax system”]