President Donald Trump and his fellow Republicans passed the Tax Cuts and Jobs Act at the end of 2017, effectively handing a tax cut to two-thirds of Americans and saying it would pay for itself and the American public would thank them.
The first full year under the new tax is in the book as the arrival of Tax Day 2019, and they haven’t gotten many “thanks.”
Surveys show just one-fifth of U.S. taxpayers believe their taxes have gone down, making impossible for Trump to leverage the tax cuts in 2020, when he is eligible for reelection and the GOP looks to take back the House of Representatives.
“The Democrats really outmaneuvered the Republicans by convincing the American people that the main thrust of the tax reform package was to cut taxes for the wealthy,” said Dan Eberhart, a major Republican donor who runs the drilling services company Canary, LLC. Republicans “failed to fully explain the success to voters.”
Trump is going to try again on Monday when he goes to Minnesota, a potential swing state in the 2020 election, to promote what Republicans consider their signature legislative achievement. It’s part of a week of events designed to promote the tax law’s effects on the economy as he turns to his next campaign.
The Trump administration and congressional Republicans sold the tax law as fuel for economic growth and deficit reduction. Senate Majority Leader Mitch McConnell gave assurances in December 2017 that the measure would not only contain the deficit but be a “revenue-producer.” Trump’s top economic adviser, Larry Kudlow, said last week that the tax cut package had largely already paid for itself, a statement that conflicts with government data.
The U.S.’s budget shortfall actually grew by 17% during fiscal 2018, which the Congressional Budget Office says is a consequence of the new tax law. The CBO now says the deficit will surpass $1 trillion by 2020, the plan seemingly backfiring on Republicans.
When the law passed, McConnell said, “If we can’t sell this to the American people, we ought to go into another line of work.” He added that the GOP merely needed to tell the public “that you have more money in your pocket.”
As the saying goes, perception is reality, and the reality is that the vast majority of Americans don’t feel like they got a cut at all. An NBC/Wall Street Journal poll showed just 17% believe they got a cut, and a Reuters/Ipsos poll in March showed 21% thought their taxes were lowered.
That’s despite the fact that the nonpartisan Tax Policy Center says two out of three taxpayers would see their tax burden shrink. The biggest problem with Republicans’ messaging is due to the fact that the top 1% of earners are getting back so much more than middle-income earners.
The top 1% received an average tax break of $62,000 in 2018, while the middle one-fifth of income earners got an average cut of $1,090, or about $20 per biweekly paycheck. The law has essentially met the same fate as Barack Obama’s 2009 stimulus package that gave most Americans a one-year tax break — it wasn’t a big enough break for most to really notice a difference.
The Trump administration wanted “an immediate reaction” so it reduced the amount the IRS withholds from regular paychecks starting in 2019. So taxpayers got more in each check, but it wasn’t a big amount, and many peoples’ tax returns have been slashed. The tax law might have been more well received had they simply waited and let everyone reap the greater windfall as part of a large tax return instead of a small amount in each check.
The move backfired. “It was too small an amount for most to notice,” he said. Adding to voters’ frustration, their tax refunds were smaller than expected, down about 1.1 percent overall, but still noticeable to individual households.
White House economic adviser Kevin Hassett on Friday dismissed poor poll results, saying that they might be explained by general frustration with the tax system broadly. He cited other data, such as the Michigan survey of consumer sentiment, that “suggest that you should have a very optimistic outlook for economic growth this year.”
The tax law, passed by Republicans without any Democratic support, lowered the corporate rate from 35 percent to 21 percent and cut individual taxes across income brackets for eight years. It doubled the standard deduction and enhanced the child tax credit. And it closed or tightened various tax breaks — most notably by capping the amount of state and local taxes that can be deducted — which had its biggest impact on residents of high-tax, largely Democratic-run states.
Democrats spent their 2018 midterm campaigns hammering the law as a giveaway to wealthy Americans that would widen the deficit and put popular programs like Social Security and Medicare on shaky ground.
According to exit polls for House races published on Election Day 2018 by CNN, 29 percent said the new tax law helped their finances; that group overwhelmingly supported Republican candidates. But 45 percent said the law had no impact and 22 percent said it hurt their finances, and those categories overwhelmingly backed Democratic candidates.
Ryan Ellis, a conservative tax lobbyist, blamed negative news coverage for the unpopularity of the tax law. “People don’t know about their own taxes,” he said, adding that they “get half baked ideas” from the way the law is portrayed.
Republicans didn’t understand what the broader public wanted from a tax bill, said Morris Pearl, a former managing director at BlackRock Inc., who now chairs Patriotic Millionaires, a group of wealthy individuals who advocate for higher taxes on the rich.
“They forgot that the people who show up at their $1,000-a-plate fundraisers are not representative of all people,” Pearl said. “They overreached with their tax bill and tilted the system in the favor of the very wealthy and large corporations.”
The tax effort stemmed from the bipartisan desire to move the U.S. corporate tax system in line with those of foreign competitors. Both parties supported lowering the country’s 35 percent corporate rate, though Democrats favored a more modest reduction.
Republicans realized that corporate tax cuts were a hard sell to the general public. So they reduced levies for pass-through businesses — partnerships and limited liability companies — and individuals, eliminated some existing tax breaks to offset the rate reductions and included a more generous child tax credit.
But because of earlier unpopular proposals like one to cut deductions for medical expenses, college tuition and child-adoption costs, public opinion had already soured — for good.
In many Democratic strongholds, such as New Jersey, New York and the District of Columbia, the average refund amount decreased, according to H&R Block, fueling discontent with the law, even though residents in those states got a tax cut on average.
Worse, the state and local tax, or SALT, cap really stung. Residents of high-tax states, encouraged by the elected Democratic officials, came to believe they were targeted to pay for the $1.5 trillion tax cut, even if they weren’t able to personally use the deduction.
“It is clear that they consciously exacted revenge on Democratic states like New York, California, New Jersey, Massachusetts, and Illinois by capping the SALT deduction, which is bad news for residents in those states,” said Representative Tom Suozzi, a New York Democrat.