Edward Kleinbard analyzed the Republican tax “framework” earlier this month. The bill introduced this week contains the elements he discusses, with one caveat: It attempts to constrain taxpayers from converting compensation income into “pass-through” income, which would be taxed at a preferential 25 percent rate. (For instance, an active manager of a pass-through business would be entitled to treat only 30 percent of his share of income from that source as qualifying for the preferential tax rate.) But it’s too soon to know whether those limitations will be effective, or if they will even end up in the final legislation:

To understand the business tax provisions in the Trump tax proposals, begin with F. Scott Fitzgerald’s insight that the rich are different from you and me — they have more money.

In particular, they have more capital. (Ever polite, economists call piles of money that have been invested “capital.”) Business tax reform really is an exercise in how we should tax capital income — that is, returns on investments. And because the rich have lots more capital than do you or I, the benefits of the multitrillion-dollar business tax cuts proposed by the Trump administration’s tax “framework” necessarily will be vacuumed up by the most affluent Americans. Business tax reform has only a modest connection to the economic future of working stiffs, and the small connection that does exist is a second-order effect.

The Trump framework offers two critical tax cuts for businesses and their owners: First, it reduces the tax rate on corporate income from 35 to 20 percent; and second, it caps the taxes imposed on owners of “pass-through” businesses like partnerships and S corporations, by creating a new 25 percent tax bracket for those owners’ pass-through income.

(As Republicans never tire of pointing out, regular corporations and their shareholders in theory are subject to double taxation — once when the income is earned by the corporation and again when it’s distributed as taxable dividends to individual shareholders. This rule, however, is honored almost exclusively in the breach. By contrast, the owners of “pass-through” entities are taxed directly on the income of their pass-throughs. Most privately owned companies are organized as pass-throughs; virtually all publicly traded companies are taxed as corporations.)

The nonpartisan Tax Policy Center estimates that the changes to corporate and pass-through tax rates, plus some ancillary rules, will slash tax collections by more than $2.6 trillion in forgone revenue over the next 10 years. By contrast, the purely individual provisions in the Trump plan are estimated to raise about $500 billion in taxes from all of us over the same period. So, viewing things in the aggregate, the overall tax cuts promised by the framework are entirely a story about the business tax side of things: The individual side is a net tax hike. More particularly, the overall impact of the tax framework is a story about who benefits from business tax cuts.

Corporate tax cuts fall on real people. Which ones?

Mitt Romney was right when he said that corporations don’t pay taxes — people do. You’ve never seen a corporation walking down the sidewalk, because it’s a legal fiction. In the end, one group of people or another shoulders the burden of the corporate tax, or in this case enjoys the benefits of slashing the rate to 20 percent. But which people?

President Trump and other apologists for the Republican plan insist that they’re not in it for the money for themselves, but are simply the selfless servants of the average worker. They argue that a lower corporate rate translates directly into higher wages. Now, it is true that one can construct simple models that imply such a result, but the reason they do is that within these models, a high corporate tax chases capital investment away from the United States to lower-taxed countries, so that capital can enjoy higher after-tax returns, leaving less capital behind invested in the productivity of each American worker.

These models do not apply to the modern American multinational corporation, as several studies have found. For that reason, the US Treasury in recent years has assumed that 82 percent of the burden of the corporate tax (or the benefit of a corporate tax rate cut) falls on the shoulders of owners of capital, not working Joes, and the leading nonpartisan economic institutions and analysts Congress relies on (namely the Congressional Budget Office and the staff of the Joint Committee on Taxation) employ similar rules of thumb.

In fact, the Treasury economists’ careful work here is so damning to the framework’s enterprise that the political bosses at Treasury have ordered the study removed from its website.

Even within the small fraction thought to fall on labor, these agencies conclude that labor bears its share of the corporate tax in proportion to incomes. So top executives, with their outsize compensation, would get the lion’s share of any portion of a corporate tax cut attributable to labor.

