The 2017 Tax Law Was a Massive Boon To Corporations And the Ultra-Rich and Failed to Prioritize Hardworking Arizona Families

The federal tax law that was passed in 2017 prioritized wealthy individuals and corporations over anyone else. The corporate tax rate was slashed from 35 percent to 21 percent – a whopping 40 percent tax rate cut for major corporations –  while families struggling to get by were left with the bill. This reality is perhaps even more true in Arizona, which has, according to one study, the 13th most unfair state and local tax system in the country. 

Large portions of the 2017 tax law are set to expire by the end of next year and it would serve Arizona families (and the rest of the country) well if the expiration date is used as an opportunity to end the 2017 law’s giveaways to the rich and create a fairer tax system. President Biden’s tax plan, rather than backing an extension of the 2017 law, lays out a blueprint for a fairer tax code, which would help working families and make corporations and the wealthy pay their fair share.

The 2017 Tax Law Helped Wealthy Individuals – And Did Little for Anyone Else

The 2017 tax law gave tax cuts to the wealthiest and did next to nothing for those who needed help the most. In Arizona, that meant that the richest 1 percent of Arizonans got 29 percent of the tax cuts from the law, while the poorest 20 percent of Arizonans got just 1 percent. Proponents of the law argued when it was passed that it would cause workers’ wages to rise and lead to $4,000 or more in additional household income, but the law has failed to achieve this promise; it was higher-paid executives, not workers, who saw pay increases following the 2017 law.

This is on top of Arizona’s unfair state tax system. Arizonans earning less than $22,200 pay the highest share of family income in state and local taxes of anyone else in the state – at nearly 12 percent. The middle earners in Arizona – those earning between $42,800 and $70,500 – pay 9.8 percent of their family income in state and local taxes. Compare that to Arizonans at the highest end of the income spectrum: Those earning more than $596,600 pay just 5 percent in family income in state and local taxes. That means those who have the least to spare are paying the most, while those who can afford to bear a bigger burden are escaping responsibility. Having a federal tax code that prioritizes working people and makes those at the top pay their fair share is critical for Arizona families.

The 2017 Tax Law Helped Wealthy Corporations

The 2017 tax law also was a major boon to corporations. The law slashed the corporate tax rate from 35 percent to 21 percent and for many companies, they’ve been paying significantly less than that in taxes. Since passage of the law, the largest profitable companies in this country are paying an average of 12.8 percent in federal income tax. One study found that nearly 300 of the biggest and consistently profitable companies paid $240 billion less than they would have between 2018 and 2021 had the law not been passed. And it’s not because they’re making less money than they had before – profits rose by 44 percent after the tax law was passed, but the companies’ federal tax bills fell by 16 percent!

Major Provisions of the Tax Cuts and Jobs Act are Set to Expire Next Year

When the 2017 tax law was passed, many of its provisions were enacted to be temporary in order to do a little legislative sleight of hand to get the law passed. That means that after 2025, certain provisions expire. Those provisions disproportionately help the wealthy. Now is the time for Congress to figure out what it wants to do – either let tax cuts for the rich expire and build a fairer tax system, or keep policies that do little for working families while continuing to help those at the top.

Extending the 2017 Tax Law Would Hurt Arizona Families

Making the expiring provisions of the 2017 tax law permanent would sentence Arizona families to further tax inequality. It is estimated that fully extending the tax law would balloon the federal deficit by $4.6 trillion over the next decade and roughly $290 billion in the first year alone. For Arizona, it means that the patterns we’ve already been seeing would be made permanent – if the entire 2017 law were made permanent, the top 1 percent of Arizonans would get a nearly $42,000 tax cut in 2026, while the poorest 20 percent of Arizonans wouldn’t get a tax cut at all, and instead could get a tax hike. 

President Biden’s Budget Proposal Promotes Tax Fairness

Instead of extending the 2017 tax law and entrenching tax inequality, Congress could choose to champion the budget proposed by President Biden. The budget prioritizes raising money from wealthy people and corporations, while lowering costs and cutting taxes for working families. 

The budget proposes focusing on taxing the rich instead of the working class. One of the main ways that wealthy people have money is through capital gains, or investments. Money earned from investments is currently taxed at lower rates than money earned from work, maxing out at just 20 percent, rather than the 37 percent for work income. The proposal suggests evening that out, so that any income – regardless of how it’s earned – over $1 million is taxed at the top tax rate. 

Further, when a wealthy individual dies with assets, those investments are passed to their heirs without being taxed. The gains in value that were made on those investments during the wealthy person’s life get erased for tax purposes and the heirs get to enjoy those gains tax-free. President Biden’s budget proposal would limit that. Those two changes to the capital gains system would raise $289 billion over a decade. 

The budget also proposes increasing the corporate tax rate, raising it from 21 percent to 28 percent (though it would still be lower than what it was before 2017). This would cut down on some of the tax avoidance major corporations engage in and over the course of a decade would raise $1.35 trillion. There is also a proposal to raise the corporate alternative minimum tax included in the Inflation Reduction Act from 15 percent to 21 percent – a way to ensure that companies are paying their fair share.

The budget proposal also cuts down on a tax break that corporations get for outrageously high executive compensation. Right now, corporations can take a deduction on executive compensation, which means they get a tax break when they pay their executives exorbitant sums. Currently, corporations are limited from taking a deduction on compensation of more than $1 million for the ten highest paid executives. President Biden’s proposal would remove that ten executive limit and disallow a deduction on any compensation package of more than $1 million. Doing so would raise more than $270 billion over a decade. 

Tax Fairness is Possible

Instead of continuing with a tax code that prioritizes the wealthy and major corporations, it is possible to achieve a system in this country that seeks to help families struggling to get by. Extending the 2017 tax law would hurt Arizona families, whereas policies in President Biden’s budget would help them.