The nearly 500-page overhaul of the tax code that Republicans rammed through the Senate early Saturday morning gave lawmakers and experts little more than a moment’s notice to pore over the law’s myriad changes.
But one thing is clear: The bill is filled with perks for America’s wealthiest individuals and largest corporations, many of them paid for by closing loopholes that benefit middle-class people. By 2027, the top one-fifth of earners would receive 90 percent of the tax bill’s benefits, according to an analysis by the nonpartisan Tax Policy Center.
Here are some of the legislation’s most outrageous components ― from giveaways for the super-rich to carve-outs for private schools.
Dramatically reducing the corporate tax rate.
The centerpiece of the Republican tax bill is its slashing of the top corporate tax rate from 35 percent to 20 percent. Republicans claim this is necessary to restore American competitiveness, noting that, on paper at least, the United States has one of the highest corporate rates in the developed world.
However, many large corporations are able to take advantage of deductions and loopholes that allow them to register profits overseas. This means that in practice, the average effective corporate tax rate on profit from new investments in the U.S. is 24 percent ― just a shade higher than the G-7 average of 21 percent.
There are, of course, proponents of a lower corporate tax rate in both major political parties. Former President Barack Obama, for example, proposed lowering the top corporate rate to 28 percent as part of a revenue-neutral, comprehensive tax reform package.
But without major changes in the way corporations do business, a big corporate tax cut is not actually likely to result in more job creation and higher wages. Instead, it is just a windfall for the corporate executive suite that is bound to exacerbate income inequality.
That’s because corporate incentives are such that executives and their boards are rewarded for how much they maximize quarterly returns for big investors, not how much they invest in the long-term growth of their companies ― let alone how they treat their workers. As a result, Fortune 500 CEOs and their fellow decision-makers are just as likely to spend the extra cash they get from this massive tax cut on dividends and stock buybacks, rather than expanding their workforces. They have even said as much.
Creating a big new tax deduction for private school tuition.
Sen. Ted Cruz (R-Texas) succeeded in adding an amendment to the final bill that would expand tax-exempt 529 college savings plans to parents saving for K-12 private school tuition, as well as expenses associated with home schooling.
Technically the expanded savings accounts would allow parents to amass tax-free savings for public school education as well, but it is not at all clear what major costs are incurred from a public school education. And there are no exceptions to the types of schooling eligible for the tax break, meaning that the tax code is now almost certain to subsidize private religious education.
“By expanding choice for parents and opportunities for children, we have prioritized the education of the next generation of Americans, allowing families to save and prepare for their children’s future educational expenses,” Cruz said in a statement about the amendment’s passage.
Although the tax benefit is sure to save some families money, the ballooning cost of private elementary and secondary school makes it unlikely that it will increase access to private school for middle- and low-income kids.
Average annual tuition at non-sectarian private elementary schools rose from $4,120 in 1979 to $22,611 in 2011, according to a study by the National Bureau of Economic Research released in July. It’s no surprise then that in 2013, 26 percent of families in urban area with incomes in the 90th income percentile sent their kids to private school, compared to just 7 percent of families in the 50th percentile, according to NBER. In 1968, by contrast, the study said, there was a gap of just 5 percentage points in the two income groups’ respective rates of private school enrollment.