Who wins biggest in the GOP tax plan? The lazy rich.

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Sources - Washington Post: By Catherine Rampell Opinion writer

The Republican tax bill is often described as being weighted toward “the rich.” But that’s not the full story. It’s actually weighted toward the loafer, the freeloader, the heir, the passive investor who spends his time yachting and charity-balling. Republicans claim the opposite, of course. For years the GOP has argued that we need to cut taxes to incentivize work and job creation. If only today’s allegedly sky-high marginal rates were lower, millions of talented, driven Americans would apply more of their talent and drive toward growing the economy. 

Sources - Washington Post: By Catherine Rampell Opinion writer

The Republican tax bill is often described as being weighted toward “the rich.” But that’s not the full story. It’s actually weighted toward the loafer, the freeloader, the heir, the passive investor who spends his time yachting and charity-balling. Republicans claim the opposite, of course. For years the GOP has argued that we need to cut taxes to incentivize work and job creation. If only today’s allegedly sky-high marginal rates were lower, millions of talented, driven Americans would apply more of their talent and drive toward growing the economy. 

Why? Well, if they got to keep more of their hard-earned cash, there would be a greater payoff from clocking that extra hour, taking on that extra project, seeing that extra patient, scoring that extra client, building that extra business, and so on. Working would look more attractive relative to playing an extra round of golf. 

What's in the House GOP tax plan?
House Republican leaders on Nov. 2 proposed legislation that would overhaul the U.S. tax code. Here's what you need to know about it. (Monica Akhtar/The Washington Post) Yet the GOP tax bill offers the biggest windfall to those who sit on their duffs and do nothing. Rich layabouts benefit in multiple ways from the proposal. The most obvious way is the repeal of the estate tax, which currently affects only estates worth at least $5.49 million, or roughly the wealthiest 0.2 percent of Americans who die each year.  Eliminating estate taxes paid by the very wealthy few seems unlikely to improve their work ethic. If anything, increasing the value of their bequests will make it less attractive for heirs and heiresses to hold down a job or start a company that they actually run. This is hardly the only way that the Republican tax proposal would reward passively received income. The big cut in corporate tax rates and the corporate repatriation holiday also disproportionately benefit passive owners of capital rather than workers. But the bill’s differential treatment of those who work and those who don’t is starkest in provisions related to “pass-through” entities

Almost all businesses in the United States are structured as pass-through businesses, such as partnerships, sole proprietorships and S-corporations. This means their incomes are taxed at individual rates, rather than corporate ones. Despite the usual rhetoric, these businesses are not necessarily “small”; the Trump Organization, for instance, is organized as a pass-through. The Washington Post readers are some of the most critical out there. Opinion writer Catherine Rampell reads and responds to her hate mail from readers. (Adriana Usero, Kate Woodsome/The Washington Post) The Republican tax plan would dramatically slash tax rates for pass-through income, down to no more than 25 percent. This special pass-through rate is much lower than the normal top marginal rate for individual income, which would continue to be 39.6 percent. 

Among them is a rule that says if you’re actively involved in your business, typically only a portion (30 percent) of your earnings would qualify for the special pass-through rate. The rest of your earnings (70 percent) would be considered equivalent to the wages you’d pay yourself for your work at the firm. Accordingly, these would be taxed at regular individual income-tax rates. 

But here’s the rub. This 70-30 rule would apply only if you’re “actively” working for the company you own. If instead you’re considered a “passive” owner — determined by, for example, how many hours you log working for it — then you inexplicably qualify for the special pass-through rate on 100 percent of your earnings. 

This is a strange way to design tax incentives. As New York University law school professor Daniel Shaviro has noted, our existing tax code typically incentivizes people to avoid being classified as passive and instead to prove that they’re “materially participating” in running their business. This bill encourages rich people to do the opposite. 

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