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How Trump is grifting the pandemic to give the rich another big tax cut

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David Cay Johnston
David Cay Johnston

Using the coronavirus as his excuse, Donald Trump is working to give the highest-paid American workers a valuable tax break, while tossing crumbs to the middle class and the working poor.

On the night when Congress was told that between 70 million and 150 million of the 330 million of us are likely to become infected Trump’s mind turned to tax cuts.

Testimony by Dr. Brian Monahan, the official Congressional and Supreme Court physician, implies that coronavirus will kill a huge number of people.

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We can expect 3.4 million deaths in the next year and perhaps as many as 8 million.

If only 0.7% of those infected die it will mean the end for almost half a million Americans, assuming that only 70 million become infected. If 150 million get the disease and the death rate is the 3.4% estimated by the World Health Organization director-general then more than five million Americans will succumb to the virus.

To put that in perspective, about 2.9 million Americans die annually, according to the Centers for Disease Control and Prevention. That means at best we can expect 3.4 million deaths in the next year and perhaps as many as 8 million deaths.

Trump’s tax cut proposal came just days after his ridiculous assertions that when America had only 15 confirmed coronavirus cases the umber would quickly fall and with warmer weather the pathogen would lose its deadly power.

Instead, in his Wednesday night address about the “foreign virus” COVID-19, Trump talked about tax cuts, commerce and a loophole-rich European travel ban that exempts the two European countries where he has properties.

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The Tax Cut Solution

While Trump gave no details, we can anticipate what Trump will propose—and Congressional Republicans will demand because of the payroll tax cut of 2011, which I analyzed extensively at the time.

A suspension of the Social Security wage tax and the Medicare tax is planned, Trump aides speaking on background told White House.

Crumbs for the Working Poor

Here’s my analysis, based on the most detailed wage data for 2018 from an annual federal report on every penny of wages earned by American workers:

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  • A full-time worker making the federal minimum wage of $7.25 an hour would save $93 a month.
  • A worker paid $55,000 a year would save $350 a month. Only one in four workers earns that much or more.
  • Workers at the threshold of the top 5%, those paid $137,200, would each save more than $850 a month.
  • Most of the top 5% are two-income couples. That means many affluent households will save at least $1,700 a month. That’s more than the gross pay of a full-time minimum wage worker, who grosses just $1,220 a month.

Why ‘At Least’ Matters

The phrase “at least” in the previous paragraph is important because of a major difference in which wages are levied by the twin payroll taxes for pensions and medical care for the old and disabled plus widows and orphans.

The Social Security tax rate is 6.2% of wages. But it applies only to the first $137,200 of wages.

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The  1.45% Medicare tax applies to all wages. In 2018 there were 8.5 million workers who made more than $140,000. The top 211 workers averaged $95.7 million that year.

If the Medicare tax is suspended, the top 5% of workers will save close to $3 billion a month. Those 211 workers at the very top will each save $115,700 per month.

What Happened Last Time

We’ve seen this game played before.

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Barack Obama took office in 2009 as jobs were dying at the rate of 750,000 a month. The Democrats who controlled Congress approved Obama’s Making Work Pay Credit. It was limited to the bottom 97% of workers. It also applied to the disabled and retirees even if they had no wages.

Later research showed the tax credit was a smart move because people promptly spent it, helping increase the demand side of the economy which had collapsed in the Great Recession. Increasing demand stoked economic recovery.

But in 2011, when Republicans took control of Congress, they demanded that all workers benefit. They also cut the disabled and retired from the tax credit.

The switch from Obama’s Making Work Pay tax break to the Republican payroll tax reduction effectively raised taxes on 51 million households by an average of $134 each, the Tax Policy Center estimated at the time.

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Highly Paid Workers Benefitted Most

At the same time, couples in well-paid jobs who had been denied Obama’s Make work Pay tax credit saved more than $8,000 over two years.

So, watch closely for the contours of the  Trump payroll tax cut so you know just how heavily it tilts to favor the best-off Americans. Keep in mind that cutting payroll taxes won’t do anything for those who lose their jobs because of the coronavirus.

Then ask yourself whether saving the most highly paid American workers nearly $3 billion a month is fair, needed or smart.

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