On the campaign trail, Trump released a tax plan I felt was hideous and disastrous. Not only would it punish middle and lower income families by getting rid of the “head of household” deduction, but the sheer number of tax cuts for the wealthy would only add to the growing federal deficit.
But was his newer tax plan any better?
The principles of Trump’s amended tax plan were presented in a one-page document on Wednesday, April 26, 2017. The plan was discussed by former Goldman Sachs executive and National Economic Council Director Gary Cohn and Treasury Secretary Steve “Foreclosure King” Mnuchin.
The plan was expected to cost trillions of dollars in what would be the largest “tax reform” in over 30 years.
What’s In the Tax Plan?
The highlights included:
- Reducing the tax rate on stocks, bonds, and real estate investments. In order to do this, Trump would eliminate the 3.8% tax imposed on individuals making at least $200,000 a year by provisions of the Affordable Care Act.
- Eliminating the inheritance tax for wealthy heirs and couples.
- Cutting the average corporate tax rate to less than half what it is currently (from 35% to 15%). Additionally, Trump wants to cut the top corporate tax rate from 39.6% to 35%.
- Protecting the mortgage deduction. That overwhelmingly benefits the wealthy, especially when the size of the house is considered.
- Trump also wants to eliminate the Alternative Minimum Tax, which would also benefit the financially secure.
- In addition, Trump wants to double the standard deduction to effectively eliminate the first $24,000 of a couple’s income.
- Offering a low tax rate for businesses who take money they have stashed overseas and bring it back to the U.S.
- Trump’s team also announced that part of their plan included “simplifying” the tax code by reducing the number of tax brackets from 7 to 3. Under these new brackets, incomes would be taxed on 10%, 25%, and 35%.This would entail lower taxes for wealthy individuals.
- Current tax deductions include those which allow taxpayers to write off taxes paid to state and local governments. These would disappear under Trump’s tax plan.
Since the plan was only relegated to one page, some specifics were left out. Among the questions remaining was how the three tax brackets would be broken up.
How Disastrous Is This Tax Plan?
Trump’s economic advisers claimed that tax cuts would pay for themselves since they would lead to a 3% growth in the economy. However, as Leon Panetta said, that growth only exists in “fairyland.”
The Cohn and the Foreclosure King claimed the tax cuts proposed in the plan would pay for themselves by an expected economic growth of 3%.
However, past evidence has found that decreasing corporate taxes — like Ronald Reagan did in 1981 and George W. Bush did 20 years later — does not foster the growth promised, or put the United States in a position to capitalize on it. For starters, businesses or less likely to invest that extra money into their businesses and create more jobs, but they are more likely to do so at higher tax rates, like what happened under Bill Clinton’s administration.
Lower corporate tax rates will increase the national debt.
According to an October 2016 analysis of Trump’s proposed tax plan, revenues would shrink by $6.2 trillion over the first decade. As a result, the federal debt would rise by $7.9 billion over that span and by $20.9 trillion by 2036.
After this new plan was released, the Center for a Responsible Federal Budget gave its analysis. According to the CRFB, Trump’s proposed tax plan could cost $5.5 trillion by 2027 if implemented. In a blog post, the CRFB said the tax plan could cost $3 trillion on the low end (“assuming credits and exclusions are eliminated as well as deductions”) or $7 trillion at the high end if the limits on tax breaks are only applied to the wealthy.
If Trump has his way, the loss in revenue from corporate taxes will total $2.4 trillion, according to estimates from the Tax Policy Center.
One stat to look at is the deficit as a share of GDP. Harry Truman became president with the highest share at 103% and Trump’s plan only looks to surpass that number.
Between 2007 and 2016, the national debt as a share of GDP soared from 35% to 77%. The stats come from the Committee for a Responsible Federal Budget, a nonpartisan watchdog group.
No amount of growth can offset the cost of the types of tax cuts Trump is looking for. And if applied, those tax cuts could lead to a 111% share of the debt-to-GDP ratio. Currently, that ratio is expected to rise to about 89%.
How Is This Tax Plan a Betrayal?
Well, look at who will benefit.
Who Is Really Helped by All the Tax Cuts
Of course, these are unneeded tax cuts for the wealthy. Large corporations will also benefit because many of the deductions and taxes targeted effect these groups.
For starters, the inheritance tax is called the “death tax,” in order to get people to rally against it. But the truth is it only applies to single heirs who are inheriting a total of $5.49 million from a single magnate and couples are willed a total of $11 million. The inheritance tax is on average 16.6% and it generates around $275 billion in revenue for the government over 10years.
