Impact of the GOP Tax Plan on HBCU Communities
It is a matter of consensus that the GOP’s agenda is not beneficial to Black America. Given that taxes are the financing plan for any political agenda, it should come as no surprise that the GOP’s Tax Cuts and Jobs Act is par for the course.
The Joint Committee on Taxation estimates this bill will add $1.5 trillion to the national debt over the course of ten years. This addition is the result of reduction of the top corporate income tax rate from 35% to 20% while doubling the limit on the estate tax , terminating the estate and generation skipping tax in six years, eliminating the Alternative Minimum Tax(which limited President Trump’s ability to pay even less in taxes in 2005 and impacts people with incomes above $130,000), and enabling high earning small business owners such as hedge fund managers, doctors, lawyers, and consultants to pay a tax rate of 25% on 30% of their respective income.
While there are some items which, on paper, suggest a benefit to the middle income sector such as the doubling of the standard deduction, expansion of the child tax credit, and certain statutory rate deductions, the bulk of this tax plan, as recognized by many economists, principally benefits the wealthy.
Because nothing comes for free, the tax plan comes with the following eliminations and budget cuts:
1. It eliminates the $4,050 per household member personal exemption
2. It places a $500,000 cap on the mortgage interest deduction for newly purchased homes
3. Ends the ability to deduct taxes people pay to state and local governments save a deduction of local property taxes up to $10,000
4. It assumes that $473 billion will be cut from the Medicare Program; and
5. That there is a $1 trillion cut from Medicaid
6. That there additional cuts to HUD, CHIP, Education, etc.
7. It then adjust the tax rate higher over time(bait and switch)
Appreciation of this tax plan’s implications for Black America requires an understanding of the socio-economic state of Black America so that one can see how this plan would potentially exacerbate them.
The median income for Black America is about $35,400 for the year 2016. By median, this means 50% of Black America makes less than this amount on a per year basis. As outlined by the US Census Bureau, the US poverty rate dropped to 12.7% in 2016. Yet, the poverty rate for Black America is 22%. As a community, we significantly rely on social insurance to provide services we otherwise could not afford in the market place. It is for this reason, why the expansion of Medicaid and subsidized coverage in the market help lower the uninsured rate for nonelderly African Americans from 18.9% to 11.7%. By cutting Medicaid funding, the GOP tax plan would reverse those gains while exacerbating health care disparities in the process by reducing funding available to State Medicaid programs. This would be compounded by the elimination of the medical expense deduction, which exist to subsidize out of pocket health care cost.
Next, as outlined by the Fed, White families have 10 times the net worth of Black families. More importantly, this gap is growing. The impact of these gaps include, but are not limited to, higher student loan debt, lower home ownership, higher interest on debt, poorer health, limited educational attainment, limited access to resources, limited access to affordable housing and effective transportation etc. The GOP Tax Plan curtails many of the redistributive aspects of the existing tax code by not only allowing for the greater retainment of wealth, but providing greater tax cuts as a percentage of total wealth to high income earning persons who tend to be wealthier. Consequently, the GOP Tax Plan further advances wealth inequality which ultimately advances poverty and substandard living conditions for our community.
This effect is then further enhanced by the elimination of state and local tax deductions. As background, these deductions exist to protect a state and locality’s taxable resources while better aligning one’s tax liability with their effective ability to pay. Eliminating this deduction increases the cost of state and local government expenditures. This will force states to either increase taxes, thus offsetting any benefits of the GOP Tax Cuts, or cut services to the detriment of the taxpayer. Given that, as reported by Pew Research, many people feel the poor have it easy and that Black America is responsible for its own condition, services to us will probably be on the chopping block despite White America being the premier recipient of these benefits.
This plan further hurts Black families and households. Approximately 59% of Black families live in households with three or more people. Approximately 14.4% live in households with five or more people. While the GOP Tax Plan doubles the standard deduction and increases the value of the child tax credit, many families would end up paying more. For example, a married couple making $56,000.00 per year would pay $68.00 more under the GOP Tax Plan than they do currently. When coupled with the potential termination of the head of household filing status, single families would suffer even more. This matters given the percentage of single family households in our community would suffer the imposition of a moral penalty as a result of this change.
Further, this tax plan will hurt access to affordable housing. The GOP Tax Plan calls for the limiting the deduction for mortgage interest for purchased homes by 50%. Presently, this deduction subsidizes the cost of homeownership. By cutting this deduction, two new behaviors are now incentivized. First, developers are less inclined to build new housing-thus reducing the generation of new housing. Second, due to the lack of subsidization for high cost housing, many people will ultimately turn to utilizing cheaper forms of housing. This leads to three implications for Black America. First, in the middle of an affordable housing crisis, which can only be fixed by increasing housing supply at a faster rate than housing demand grows, you only exacerbate this crisis which most disparately impacts Black America due to lack of property development (supply).
Second, those who would otherwise pay for higher cost housing now look to traditionally cheaper forms of housing, thus growing demand. Due to this growth of demand and limit on the growth of supply, we are doubling down on the affordable housing crisis. The third effect, is that this tax decision limits the growth in housing values. African Americans whose wealth, ability to retire comfortably, and whose social services are dependent on home values will see an erosion on all these fronts. Additionally, the proposed termination of the New Markets Tax Credit program, which is used by non-profits, community development corporations, and municipalities to finance affordable housing development and other community development projects that improve community value, will compound this effect.
Further, it is no secret that Black Americans are generally underrepresented in graduate level studies. A major point of discussion within admissions circles is how to correct of this disparity. This is accomplished in significant part through tuition waivers in exchange for research and teaching work. This enables many students to afford the cost of school, while gaining the requisite experience necessary for a successful post-doctorate career. Historically, the government did not tax the value of these waivers, because students lacked the liquidity necessary to pay it. The tax plan before us does. By imposing this, the GOP Tax Plan fundamentally terminates the ability of underrepresented groups’, such as the Black community, ability to obtain educational parity and professional advancement opportunities. In the process, this decimates the US’ educational competitiveness globally for the sake of advancing white supremacy and the creation of a dynastic class at the expense of the beleaguered middle class and poor.
Beyond the fact tax cuts lead to economic growth is a myth shown by the economy of the 1980’s and early 1990’s, this tax plan, as expressed by many economists, grows the ratio of debt to gdp to levels which promote a significant recessionary risk. As we’ve seen from 2008, economic recessions more drastically impact the African American community than anyone else while growing racial disparities in every poverty related metric. As we’ve also seen from 2008, upper middle class Black American’s face double the risk of falling out the middle class in a recessionary environment. The GOP Tax Plan, frankly, is having Black American assume the risk for a tax plan that rewards the white and wealthy. This is further demonstrated by the repeal of the Estate Tax, which allows for greater wealth inequality and the further advancement of general poverty at a time we can ill-afford either.
Finally, the GOP Tax Plan finances a Budgetary Plan that generally reduces the social safety net. The social safety net is important to mitigate the impact of poverty on people’s lives. When one cuts the safety net while investing in a tax plan that introduced the moral hazards discussed within, you are creating a tax plan that penalizes minorities and the poor for being poor and minorities. This is a victim-blaming tax plan that further entrenches White supremacy in this nation, a tax plan not suitable for Black America.
In summary, we are amid racial and class warfare. This tax plan demonstrates this unequivocally as it seeks to create a dynastic class at the expense of everyone else, especially Black America.