Even if the Republican Tax Bill (RTB) lowered the tax on all people there is no doubt the big beneficiary were the rich. Not only was the estate tax exemption doubled to up to 11 million dollars, the top rate on income was lowered from 39.6 to 37%. A guy earning 50 thousand may pay 3,000 less while a guy earning two million in taxable income saves $52,000, which is more than the $50,000 a year earner earns.
Why is it then that the Republicans are so interested in making the rich richer? And when I’m discussing this I’m not including all the other “pass through” tricks in the tax bill where people who earn money from passive real estate investments (Trump source of income) , passive meaning they have nothing to do with the management of the investment other than to take money from its earnings, have to pay taxes at a 21% rate on that income even if they are in the 37% tax bracket for people earning more than $500,000 a year. That’s the same rate as a person earning 40,000 a year.
I don’t suppose anyone will suggest the RTB did not enormously benefit the wealthy. Nor do I suppose, if the intent was to help the middle class that it was impossible to create a tax bill that helped them but did not help the rich and ultra-rich. Can we agree then that the Republican Party is the party of the rich?
Now I’m sure you’ve all heard the term “double taxation.” It is defined by Investopedia as: “referring to income taxes paid twice on the same source of earned income. It can occur when income is taxed at both the corporate level and personal level.” The argument was that the corporation has to pay tax on its income so when it passed on to its owners in the form of dividends the same money on which the taxes were already paid is being taxed again.
That really is a silly argument since corporations are considered as separate entities. It is taxed (although now under the RTB at a much lower rate again helping the rich) and the money it pays out is taxed. That happens all the time. If your income is taxed and you pay out part of what you earn to the plumber who just fixed your frozen pipes he also is taxed on the money you earned which has already been taxed.
Now though, because of the RTB, we are really going to see cases of income being taxed twice. At one time in America what an individual received was only taxed once unless the individual entered into a situation where he voluntarily agreed to be taxed again on the money he was already taxed on such as buying something subject to a sales tax or a home subject to a real estate tax. One situation where one did not voluntarily agree was to state income taxes. There, you would have clearly been taxed twice on the same income without your consent.
This true double taxation to one person on his income, federal and state, was avoided by allowing the person to deduct the money he paid on state taxes prior to the time he was assessed his federal taxes. If he made 200,000 and paid state taxes of 12,000 he would only be taxed on the 188,000. In an extraordinary additional benefit the federal government also allowed a tax voluntarily incurred, the real estate tax, to be also deducted.
Prior to the RTB a person owning real estate on which he paid 15,000 taxes and his state tax of 12,000 would be able to deduct the total 27,000; now he can only deduct the first 10,000. So there is a clear situation of double taxation on the same income. Does it matter that it is different entities the taxes are being paid to? Since one can be prosecuted for the same crime by both the federal and state government I suppose one can’t complain about having to pay double taxation to both governments.
But the bigger question remains, as you can see from the above, the persons most affected by the new limitation on the amount of state and local taxes that can be deducted are the rich. How then is the party of the rich allowing that to happen? Is it a blue vs red question? I’ll give my answer soon.