As it happens, there is good reason to reduce the corporate tax rate. But that’s principally because the full 35 percent rate applies so unevenly and to relatively few corporations. One sophisticated study concluded that the average tax rate actually paid by US corporations (their “effective” tax rate) was about 23 percent — or 32 percent if one pretended that all corporate income was immediately distributed as dividends. And when it comes to US multinationals, the results are even more skewed, due to what I’ve dubbed their “stateless income” shenanigans. Microsoft, for example, announced to shareholders that in 2016, its US operations lost $325 million.

Fortunately, it booked $20 billion in profits outside the United States! A close examination of its tax footnote in its financials reveals that its foreign earnings bear an effective foreign tax rate of around 5 percent. As even the tax framework acknowledges, tax reform here will be all about imposing a minimum tax as a floor on companies’ stateless income planning.

We find ourselves back at the central question. To understand who benefits from business tax rate cuts, we need to ask: Who owns capital in America? Unlike many other tax imponderables, we actually know a lot about this.

Capital income is much more concentrated, in fact, than is overall income: The top 1 percent captures about 21 percent of overall income in the United States (itself quite extraordinary) but double that proportion of capital income. What’s more, capital ownership in the United States is extraordinarily concentrated at the very top of the top end: Those with wealth exceeding $20 million (the top one-thousandth, or 0.1 percent) own as much as do the bottom 90 percent.

Despite GOP claims, the new rate on “pass-through” entities won’t do much for small businesses

The overall lesson is plain: The average line worker is not the principal beneficiary of corporate rate reduction. Nor, we can safely say, is Ma and Pa Kettle’s Muffler Shop the prototypical pass-through business that will benefit from the 25 percent rate cap on pass-through income.

Taxpayers who receive income from pass-throughs pay at the individual rate. The framework’s proposal for special tax treatment for pass-throughs is being pitched as something that will help small businesses, but it confuses small businesses with pass-through businesses. The real advantages will flow to large pass-throughs and the most affluent investors. The top 1 percent of Americans earn 69 percent of all pass-through income; they are the ones who will garner the benefits of the preferential pass-through rate.

Genuinely small businesses aren’t the object here, given that without the special deal incomes, up to $233,000 (married filing jointly) would be taxed at 25 percent simply by virtue of the new tax brackets. And, as it happens, the average tax rate imposed on pass-throughs today is around 19 percent, making the case for providing a 25 percent ceiling on pass-through tax rates even tougher to see.

Lower pass-through rates will also redirect energy away from business productivity into creative tax accounting. Lawyers go to work to shoehorn back into the 25 percent preferential rate whatever income Congress purports to exclude from it.

Meanwhile, owner-entrepreneurs will be induced to engage in what I call “labor stuffing.” Instead of paying herself a salary, the owner-entrepreneur will extract her share of her firm’s earnings in the form of business income, thereby masquerading labor income as qualifying capital income. I’ve spent an enormous amount of time working on this problem in a related context, and have proposed a technical solution (short version here). The “Big Six” lawmakers who drafted the framework have done no work to address this.

But what about growth? Surely the Tax Policy Center’s $2.6 trillion deficit-ballooning estimate for the cost of the plan’s business tax gifts will lead to faster growth that will make all of us better off, and offset the apparent cost of the framework to boot? Would that it were so, but responsible economists agree that this is just not true, whether one looks to history (most recently, Kansas) or theory. The idea that the growth fairy can be propitiated only through tax cuts is faith-based economics.

The tax framework will produce a multitrillion-dollar increase in our deficits by forgoing tax revenues in order to cut taxes on the very must affluent. This spurt in deficits will impede, not accelerate, growth, by increasing the interest rates paid by US businesses. It also will make our ability to respond to the next recession that much more precarious.

Look at it this way: When interest rates are still near their lowest levels in decades, and banks are lending, where is the evidence that firms right now are facing difficulty in finding the capital to invest in attractive opportunities? There is none. In fact, the framework’s combination of expensing business investments and permitting at least some interest deductions would reduce the effective (real-life) tax rates on those investments below zero, which means that we all would be subsidizing firms in replacing American workers by machines.

Who cares if the rich get richer?

