Ed. Note: This article first appeared in Bloomberg
The very first individual tax cuts officially endorsed by President Donald Trump do not offer great news for most of his supporters: Counties that backed him would get less than a third of the relief that would go to counties where Democrat Hillary Clinton won.
The two individual tax cuts contained in the Republican plan to replace Obamacare apply only to high-earning workers and investors, roughly those with incomes of at least $200,000 for individuals and $250,000 for married couples.
Taxpayers in counties that backed Trump would see an annual windfall of about $6.6 billion, a Bloomberg analysis of Internal Revenue Service data shows. In counties that backed Clinton, it’d be about $21.9 billion.
That disparity runs counter to Donald Trump’s calls for “massive tax relief for the middle class” and offers comparatively little benefit in the so-called Rust Belt that stretches from Pennsylvania to Wisconsin, states critical to the success of his populist campaign last year.
Two White House spokeswomen didn’t respond to an email seeking comment.
Administration officials have promised those lower down the income ladder will eventually get their turn for tax cuts, and Trump has said a full tax overhaul will come after the health-care legislation is approved.
In the short term, though, the health legislation would end two individual taxes that were imposed by the Affordable Care Act: a 0.9 percent additional Medicare tax on wages and 3.8 percent surtax on investment income that both apply to people at the top end of the income scale.
Frustrated But Supportive
Trump voters in Rust Belt states expressed some frustration about the potential cuts for the wealthy, even as they remain supportive of the president.
“It pisses me off, but my wife pisses me off, too, and we’re still married,” said Dan Peuschold, 62, as he shared a $13 pitcher of beer with friends Saturday afternoon at the Hiawatha Bar & Grill in the Wisconsin village of Sturtevant.
Peuschold lives in Racine County, where Trump beat Clinton 49.8 percent to 45.4 percent. Trump’s number there was about two percentage points higher than Republican nominee Mitt Romney’s in 2012, when former President Barack Obama won the county with 51.4 percent.
South of Milwaukee and with a mix of agriculture and manufacturing, the county is in the heart of the congressional district represented by House Speaker Paul Ryan, the top congressional champion for the Obamacare replacement bill.
The county had 95,040 tax filers in 2015 — the most recent data available — and 1,060, or 1.1 percent, paid the additional Medicare tax. That’s about one in every 90. Slightly more Racine County filers paid investment income tax, about one in every 74.
By contrast, in New York County, which includes Manhattan and where Clinton won with 87.2 percent of the vote, more than one out of every 10 filers paid the Medicare tax, and one out of every nine paid the investment income tax.
Peuschold, who owns a cabinet-making shop and purchases insurance for his 15 employees, said he doesn’t earn enough to qualify for either proposed tax cut. The wealthy could afford to keep paying the levies, he said.
“I don’t like the cut because it’s pocket change for them,” he said. “Us guys that work all the time don’t have the deep pockets. It’s us people who are in the middle class who are the backbone of this country.”
In addition to New York County, two counties in California ranked at the top for people who paid the additional Medicare tax: In Marin, north of San Francisco, 9.8 percent of filers paid it. In Santa Clara, which includes Silicon Valley, 9 percent did. Clinton won both counties with more than 70 percent of the vote.
Falls Church, a “county equivalent” in Virginia, had a slightly higher share of tax filers — 11.2 percent — who paid the added Medicare tax, the data shows.
Located within commuting distance of Washington, the suburb is known for its upscale homes and neighborhoods. Clinton won 75.8 percent of its vote.
“The repeal of the ACA is going to deliver sizable tax benefits to those high-income households,” said Scott Greenberg, an analyst at the politically conservative Tax Foundation.
Money from the two taxes has been a key ingredient in financing the 2010 health-care law and Democrats have criticized the proposed cuts, saying they’ll increase the economic gap between the most affluent and everyone else.
Those in the top 0.1 percent of incomes would get an average tax cut of about $197,000, raising their after-tax incomes by 2.6 percent, according to the Tax Policy Center, a joint venture of the Urban Institute and Brookings Institution. Those totals include both the Medicare and investment taxes.
“It seems to be pretty much a giveaway to the well-off,” said David Albouy, an economics professor at the University of Illinois who studies geographic tax inequality.
Other Trump voters in Racine County say they don’t like that the wealthy may be first to secure a tax cut, but they’re giving the new president the benefit of the doubt that they’ll eventually see lower taxes, too.
“You would think they would be more for the lower-income people,” said David Fiskum, 62, a retired small business owner dining at a hamburger restaurant in the city of Racine. “I wish they had a better bill than what they’ve proposed.”
The western Michigan county of Manistee, which gave Trump 54.9 percent of the vote, also reflects the potential disparity. Of 11,440 returns filed in 2015, only 50 (0.4 percent) had incomes high enough to pay the 0.9 percent Medicare tax.
The county, which Obama won in 2012 with 52.2 percent of the vote, was one of those that helped Trump win Michigan as he became the first Republican to do so since 1988.
Ray Franz, the Manistee County Republican Party chairman and a former state representative, said he’s “disappointed in the Republican Party and Republican leadership” for the health-care bill that’s been put forward.
“I’m not a big fan of seeing this become financially unstable again, and I think that’s what this could end up as,” he said. “Eliminating those taxes will only contribute to that.”
Franz, who stated he “voted against Clinton,” has not lost hope that Trump and the Republicans in Congress will take some kind of action that will help taxpayers in his county of about 24,000 people.
“He’s looking at significant changes in capital gains and some of the other taxes, which could help and have a significant impact for a lot of our professionals,” he said. “If Trump can do tax reform and deregulation that will stimulate economic activity, Michigan is in a wonderful position to be able to take advantage of that.”
Overall, preliminary IRS data from returns filed in 2016 show the additional Medicare tax collected $8.6 billion in 2015, and the investment income tax collected $18.3 billion.
Comparing the county and national data is not perfect because the IRS, for privacy reasons, excludes from release items with fewer than 20 returns from a given county. Also, some Americans who live outside the U.S. and must pay taxes may not be associated with a particular county.
Ken Brown, 55, a Wisconsin Republican who runs a designer eyeglass shop a few blocks from where Trump spoke in downtown Racine in April 2016, said he doesn’t begrudge higher-income people who might get the first round of tax cuts.
“They are the first ones who are going to return to where they were before Obamacare,” he said. “I don’t think we should call it a tax cut. It’s canceling a tax increase.”
Posted by: The Trust Advisor