A Death Sentence for the American Middle Class

On Friday night, Senate Republicans voted to pass the largest tax hike in American history. But this tax bill does not just raise taxes for the vast majority of Americans, it fundamentally alters the nature of the United States as a nation.

Let’s start by examining the bill’s impact on charitable giving. Although quite a bit of the bill remains shrouded in secrecy, and is subject to some degree of change in reconciliation, we do know the basic outlines of the bill. We know, for instance, that it raises the standard deduction to around $12k for individuals, eliminating a number of other deductions in exchange.

Raising the standard deduction (and eliminating several other deductions) removes any tax incentive for charitable giving for the vast majority of Americans. Although charitable giving as percentage of income differs wildly across various income levels (with the lowest income blocks giving the highest percentage), the average US citizen donates just over 2% of their income per year – at that rate, you’d have to earn $600k before your giving would be worth itemizing to claim a deduction. For the typical household earning around $60k, their $1200 in giving will not be worth itemizing, unless they have a mortgage big enough to put them over $12000 – the interest on a typical $360k mortgage plus $1200 in giving would just exceed the $12,000 standard deduction.

Working and middle class Americans may still give, without the incentive of the tax deduction, except remember, their taxes are going up too – probably more than $1200 a year. After decades of real wage stagnation, Americans are finally going to see an effective change in our income – downward. It is reasonable to expect that, without a tax incentive and with less real income, we will see a significant decrease in individual giving over the next decade.

Of course, wealthy and corporate donors might give enough to claim the deduction – except, with a massive tax cut for the wealthiest Americans and especially corporations, there is little incentive  for them to donate to charities as a way of reducing their taxable income.

What’s more, the tax bill grossly undermines the Johnson Amendment, the regulation that restricts nonprofits’ political activity. From now on, religious organizations will be allowed to engage in political endorsement and advocacy while remaining tax-exempt, making them very attractive to wealthy donors who can now use their charitable giving to pursue their political ends.

Less charitable giving means nonprofits will be able to provide fewer services. With a trillion dollar deficit – at best! – resulting from the loss of taxes from corporations and the wealthiest Americans, it’s unlikely the federal government will be stepping in to close the services gap. In fact, they’ve spent most of this year working desperately to repeal ACA in order to lessen the impact of the tax bill, and are already discussing Medicare and Social Security reform as key elements of the Republican agenda for 2018.

That leaves states and municipalities to fill the gap. States and municipalities that have been struggling to get by for years now and with few exceptions are in no position to expand their services. The few states that aren’t struggling, like California with its high state taxes, might have been able to take up the slack – except that one of the deductions being eliminated is the state and local tax deduction, meaning people in high-tax states will now be taxed twice on the same income – and will likely be pushing their local governments to reduce those taxes. In the end, state and local governments are in no position to provide the services nonprofits will no longer be able to and that federal government is no longer willing to.

Which is the plan. Every economist in the country is telling the Republicans that this cut will not spur the kind of economic growth they keep saying will be the outcome. But spurring economic growth isn’t the point – forcing a pseudo-Darwinist, every-man-for-himself, individualist Ayn-Rand-topia is. Republicans have been telling us this forever – every time they talk about who does and, more to the point, doesn’t deserve healthcare, voting rights, housing, etc., they’re telling us that some people deserve to have more because they are better, while most people (that means you and me) deserve to have nothing because we are worse.

Trump ran on that platform – it’s just that his base, the people who voted for him, mistakenly thought he was talking about them. But of course he wasn’t – if they were worthy, they’d have already been rich.

Tellingly, education – long valued as both a route to middle class security and a key to social progress – is no longer a priority in post-reform America. Reduced federal, state, and local budgets mean reduced federal, state, and local investments in public education. Which means more costs to be borne by students, who will find their student loans come with higher interest rates – interest which, when they start repaying, will no longer be tax deductible. Graduate students are hit even harder, with new taxes on tuition reimbursement that makes graduate assistantships almost entirely untenable – except for the already rich.

Colleges and universities are targeted in other ways by the new tax bill. In a move that should make anyone who has amassed a large body of wealth very, very nervous, Republicans are raiding university coffers with an excise tax on university endowments – the interest on which provides operating funds. And a raft of expanded taxes on unrelated business income – things like sport ticket sales, logo licensing, and renting out space to non-university groups – limit colleges’ earning ability even further, making tuition hikes or program cuts a virtual certainty.

The whole dream of America, the one where science and reason and civic spirit move us towards a better, brighter tomorrow, the grand Enlightenment project that drove Jefferson, Franklin, Adams, Hamilton, and the rest, is now defunct. The middle class, created by a century of Teddy Roosevelt-style progressivism, the New Deal, and the GI Bill’s investment in education and home ownership, is on the gallows, if not already at the end of a rope. And the “problem” of immigration is solved for good – in five years, you’ll be hard-pressed to find anyone who wants to come here.

Leave a Reply

 

 

 

You can use these HTML tags

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>