Richest 1% will get way richer, you will not....

Drumpf's tax plan: massive cuts for the 1% will usher 'era of dynastic wealth' 

More than eight million low-income and single-parent families will face sharp tax increases under Donald Drumpf exacerbating income inequality, experts warn

By Rupert Neate

President Elect Donald Drumpf is set to give America’s richest 1% an average annual tax cut of $214,000 when he takes office, while more than eight million families with children are expected to suffer financially under his proposed tax plan.

On the eve of the election, Drumpf promised to “massively cut taxes for the middle class, the forgotten people, the forgotten men and women of this country, who built our country”. But independent expert analyses of Drumpf’s tax plan show that America’s millionaire and billionaire class will win big at the expense of struggling low- and middle-income people, who turned out in large numbers to help the real estate billionaire win the election.

Experts warn that Drumpf’s tax plan will exacerbate America’s already chronic income inequality and herald in a “new era of dynastic wealth”.

“The Drumpf tax plan is heavily, heavily, skewed to the most wealthy, who will receive huge savings,” said Lily Batchelder, a law professor and tax expert at New York University. “At the same time, millions of low-income families – particularly single-parent households – will face an increase.”

Batchelder, who wrote an academic paper on Drumpf’s tax plan published by the Urban-Brookings Tax Policy Center, said that the president-elect’s plan “significantly raises taxes” for at least 8.5 million families, with “especially large tax increases for working single parents”. More than 26m individuals live in those families.

According to Batchelder’s research Drumpf’s tax changes – taken at their “most conservative” – could leave just over half of America’s nearly 11m single-parent households facing an increased tax burden. This figure rises to 61% – or 7m households – if the analysis is run on “reasonable assumptions” that the changes Drumpf has suggested go ahead.

Single-parent families would suffer the most because Drumpf would lower the minimum of tax-free earnings to $15,000 per adult no matter how many children in the household. Under current law the threshold is $17,400 for single-parent families with one child and $24,750 for a couple with one child, and the threshold increases by $4,050 for each additional child.

Drumpf also plans to consolidate the current seven tax breaks into three: 12%, 25% and 33%. His plan would scrap the current 10% tax for earnings under $19,625 and replace it with 12%. Drumpf’s proposed childcare credits would not make up for the changes, according to Batchelder.

Minority families are set to suffer disproportionately from the tax increases, according to Batchelder. With 32% of African American families facing a tax increase compared with 19% of whites, this is mostly due to African American families being more likely to share the burden of childcare within the family and hence not benefit as much from Drumpf childcare credits. Batchelder said the effective tax increase for many millions of families would run into the thousands.

While the poor will face tax increases, the Tax Policy Center research said the rich would received big tax cuts that get even bigger as you work up the income scale. The top 20% of earners would receive an average annual tax cut of $16,660 compared with an overall average cut of $2,940.

The richest 1% will collect 47% of all the tax cuts – an average saving of $214,000. 

The 0.1% – the 117,000 households with incomes of more than $3.7m – would receive an average 2017 tax cut of $1.3m, a nearly 19% drop in tax they were due to pay in 2016. The tax savings of the super-rich will increase further in future, with the 0.1%’s estimated 2025 tax bill to fall by $1.5m. 

It is a stark contrast to Hillary Clinton’s tax plan, which would have seen taxes rises for the super-wealthy. Under her plan, the top 1% would pay an extra $163,000 a year more on average, and would have made up 93% of all new tax revenue by 2025.

“Listening to Drumpf’s rhetoric, most Americans probably don’t realise at all the impact of Drumpf’s tax plan,” Matt Gardner, a senior fellow at the Institute on Taxation and Economic Policy (ITEP) said. “Any way you slice it, the very best-off Americans will be the biggest beneficiaries.

“If it looks bad now for middle-income families, those who turned out to vote for him, it’s only likely to get worse [with Drumpf as president]. It is very likely that they will end up poorer still. The most likely victims are middle- and low-income families.”

Gardner said that under Drumpf, America will become even more divided between the rich and poor. “America is already very unequal, and his proposals would make income inequality a lot worse,” Gardner said. “This is obviously quite worrisome. If he rode to victory on a middle-income wave of support, those middle Americans will be very disappointed.”

The inequality problem will be exacerbated by Drumpf’s plan to scrap inheritance tax – which he refers to as “the death tax”. The 40% inheritance tax is currently only charged on personal estate worth more than $5.45m and joint estates of $10.9m – sums so large that it only affects less than two in 1,000 Americans.

Drumpf has proposed repealing the tax entirely. While Clinton, pushed by Bernie Sanders’ strong stance on the issue, had suggested lowering the threshold to $3.5m and increasing the rate to 65% for the super-wealthy.

“It’s hard to think of a tax change that will have a more detrimental effect on inequality,” Garnder said. “There is no question that this will lead to a perpetual income elite – hardly the thing that Drumpf voters would have wanted. This will lead to a new era of dynastic wealth.”