Finally, it might be suggested that only envy can explain my preoccupation — and that of other commentators — with how generous the framework’s business tax cuts are to the most affluent Americans. So long as low- and middle-income taxpayers are also better off, who cares about the largesse at the top? The answers are, first, millions of ordinary Americans in fact will be worse off — as the Tax Policy Center’s preliminary analysis makes clear.

And second, we all have a vital interest in the financial stability of the United States. The tax framework will produce a multitrillion-dollar increase in our deficits by forgoing tax revenues in order to cut taxes on the very must affluent. This spurt in deficits will impede, not accelerate, growth, by increasing the interest rates paid by US businesses. It also will make our ability to respond to the next recession that much more precarious. So, yes, in this case, all of us have a vital interest in not giving away the store to some of us.

To paraphrase Fitzgerald, the ownership of business capital and business capital income is what distinguishes the rich from you and me, and for this reason, the lion’s share of the Trump framework’s multitrillion-dollar business tax cuts cannot help but be captured by the most affluent Americans. This is a tax proposal only Jay Gatsby could love.

Edward D. Kleinbard is the Robert C. Packard trustee chair in law at the USC Gould School of Law and the author of We Are Better Than This: How Government Should Spend Our Money. He is a former chief of staff of the US Congress’s Joint Committee on Taxation.

The Big Idea is Vox’s home for smart discussion of the most important issues and ideas in politics, science, and culture — typically by outside contributors. If you have an idea for a piece, pitch us at thebigidea@vox.com.

Here is what you need to know about the Republican tax plan released Wednesday: It’s not a tax reform plan at all.

It is a sketch of an outline of a preliminary notion of a tax cut for some — and a tax hike for others. The components read like the jumble of ideas you might expect a table of slightly inebriated Chamber of Commerce types to shout out when polled for their tax reform suggestions.

The plan is sketchy, as I say, but this is the gist: Where individuals are concerned, the seven current individual income tax brackets will become three: 12 percent, 25 percent, and 35 percent. The standard deduction will be raised to $24,000 for couples and $12,000 for individuals. There will be a substantially bigger child tax credit.

It’s not just the nerdiest details that are missing: We don’t, for example, know what the top tax rate would actually be (the proposal dangles the possibility of a fourth tax bracket, for high earners, on top of that 35 percent rate). We don’t know where the new tax brackets begin and end, or the magnitude of the enlarged child tax credit. In many cases it is impossible for me or anyone else to tell you whether you will be better or worse off, given the lack of detail.

We know that some lower-income Americans will be worse off, because the skimpy document says so. The lowest tax bracket increases by fully 20 percent, from 10 to 12 percent. The larger standard deduction, the unspecified larger child tax credit, and “additional tax relief” to be named later will protect “typical” low-income families from a tax hike, we are told, but others will see their bills actually climb. And the aged and the elderly will lose their additional standard deduction, which under current law offers them up to $5,000 in additional deductions.

The “doubling” of the standard deduction (to $24,000 for married couples filing joint returns) is offset in part by disallowing personal exemptions. Today, taxpayers are entitled to one standard deduction per tax return, plus a personal exemption (a $4,050 additional deduction) for each family member. The proposal would take away these personal exemptions. This means that a family of four will go from $28,900 in these deductions (standard deduction plus four personal exemptions) to $24,000 (larger standard deduction but no personal exemptions). That’s a decrease, not a doubling.

The framework contemplates an enhanced child tax credit that will make things better, but there’s no detail here at all, including on the income point at which the enhanced child credit will start to phase out.

We also know from today’s announcement that itemizers will lose their state and local tax deductions, and that this benefit is enjoyed primarily by relatively affluent residents in blue states. But other itemized deductions will also disappear, including the deduction for extraordinary medical expenses. A family that’s forced to devote substantially all its current income to supporting a critically ill family member will now pay tax on its income without any relief for those circumstances.

Guess who benefits?

