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New evidence shows critics of the Republican tax plan were right

The debate over the Republican tax plan was, to put it mildly, brief. GOP leaders crafted the plan in secret, then rushed it through Congress without a substantive hearing, hoping it would stand a better chance of success if no one looked too closely at its provisions.

But to the extent there was a public discussion about the plan’s merits, one of the key controversies was over tax deductions for owners of “pass-through” businesses. Democrats said the provision would largely benefit the wealthy, while Republicans insisted the change would help small business owners.

NBC News reported this week on the latest findings from the Joint Committee on Taxation, which suggest the plan’s progressive critics were on to something.

The deduction, which ranges up to 20 percent, will shower $40.2 billion in tax breaks on owners of pass-throughs – largely businesses owned by an individual or a partnership, or those “S” corporations that kick income and losses to shareholders for tax purposes – in 2018, the Joint Committee on Taxation estimated. The provision was included in the larger overhaul of tax rates enacted in December.

In 2018, the lion’s share of the benefit – $17.4 billion, or 44.3 percent of the total – will go to roughly 200,000 Americans making $1 million or more who claim the pass-through deduction, the committee said. Another $3.6 billion, or 8.9 percent, will go to a similar number of taxpayers who earn $500,000 to $1 million.

By 2024, the tax deductions will amount to $60.3 billion, and those making $1 million or more will account for $31.6 billion (52.4 percent) of that.

For Republicans, of course, this is a feature, not a bug. Their rhetoric notwithstanding, the point of the GOP tax plan was, and is, to divert more wealth to the richest Americans.

But stepping back, this latest evidence fits into a larger pattern in which Democratic predictions about the Republican tax law keep coming true.

As we discussed a few weeks ago, Critics of the Republican tax plan made several key predictions during the abbreviated debate over the proposal: (1) the corporate windfall would go toward stock buybacks, not capital investments; (2) the package was filled with sloppy errors that would need to be fixed; (3) the plan would be used as a pretext to go after Social Security and Medicare; (4) the tax breaks would wreak havoc on the nation’s finances; and (5) the American mainstream would reject the regressive plan and Republicans couldn’t use the tax breaks as some kind of electoral life preserver.

All of those predictions came true.

But we can now add a new one: (6) the “pass-through” provision would principally benefit the wealthy, not small businesses. Republicans, at least publicly, made the case this wouldn’t happen. The evidence now points in the opposite direction.

Tax Policy

New evidence shows critics of the Republican tax plan were right