The US Donor Relief Act of 2017
Joseph E. Stiglitz – January 2, 2018
Never has a piece of legislation labeled as both a tax cut and a reform been received with as much disapproval and derision as the bill passed by the US Congress and signed into law by President Donald Trump just before Christmas. The Republicans who voted for the bill (no Democrats did) claim that their gift will come to be appreciated later, as Americans see their take-home pay go up. They are almost certainly wrong. Rather, the bill wraps into one package all that is wrong with the Republican Party, and to some extent, the debased state of American democracy.
The legislation is not “tax reform” by even the most elastic reading. Reform entails closing distortionary loopholes and increasing the fairness of the tax code. Central to fairness is the ability to pay. But this tax legislation reduces taxes by tens of thousands of dollars, on average, for those most able to pay (the top quintile). And, when fully implemented (in 2027), it will increase taxes on a majority of Americans in the middle (the second, third, and fourth quintiles).
The US tax code was already regressive long before Trump’s presidency. Indeed, the billionaire investor Warren Buffett, one of the wealthiest men in the world, famously complained that it was wrong that he paid a lower tax rate than his secretary. The new legislation makes America’s tax system even more regressive.
It is now universally recognized that growing inequality is a key economic problem in the United States, with those at the top capturing almost all the gains in GDP over the past quarter-century. The new legislation adds insult to injury: rather than offsetting this disturbing trend, the Republicans’ “reform” gives even more to the top.
A more distorted economy is not a healthy economy. The International Monetary Fund has emphasized that a more unequal society worsens economic performance – and the new tax legislation will lead inexorably to a more unequal society.