We can identify at least one taxpayer who will hugely benefit from the proposal: President Donald Trump. We still haven’t seen his tax returns, but thanks to leaked documents we know that at least at some point in the past, the only income tax he paid was the alternative minimum tax (the AMT). We also know that his businesses operate through “pass-through” vehicles (partnerships, LLCs and S corporations). A regular corporation pays tax on its income; shareholders in turn pay tax on the dividends they receive. In pass-through vehicles, by contrast, business income is taxed only in the hands of the owners of the business, rather than at the entity level.

And we know that Trump is very wealthy, and therefore in the ordinary course of events might be expected one day to leave behind a large estate, which, to the extent not left entirely to his wife at that time, would attract a substantial estate tax bill.

What does the Republican proposal do in this case? It eliminates the AMT. It subjects income derived from pass-through businesses like Donald Trump’s empire to a special 25 percent tax rate (rather than 35 percent or 39.6 percent, the individual rate), because owners of these businesses are special, in some indeterminate way. And the proposal repeals the estate tax.

Here you see the real agenda at work. When it matters, the proposal has more than enough detail to signal to President Trump and the Republican Party’s coterie of oligarch financial backers that their personal taxes will be slashed, not by a few hundred or thousands of dollars, but by millions and millions.

The 25 percent tax rate for pass-throughs is particularly galling, because it has no principle at all behind it, and will be the subject of widespread abuse, as taxpayers maneuver to squeeze their incomes into the pass-through business box. The proposal describes this as some sort of discounted rate for small business owners, but that is simply dishonest. It applies to all pass-through vehicles, including those owned by Trump and his counterparts.

Little evident concern for the effect on the deficit

As best as can be determined today, the numbers behind the proposal are so off base as to make the whole enterprise laughable. The document released this morning makes no projections as to its cost. The Committee for a Responsible Federal Budget puts the figure at roughly $5.8 trillion over the 10-year budget window; other estimates put the price tag at $5 trillion or so. To put this number into context, the total Treasury debt held by the public today is about $15 trillion; a $5 trillion revenue shortfall would by itself require federal borrowing equal to one-third of the debt currently in the hands of the public.

The CRFB estimates that revenue increases (many of which are completely unspecified in the proposal) would offset about $3.6 trillion of the gross $5.8 trillion cost, for a net deficit increase of $2.2 trillion over 10 years. But even that figure is ludicrously large in terms of its impact on deficits and outstanding Treasury debt, as the CRFB points out.

What’s more, to get legislation through Congress relying only on Republican votes, the majority must rely on reconciliation instructions contained in a budget resolution. The Senate majority has already begun that process by agreeing that its budget resolution will lose $1.5 trillion in revenue over the 10-year budget window. This means that even if the proposal were to include revenue raisers of the magnitude that has been suggested, it would still yield deficits that were two-thirds larger than those contemplated by the Senate majority in its budget resolution negotiations. Therefore, it would have to be trimmed to fit.

The House is further behind in the process, because of internal divisions, but it is improbable that the House will aim for a budget resolution providing deficits two-thirds larger than the figure negotiated by the Senate majority.

No responsible economist thinks that this package, including its giveaways to the most affluent, will somehow produce so much economic growth as to offset a $2.5 trillion hole in the budget. The growth effects of tax cuts (itself a controversial topic) would be vitiated by soaring national debt, and with it, higher borrowing costs for businesses, whose own borrowing rates are set by reference to the rate at which the Treasury can borrow.  

What’s more, a deficit-increasing bill can rely on the reconciliation process — the process that allows a simple majority vote in the Senate — only if it does not raise deficits in years after the 10-year budget window, which means the tax breaks here would have to be temporary. That itself is a big negative in making the case that this sort of raid on the Treasury would be growth-enhancing.

In short, where personal taxes are concerned, the proposal is a surefire winner for the very top of the income ladder, including the president. It’s also a budget buster, and it may turn out on balance to raise the income tax burden on you, the reader.

Edward D. Kleinbard is the Robert C. Packard trustee chair in law at the USC Gould School of Law and the author of We Are Better Than This: How Government Should Spend Our Money.  

The Big Idea is Vox’s home for smart discussion of the most important issues and ideas in politics, science, and culture — typically by outside contributors. If you have an idea for a piece, pitch us at thebigidea@vox.com.