Two years ago this month, Congress enacted the biggest tax scheme seen in a generation.
Following the failed playbook of trickle-down economics, the tax package lavished massive tax cuts on the rich and corporations. Two years into the law, rather than seeing prosperity rain down, working Americans — especially those at the bottom — remain trapped in a landscape of diminished economic opportunity.
The second anniversary of the December 2017 federal tax law calls for a new direction in federal tax policy. That new approach must reject trickle-down once and for all, and instead lift our nation from the bottom up. A great start in this new direction would be a meaningful expansion of tax credits for working families.
While the 2017 federal tax law threw a bone to most of us, it served up a banquet for those at the top. The law, for example, doubled the amount the wealthy can pass on tax-free to heirs, and created new loopholes for business owners and wealthy investors.
The favorable treatment of corporations deserves special mention. The 2017 tax law slashed the corporate tax rate and created new corporate tax loopholes. The effect has been dramatic: in 2018, corporate income tax collections by the U.S. Treasury dropped by 31% from the previous year. Given that the vast majority of stocks are owned by the richest Americans, the bulk of those massive corporate tax cuts have flown to those at the top.
Emblematic of the gutting of the corporate income tax is the case of FedEx. The company's tax bill, The New York Times reported, went from $1.5 billion in 2017 to zero the following year.
For Americans working for low pay, the 2017 law has done little to improve their circumstances. In 2020, the lowest-income 20% of Americans, on average, will get a $60 tax savings from the law. The average member of the top 1%, on the other hand, will reap an average tax benefit in the neighborhood of $50,000.
Aside from the question of fairness, the 2017 tax law has been a bust from an economic standpoint. A short-lived economic burst has petered out. The economy has been slowing and the federal deficit has soared.
The evident failure of the 2017 law underscores the need for a new direction in federal tax rules. We deserve tax reform that responds to the pressing needs of today.
Among the most urgent problems is the predicament of working families trying to get by on low wages. Despite their work effort, many struggle to cover the rent, put food on the table, pay for child care and meet other essentials. This insecurity takes a toll on the mental and physical well-being of families and harms the educational attainment of children.
The prevalence of food insecurity, in particular, lays bare the fact that many families struggle to make ends meet. Nutrition often gets sacrificed when money is tight. In Oregon, one household out of eight does not have enough food for an active, healthy life. Food insecurity is not restricted to the lowest-paid workers. It touches many who work full-time, earning above Oregon's minimum wage.
Make no mistake: Federal tax law can do a great deal to improve the standard of living of working families. Key structures already are in place. The Earned Income Tax Credit and the Child Tax Credit, for instance, both have a long record of lifting up working families. Regrettably, the 2017 tax law not only passed up the opportunity to strengthen these credits, it weakened them by changing how they account for the rising cost of living.
Substantial expansion of these two tax credits would go a long way in shoring up family budgets across a vast segment of our country. For instance, the current Earned Income Tax Credit does little for workers who aren't raising children. Congress could increase their credits and also boost the amount for workers with kids.
Additionally, Congress could enable low-income households to get the full benefit of the Child Tax Credit, like middle- and higher-income households do.
These steps would speak directly to the experience of families today who are struggling to make ends meet.
For the sake of the national interest, Congress must face up to the failures of the 2017 tax law. It should repeal the tax breaks for the rich and corporations, while strengthening tax structures that lift from the bottom.
Juan Carlos Ordóñez is the communications director and Janet Bauer is a policy analyst with the Oregon Center for Public Policy. You can reach them through ocpp.org.