Ever since they won control of the government in 2016. Republicans have been obsessed with getting this one thing done. Tax reform. We’re going to have a phenomenal tax reform. They’ve passed a bill, the President has signed it, so let’s break down what’s actually going to change.
Imagine that instead of getting paid in dollars, you got paid in cereal. The government takes a certain amount of cereal in taxes. And it uses it to pay other people to do things build roads, fly fighter jets, do research. You get the picture. The more you earn, the bigger the share of your cereal the government takes.
Sometimes the government wants to incentivize you to do certain things with your cereal. Like if you buy a house for a hundred pieces of cereal, and then sell it for 200 pieces of cereal, you’d normally have to pay capital gains taxes on that profit. But there’s a special loophole that says you don’t have to. The tax code is full of loopholes like this, which means if everyone puts their cereal together, there would be two bowls.
One that the government dips into for taxes, and one it doesn’t.
Now, Republicans want the government to take a smaller portion. And they say they want people to keep more of the cereal. But if they do that, the government won’t have enough cereal to pay for what it needs. So part of this new law is taking some of the cereal that’s not taxed, and change the rules so that it is taxable. That way, the government can take a smaller share of the cereal but still pay for the stuff it needs.
This is what politicians mean when they talk about ‘broadening the tax base.’ Here’s the problem: Republicans aren’t broadening the base enough.
They’re taking a lot less cereal from people and adding some new taxable cereal but not enough to pay for what the government needs. To pay for that stuff, the government is going to have to go into debt. This means they’re going to have to take even more cereal, years in the future to pay back the debt they’re taking out now.
Republicans think this will help grow the total amount of cereal available to both tax payers and the government. So what happens to that 1.5 trillion dollar gap? It goes back into people’s bowls but not everyone gets the same share.
If you break the population into five equally sized groups based on how much they earned in 2017 and look at how much each group will earn in 2018 every group does get a tax cut.
But fast forward ten years and you can see that lower and middle class Americans will actually pay more since their tax cuts aren’t permanent. And if you break that top group into smaller groups you can see the very wealthiest benefit most of all. So while this new law does close some loopholes to bring in new tax revenue The bill’s larger purpose is to realize the Republican vision of a fairer tax code.
One in which the wealthiest pay a lot less..