But let’s examine a few specifics.
--The capital gains tax preference is preserved. As we’ve noted before, wealthy taxpayers have been willing to give up a lot of breaks, as long as the capital-grains preference remains in place. The top tax rate on ordinary income is 39.6% (reduced to 35% in the tax proposal); the top rate on capital gains is just over half that— 23.8%.
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The preferential rate delivers an estimated $120 billion a year to taxpayers who are overwhelmingly members net merely of the 1%, but the 0.1%--they’re the recipients of 76% of the capital gains tax benefit. That’s because capital gains comprise much larger shares of the income of the wealthy than everyone else. Those with annual incomes of $1 million or more receive more than half their income from capital gains; working-class people earning $75,000 to $100,000 receive on average 75% of their income from wages.
There’s more to the capital gains break than merely the preferential rate. As Ed Kleinbard, the tax expert at USC, observes, it’s our only truly voluntary tax: Those with accumulated capital gains liabilities can choose when to pay them simply by deferring the sale of the capital asset, because that’s when they’re collected. Hold the asset long enough to bequeath to one’s heirs, and the tax is extinguished. No other U.S. tax encompasses such an enormous benefit.
--Repatriation of foreign corporate assets at a low rate. Big business has been pushing for this break for years, or since the last “one-time” repatriation amnesty in 2004. American multinationals hold an estimated $2.6 trillion of what Kleinbard calls “stateless income” offshore. They’ve resisted bringing the wealth back home because it would be taxed in the U.S. at standard corporate rates.
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The framework says foreign earnings held in forms other than cash will be subject to a lower rate, though it doesn’t say how low. In any event, the rationale, which is that corporations will use the money for investing in their future and for job growth, doesn’t hold water. As Steven M. Rosenthal of the Tax Policy Center observes, industry promised in 2004 that the repatriated profits would be used for job development and investment. For that they were gifted with a preferential 5.25% rate.
Instead, multinationals used the repatriated funds to pay dividends to shareholders and buy back their stock, actions that disproportionately benefit wealthy shareholders. In fact, the largest participants in the 2004 repatriation holiday, including Pfizer and IBM, cut jobs and research. “Once the holiday ended, the multinationals went right back to accumulating earnings off-shore, anticipating another tax holiday,” Rosenthal writes.
--Repeal of the estate tax. The estate tax is the perennial target of the most dishonest Republican spin in the whole tax code. Dubbed by its wealthy critics the “death tax,” this levy supposedly burdens family farms and businesses. During the Presidential campaign, Trump called the estate tax a burden on the “American worker.” Yet the estate tax affects only a few thousand people at most, all of them multimillionaires with an average nest egg of more than $30 million. Currently, the tax is set at 40% of estates, with an exemption worth $5.49 million per individual and $10.9 million per couple. Among those who would almost surely benefit from repeal: Ivanka, Eric, and Donald Trump Jr.