Secondly: While the 15% corporate tax rate would help some small businesses, it would also apply to hedge funds, law firms, and specialty-income vehicles for rich people.
Third, most Americans won’t benefit from cuts to capital gains taxes. According to New York Economist Edward N. Wolff, 92.8% of households that make at least $200,000 a year hold at least $10,000 in stock. Around 19.1% of households making $25,000-$49,000 hold at least $10,000 in stock.
Ninety percent of the stocks, bonds, and real estate tax repeal would apply to households making at least $700,000 a year. Those households would receive an average tax cut of $25,000 a year.
According to the Congressional Budget Office, the top one percent makes 36% of its yearly revenue from capital gains (financial investments, including stocks and bonds). Compare that to the lowest 20%, which only receives an average of 5% of their money in this way.
Additionally, how will Trump try to pay for all this?
The Real Answer
Look at the budgets.
Earlier this month, both the House and the Senate approved a budget for fiscal year 2017, but that will fund the government until September 30. To the surprise of many, there was an overall spending increase of $3 billion and funding for science programs (and the FDA) was increased.
However, I would look at future budgets if any of Trump’s proposed tax cuts were implemented. But generally, when tax cuts like these are made, Congress ends up “trying” to pay for them but cutting essential services and programs that help middle and lower income families.
In particular, I would look at Republicans trying to target “entitlements.” Two-thirds of the federal budget has mandatory programs, includes Social Security, Medicare, and paying interest on the national debt.
If the health care bill passed by the House (before their premature beer party) is anything to go by, tax cuts for the wealthy are cut by cutting Medicare. As it turns out, many people in “red” states (those who voted for Trump) depend on Medicare (and the Affordable Care Act) more.
But this tax plan will also punish people in “blue” states. If implemented, people in high-tax states (which are often run by Democrats) will not find relief from state and local taxes.
In short, if this tax plan comes to fruition, not only will it stifle growth, but it will also punish non-wealthy individuals. It goes to show you this is Trump’s dream scenario: He wants a plan that will benefit him and his companies, with no regard to for the country.
“Appropriations Watch: FY 2017.” Committee for a Responsible Federal Budget. 16 May 2016. Web. <http://www.crfb.org/blogs/appropriations-watch-fy-2017>.
Burman, Leonard E., Nunns, James R., Rohaly, Jeffrey and Rosenberg, Joseph. “An Analysis of Donald Trump’s Revised Tax Plan.” Tax Policy Center. 18 Oct 2016. Web. <http://www.taxpolicycenter.org/publications/analysis-donald-trumps-revised-tax-plan>.
Carter, Zach. “Trump’s Tax Proposal Would Be Ridiculously Good For Rich People.” The Huffington Post. 26 Apr 2017. Web. <http://www.huffingtonpost.com/entry/trump-tax-plan-rich-people_us_5900ef4be4b0af6d718afb4e>.
Cho, Chloe and Huang, Chye-Ching. “Ten Facts You Should Know About the Federal Estate Tax.” Center on Budget and Policy Priorities. 5 May 2017. Web. <http://www.cbpp.org/research/federal-tax/ten-facts-you-should-know-about-the-federal-estate-tax>.
Davidson, Paul. “How Trump’s tax plan would affect households.” USA Today. 26 Apr 2017. Updated 27 Apr 2017. Web. <https://www.usatoday.com/story/money/2017/04/26/how-trumps-tax-plan-would-affect-households/100951850/>.
Matthews, Dylan. “Donald Trump’s tax plan, in fewer than 500 words.” Vox. 26 Apr 2017. Web. <http://www.vox.com/2017/4/26/15438404/trump-tax-plan-april-mnuchin-cohn-changes>.
Reuters. “‘Fist bumps’ at hedge funds over Trump’s tax plan.” Raw Story. 26 Apr 2017. Web. <http://www.rawstory.com/2017/04/fist-bumps-at-hedge-funds-over-trumps-tax-plan/>.
Sahadi, Jeanne. “Trump’s tax plan could cost an estimated $5.5 trillion.” CNN. 27 Apr 2017. Web. <http://money.cnn.com/2017/04/27/news/economy/trump-tax-plan-debt>.
Schoen, John W. “Trump’s tax cut plan only pays for itself with growth in ‘fairyland.’” CNBC. 26 Apr 2017. Web. <http://www.cnbc.com/2017/04/26/trumps-tax-cut-plan-only-pays-for-itself-with-growth-in-fairyland.html>.
“Who pays the AMT?” Tax Policy Center. Web. <http://www.taxpolicycenter.org/briefing-book/who-pays-amt>.