Poor Clayton Kershaw. His Dodgers just lost the World Series, and now Republicans in Congress are throwing superstar athletes like Kershaw under the bus. The new tax “reform” that House GOP leaders have just unveiled will, if ever enacted into law, do Kershaw no favors.
GOP leaders, to be sure, have nothing personal against Kershaw and his fellow ballplayer millionaires. But billionaires come first for today’s House leaders, and advancing their interests — delivering to them the biggest tax boondoggle for the rich ever — requires these GOP pols to sacrifice mere millionaires like poor Clayton.
What makes that sacrifice so necessary? GOP leaders can read the polls. They know that the vast majority of Americans, the Republican rank-and-file included, don’t want to see lower taxes on the nation’s wealthy.
GOP leaders also know that their attempt at comprehensive tax “reform” will fail if the American public ever realizes just how rich people-friendly their “reform” happens to be. So these GOP leaders, desperate to avoid the “tax cut for the rich” label for their tax legislation, have now shelved their plans to reduce the top marginal federal income tax rate, the most visible tax on the rich in the U.S. tax code.
High-income American couples currently face a 39.6 federal tax rate on annual income over $470,701. Previous drafts of the Republican tax reform had dropped this rate to 35 percent. But the just-unveiled new House GOP tax plan keeps the top rate at 39.6 percent and applies this top rate to income over $1 million.
This strategic retreat means no big income tax cut for Clayton Kershaw and his 19 Dodger teammates who earned over $1 million for their 2017 exploits on the baseball diamond. Some millionaire athletes could actually, in fact, end up worse off under the GOP plan, mainly because House leaders are also proposing a limit on the deductions taxpayers can take for the state and local taxes they pay.
Ballplayers in states with significant income taxes – think California and New York – will, as a result, have more of their income subject to federal income tax. They could face a higher total tax bill.
Billionaires – and mega millionaires closing in on billionaire status – will face the exact opposite. Their tax bills will plummet, even with the top marginal tax rate staying put at 39.6 percent.
These super rich, unlike star ballplayers, don’t get the bulk of their annual income from paychecks. Most of their income comes from their investments and business dealings. The GOP tax plan thoughtfully creates a new and huge loophole that covers a good bit of this income.
This new loophole lowers the top tax rate on a 30-percent chunk of “pass-through” income from 39.6 to 25 percent. What does this mean? Say a private equity firm “passes through” to its partners $10 million each from the firm’s annual earnings. These partners will pay no more than a 25 percent tax on any dollar of that $10 million.
So “no one should be tricked,” notes Economic Policy Institute analyst Hunter Blair, by the House GOP leadership’s decision to keep the top federal income tax rate at 39.6 percent. The really rich won’t be paying taxes at anywhere near that rate.
The House tax bill includes plenty of other generous tax breaks for the really rich and the corporations they run. Poor Clayton and his fellow athletes won’t get much help from this generosity. The billionaires who own their ballclubs most certainly will.