Don’t Be Fooled, GOP Tax Plan Is Bad for Working People and Families

Congressional conservatives are plowing ahead with plans to extend major tax cuts for wealthy households and corporations while leaving working- and middle-class families to foot the bill. The House of Representatives plans to vote this week on a massive and complex tax bill that includes provisions that will cut taxes for wealthy, mostly white, business owners, allow the ultra-wealthy to pass on enormous fortunes entirely tax free, and exclude millions of families with low incomes from critical support from the Child Tax Credit.

GOP lawmakers have created a bill that will pay for these multi-trillion-dollar tax cuts for the wealthy, in part, by slashing funding for critical programs that families across the country rely on, including Medicaid and SNAP. People across the political spectrum are paying attention, and they are unhappy with this equation. Last week, more than two dozen people were arrested while protesting outside the committee meeting where lawmakers were deciding on Medicaid cuts. And in recent town halls across the country, from New York to Wyoming, constituents have confronted Republican lawmakers, demanding accountability for the cuts to popular public programs with shouts of “tax the rich.” 

Perhaps worried that the public might be losing faith in the GOP’s populist facade, the president and conservative lawmakers have pushed forward provisions that will temporarily exempt tips, overtime, and Social Security from federal income taxes and have even discussed slightly raising taxes on people earning over $2.5 million a year. Their loud touting of these proposals is part of an attempt to paint their tax plan as beneficial to working families. But nothing could be further from the truth.

This tax bill will not only add $5 trillion to the national debt, it will also widen inequality, hurt families economically, and enable corporate tax evasion.

This tax bill will not only add $5 trillion to the national debt, it will also widen inequality, hurt families economically, and enable corporate tax evasion. According to an analysis from the Yale Budget Lab, extending these tax cuts for the wealthy, when combined with cuts to Medicaid and SNAP, will mean that households with the lowest incomes would see their incomes decrease by 5 percent while the highest earners enjoy the entirety of the fiscal benefit of this tax plan. Beyond the near-term economic impact, the GOP tax plan will also undermine a core function of government: to fund public goods and programs that protect economic stability. Here’s how:

The GOP-led tax bill will make major cuts to public programs, which will actually increase the cost of living for most families and will disproportionately harm Black and brown households. This is because the GOP tax bill plans to pay for tax cuts in ways that will limit access to public services while increasing consumer costs. 

By cutting public services and programs, the Trump administration is all but guaranteeing income loss to tens of millions of families. A recent analysis from Americans for Tax Fairness showed that this plan would mean that families in the bottom 40 percent of earners, making less than about $55,000 a year, would lose about $1400 in income in 2026. Meanwhile, the highest income earners, those earning more than $160,000 a year, would see their incomes increase by over $4,300. This plan will also significantly accelerate the timeline for when the Social Security trust fund will be depleted. This means that people receiving Social Security will see a 33% cut to their benefits starting in 2031. Our leaders must not be short-sighted about the long-term effects of these changes on families. 

Taken together, the GOP tax proposals will cause significant economic harm to families with low and moderate incomes. As proposed, the tax bill will:

• Usher in around $880 billion in cuts to Medicaid, which provides health coverage to over 70 million people. Current estimates from the Congressional Budget Office show that 13.7 million people would lose coverage as a result of the House proposal. These cuts will have a particularly devastating impact on Black and brown people who, because of overlapping inequalities, experience barriers to access to health insurance and other forms of economic security. A recent Medicaid expansion led to a significant increase in health insurance coverage across the country, particularly for Black and brown people. Cutting Medicaid will walk these important gains back.
• Limit access to income support programs, like the Child Tax Credit (CTC), that would make a meaningful financial difference to workers with low incomes. Under current policy, all children with Social Security numbers (SSNs) are eligible for the CTC. But the current tax bill contains a provision that would require that children’s parents have an SSN, which would cut 4.5 million children off from this critical financial support.

The writers of the House tax bill also failed to correct a design feature of the CTC that prevents 17 million children from accessing the full Child Tax Credit because their families do not make enough money. This policy causes disparities in who can access the CTC: Roughly three-quarters of white children are eligible for the full CTC, compared with only half of Black and Hispanic children. 

