The GOP's tax cut bill included a cut for pass-through income and "S" corporations to bring their rates inline with the new corporate tax rate, but there's a big hole in the code that we all saw coming a mile away.
According to a new report from the congressional Joint Committee on Taxation (JCT), a majority of the tax cut for pass-through income will benefit wealthy individuals with the number steadily rising over the next decade.
Moreover, these wealthy individuals will see a much larger tax cut than people making far less money.
In 2018, the lion's share of the benefit — $17.4 billion, or 44.3 percent of the total — will go to roughly 200,000 Americans making $1 million or more who claim the pass-through deduction, the committee said. Another $3.6 billion, or 8.9 percent, will go to a similar number of taxpayers who earn $500,000 to $1 million.
By 2024, the tax deductions will amount to $60.3 billion, and those making $1 million or more will account for $31.6 billion (52.4 percent) of that. [...]
About 9.2 million taxpayers who make $100,000 to $500,000 this year will account for $15.7 billion in deductions, and roughly 9.7 million filers in that income range will get $19.6 billion in 2024, the Joint Committee on Taxation reports. Their counterparts who earn less than $100,000 are in line to share about $3 billion in 2018 and a little less than $4 billion in 2024.
The deduction for pass-through income allows a wealthy individual to claim a significantly lower corporate tax rate rather than a higher tax rate intended for individuals. A wealthy person who would otherwise be forced pay a tax rate as higher as 38 percent could pay a rate as low as 20 percent by reclassifying or repackaging their income into a business or even multiple businesses.
This kind of scheme obviously isn't available to a majority of Americans.
In the near future, it's seem plausible that virtually everyone making more than $500,000 per year will also be the owner of a shell corporation they use for taxes and that is reflected by the Joint Committee on Taxation's estimate that the number of wealthy people claiming this deduction will increase.
You may recall that a similar scenario played out in Kansas after former Governor Sam Brownback eliminated taxes on businesses. That led to a wave of individual people declaring themselves businesses so they would no longer have pay taxes.
The national GOP's tax cuts are a slightly less extreme version of that with a similar outcome.
This tax cut will personally benefit Trump and his family through the Trump Organization, by the way.