Trump has described the US$1.5 trillion tax cut
as a Christmas gift to all Americans. In some senses he is right; reports suggest that up to 80% of all American households will see a modest tax cut. This means paychecks may grow immediately in the new year.
But there's a twist. While individuals will indeed benefit, the centrepiece of the legislation is the decision to slash America's corporate tax rate from 35% to 21%. This is a victory for the Republicans that has been decades in the making. And even though they are being careful not to describe it in these terms, the bill is a sacrifice at the altar of trickle-down economics. Most workers shouldn't expect to benefit from corporate munificence; instead experts suggest that the windfall to companies will most likely flow on to shareholders rather than employees or customers.
Perhaps the most audacious (and to some, the most detestable) part of the bill is the fact that the corporate tax cuts are permanent while the individual cuts will be wound down to nothing by 2025. It's rather likely in fact that after 2025 individual taxpayers will face a higher tax burden.
Non-partisan think-tanks have done the arithmetic and they estimate that middle-income households will receive a tax cut of $900 next year
. By comparison, the top 1% of American households will stand to gain $51,000 on average. The fact that the bill is heavily skewed towards rewarding the wealthy manifests in Trump's own likely tax bill. In contrast to unsubstantiated claims that he would face higher taxes, independent research shows that Trump will personally save $15m
next year. His son-in-law Jared Kushner will come home with an extra $12m. And multiple members of the Trump cabinet will save several million a piece.
The president was understandably buoyed by the passage of the bill. In fact, in his excitement he let slip that
he thinks the most salient part of the bill is the corporate tax cut. The admission sharply contradicted statements by House leader Paul Ryan and Senate leader Mitch McConnell both of whom assiduously maintained that the bill's aim first and foremost was to provide tax relief to the middle class.
For Trump this bill represents the fulfilment of major campaign promises.
First, his promise to make American corporations repatriate their offshore fortunes now seems far more likely to be fulfilled; the trillions that Apple, Pfizer, Google and others have squirrelled away can now be moved back onshore and taxed at incredibly low rates (between 8% and 16%). Little wonder then that corporations like AT&T have lauded the bill and Wall Street bounded at the news.
Second, Trump has also moved closer to forcing the collapse of Obamacare. The president appeared to not understand that the bill only scraps the individual mandate, not Obamacare itself. But the result will be the same; without an individual mandate to purchase insurance many young and healthy people will drop their cover. This will reduce both the size and the healthiness of the group that continues to seek insurance. Which in turn will increase the costs and risks for insurance companies and ultimately hasten the collapse of the Obamacare model.
Also in the firing line are America's elderly who rely on Medicare for welfare. The bill cleaves off 4% from Medicare funding to help pay for the tax cuts; a situation that will undoubtedly be exacerbated by an ever-diminishing federal tax haul. During his time in office Paul Ryan has been single-minded in his drive to de-fund and privatise social services like Medicare and Medicaid. He now gets his wish.
With its ageing population, accelerating disruption and job displacement, and growing concentration of wealth, there is certainly cause for concern about America's new tax bill. But perhaps the single most dizzying facet of the entire process is that, it appears, many Congresspeople simply had not read the bill
when they voted for it.