The GOP-led tax bill will primarily benefit wealthy people and large corporations.

Instead of advancing policy changes that would make the tax code fairer and more progressive, House Republicans are proposing several provisions that will give even larger tax breaks to high-income business owners and extremely wealthy households. They propose:

• Extending the “pass-through” deduction, which is a special loophole that lowers the tax liability of owners of businesses and that has overwhelmingly benefited the richest households. In 2023, 90 percent of the benefit of this deduction went to white households, and 64 percent of the benefit went to households earning over $410,000 a year.
• Increasing the estate tax exemption, which would allow a wealthy couple to pass down $30 million without paying any taxes. Nearly all the benefit of this tax break will go to white families: 92 percent of wealth owned by families with more than $30 million is owned by white households.
• Reviving expired corporate tax breaks that would allow companies to immediately deduct certain business expenses from their taxable revenue, which would massively lower their tax bills. Just one of these provisions, which would reverse a policy designed to moderate corporate tax deductions, would give an immediate $75 billion tax cut to five of the country’s largest corporations (Apple, Amazon, Google, Meta, and Tesla).

Proposals will enable corporate tax evasion, making taxation more regressive and less fair.

One of the most deceptive elements of the GOP tax bill is the tax exemption for tips, which would actually benefit very few low-wage workers. An analysis from the Yale Budget Lab showed that fewer than 4 percent of low-wage workers were in tipped occupations and 37 percent of workers receiving tips do not make enough money to owe federal taxes, so this tax benefit leaves out the vast majority of workers with low incomes.

The no-tax-on-tips proposal will not give much-needed relief to the working class, but it will give corporations a new avenue for tax avoidance.

The no-tax-on-tips proposal will not give much-needed relief to the working class, but it will give corporations a new avenue for tax avoidance. It would not be difficult for highly paid professionals in the finance sector, for example, to reclassify their income as tips. (Some states, like Connecticut, are already trying to mitigate the damage by placing a $100,000 income cap on this tax exemption.) Given that Congress has significantly cut IRS funding for tax enforcement, there will be little oversight preventing very high-income people from exploiting this tax loophole.

Congress should make public investments that reduce inequality.

The astronomical cost of the GOP tax bill, now estimated to be about $7 trillion over 10 years, will have far-reaching economic consequences. But the importance of this year’s tax fight goes beyond the monetary cost. It is a battle over the role of government and about whom and what the government has a responsibility to protect. Congress can move forward with tax and budget policies that erode the public sector, threaten democracy, and widen economic inequality by prioritizing corporate interests and allowing increased corporate control in the government and our daily lives. Or Congress can advance policies that protect the public interest and strengthen the economy by funding public goods such as an economic safety net, education, and health care; reducing economic disparities; and guaranteeing civil rights.

We know that economic security programs, coupled with a progressive tax system, can meaningfully increase incomes for families who are struggling economically, while making income inequality less severe. Early in the pandemic, lawmakers responded to the sudden and widespread economic hardship with an array of financial support programs, including expansions for the Child Tax Credit and unemployment insurance, as well as the Paycheck Protection Program, all of which provided direct financial benefits to households. 

A recent report from the Congressional Budget Office showed the impact of these programs on household incomes and income inequality. The report showed that the distribution of income across households was more equal because of federal taxation and means-tested income support programs. Because progressive taxation and income support programs redistribute resources, households in the lowest income brackets saw their incomes (including income supports) increase on average by $26,200. (The average income for those households was still only $48,700, which is significantly less than the average income needed to afford a modest rental home in the U.S.) The core takeaway here is that taxation and income support programs not only keep inequality in check, they also meaningfully improve economic outcomes for families. 

 It is the government’s responsibility to fund programs that ensure baseline economic well-being, not to protect the fortunes of the uber-wealthy. 

The GOP tax bill will have the opposite effect because it will cut taxes for the wealthy while slashing programs that provide households with economic security. It is the government’s responsibility to fund programs that ensure baseline economic well-being, not to protect the fortunes of the uber-wealthy. And creating a just tax system is essential to carrying out this core responsibility and to improving economic realities for all people.