How the GOP's giant tax reform con was designed to trick American voters — and is now backfiring spectacularly
Even as the Republican Party pushed the Tax Cuts and Jobs Act through Congress in December 2017, critics were pointing out that it was filled with tricks and gimmicks meant to obscure the fact that it was a massive giveaway to corporations and the wealthy.
Now that the act has been law for more than and a year, the extent of its deception is coming into focus.
Writing for Vox, Matt Yglesias explained that the online furor from many supporters of President Donald Trump now filing their taxes appears to be a direct result of some accounting chicanery from the IRS designed to make the law more popular.
While the law did generally lower tax rates for most Americans — and then set them to spike after the 10-year mark — it didn't lower most workers' obligation by all that much. So instead of leveling with the American people and explaining that the purpose of the tax bill was never to provided much relief for typical people, the administration appears to have tried to tweak the IRS's withholding guidelines to make it look like taxpayers got a bigger cut than they actually did.
They could do this because the IRS collects taxes throughout the year from most workers through their employers. For most people, it collects more money than taxpayers will ultimately owe — which is why so many Americans get refunds from the IRS during tax season, rather than having to pay the government money. In what seems to be an attempt to bolster the tax law in the eyes of voters, the IRS reduced the amount of taxes withheld from workers' weekly paychecks throughout 2018, with an unfortunate result. Now that people are paying their taxes, they're getting smaller refunds than they expected or owing the government more money than they had anticipated.
"If this was intended to give Republicans a boost in the midterms it obviously didn’t work, in part because the once-a-year tax filing process is a lot more salient than the biweekly process of automatic withholding," wrote Yglesias. "In fact, they are now facing a backlash from an angry public that includes millions of people who were expecting tax refunds that they are now not going to get."
There may be good reasons to adjust the amount the IRS withholds from taxpayers' paychecks, but to do it on top of a significant change to the rate structures seems to be a deliberate attempt to invite confusion.
And Brad Setser, a former deputy assistant secretary in the Treasury Department, explained in the New York Times Wednesday that while American workers are getting less than they had hoped for from tax reform, corporations are running away with even more than they were promised.
He pointed out that the tax bill's corporate rate cuts were promoted as a tool to reduce the incentive for companies to move operations offshore. In fact, it has done the opposite, he argued:
The White House argued they wanted a system that “encourages companies to stay in America, grow in America, spend in America, and hire in America.” Yet the bill [Trump] signed into law includes a sweetheart deal that allows companies that shift their profits abroad to pay tax at a rate well below the already-reduced corporate income tax — an incentive shift that completely contradicts his stated goal.
Why would any multinational corporation pay America’s 21 percent tax rate when it could pay the new “global minimum” rate of 10.5 percent on profits shifted to tax havens, particularly when there are few restrictions on how money can be moved around a company and its foreign subsidiaries?
He added: "Overall, the Tax Cuts and Jobs Act amounted to a technocratic sleight of hand — a scheme set to shift an even greater share of the federal tax burden onto the shoulders of American families."
It's not clear how much Trump knew about this — despite his claims to the contrary, he seems to have a thin grasp on tax policy. But, Setser argued, his advisers and those working on Capitol Hill must have known what the result of the plan would be. They left open gaping loopholes that allow corporations to get away with exactly the kind of behavior Trump pledged to end.
On top of the deception about the effect on personal tax rates, this trickery will also leave many Americans let down by the administration. Trump promised to bring a flood of business investment from overseas, but it's not happening. The overhyped Foxconn factory plan in Wisconsin is turning out to be a bust. The president promised the end to all the corporate practices Americans hate, but if anything, these behaviors have accelerated. While some will believe Trump when he says the sky is green, eventually, economic reality catches up with the voting public.