When President Donald Trump appeals to the middle class to get behind his push to simplify the tax code, it is an odd audience to enlist.
For most of the middle class, the tax code is already pretty simple.
There’s nothing complicated about federal income taxes for individual filers unless they itemize their deductions. At least half of the middle class doesn’t.
Although politicians routinely appeal to the middle class, exactly what it means to belong in that group is vague. Economists differ not only on what amount of income constitutes middle class but also whether other considerations, such as lifestyle and personal perception, should be taken into account.
If income is the lone criterion, the Pew Research Center calculates that for a family of four, the middle class ranges between an annual income of $47,000 and $141,000.
The lower people fall in that range, the less likely they are to itemize deductions. Chances are they don’t own their own home, so they aren’t eligible to take the deductions for mortgage interest and real estate taxes. Even if they are homeowners, their other deductions, such as for charitable gifts or medical expenses, aren’t enough to exceed the standard deduction. Only about one in four filers earning $40,000 to $50,000 a year itemizes their deductions.
For the entire middle class, about half of filers just take the standard deduction. Their entire tax filing is about two pages, if they complete it on paper — which hardly anyone does anymore. So when Trump talks about getting the tax return down to a single page, as he did with his speech in Springfield, Missouri, last week, he is invoking an image that is an anachronism.
What Trump is really after is not so much a simpler tax code but one that goes easier on corporations and the wealthy. And like other Republican presidents have done in recent decades, he is trying to disguise his intentions as a break for the middle class.
The president has been mighty thin so far on his tax-cut plan, but a central plank of it — reducing the top corporate tax rate from 35 percent to 15 percent — does nothing for the middle class unless you still subscribe to the long-touted but yet-to-be-proven theory of “supply side,” or “trickle down,” economics.
Since Ronald Reagan first popularized the theory in the 1980s, Republicans from the White House to the statehouse have pushed this idea that if the wealthy paid less in taxes, everyone else would benefit, as there would be more money to invest privately to create jobs and put upward pressure on wages.
Although there has been some “trickle down,” the result of these upper-income tax cuts has mostly been “gush up.”
From 1979 to 2013, according to calculations done last year by the Center on Budget and Policy Priorities, after-tax income rose by 41 percent for the middle class, while it rose by 192 percent for the wealthiest 1 percent of Americans. The differential was even larger — almost 8-to-1 — before the Great Recession hit and investments took a beating.
There has always been a large income gap between the wealthy and the not-so-wealthy. That’s the natural outgrowth of capitalism, which deservedly rewards those who have the money and are willing to risk it on starting or growing a business, whether as owners or as investors. Without such a promise of financial reward, there would be no incentive to take the chances that fuel an economy.
From the post-World War II boom until the 1980s, though, the gains in personal prosperity were generally well-distributed across all income categories. It is only since then that the wealthy have benefitted by a proportionately much higher rate, returning the country to an income gulf it has not seen since the 1920s.
It’s not just tax policy, of course, that has widened the income gap over the past 30 to 40 years between the middle and upper classes. Automation and globalization have severely reduced the number of manufacturing jobs in this country, which accounted for a large portion of middle-class earnings. Tax policy, though, has compounded what was already a difficult economic transition for the middle class.
At the state level, what’s trickling down from tax cuts the Mississippi Legislature has enacted for the well-to-do is a greater dependence on local taxes.
To offset reductions in state funding caused by these tax cuts, many municipalities, counties and school districts throughout the state are raising property taxes.
Although these tax hikes hit everyone who owns property, they hit least hard at industries because of all the exemptions they’ve been granted from local taxes over the years to lure them and subsidize their operations.
This tax shift, like most GOP tax policies, is unlikely to be good for the middle class either.
Contact Tim Kalich at 581-7243 or tkalich@gwcommonwealth.com.
