How Tax Cuts Can Rip You Off
When we think of tax cuts, we think of more money for us and less for the government.
Well, not so fast. Sometimes it doesn’t work that way.
Here is one recent example of how a tax cut actually ripped off the majority of Americans.
The Tax Cuts and Jobs Act passed early in 2017 was actually for the benefit of businesses and high-income families, who gained significantly. The richest 1% of Americans received an average tax cut of $50,000 for 2020. However, the reduction for the bottom 80% averaged only $645.
By reducing corporate tax rates and lowering rates for people in higher tax brackets, wealthy families who tend to own more stock and have higher levels of income saw a significant windfall. Not so much for the rest of us.
This tax cut is just one example of policy that shifts the tax burden from the wealthy and corporate businesses onto the average American. It’s been going on for decades.
To understand this dynamic, it is important to understand how the government is funded. The only two options for creating revenue are raising more taxes from everyone OR going into debt. When tax cuts favor the richest 1%, the difference must be made up by the rest of our citizenry. And ultimately, we – and generations to come – are all responsible for a burgeoning national debt.
What Really Works
First, we now have decades of experience to show was DOES NOT work. Tax cuts for the wealthy fail to stimulate the economy because wealthier people are more likely to save income they gain, as opposed to those with less income who are more likely to spend it. By giving more wealth to those at the top, we ultimately restrict how much money is put back into the economy to drive growth and prosperity.
To make a long story short, the rich are getting richer, while the middle class and lower income households are getting poorer.
What does work – and is more equitable – is promoting economic growth in the middle- and lower-income classes. Recent legislation to stimulate the economy by creating jobs, increasing taxes on the wealthy, and funding the IRS to collect these taxes works to benefit the majority of Americans. And the average American has no increased tax burden; the promise is not to raise taxes on households with income less than $400,000.
The facts presented in this article are contrary to the thinking of many Americans, who have been told the opposite for more than a generation. However, dealing objectively with the results of different approaches is necessary if we are to make the choices to have a strong nation and a strong economy.
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