After weeks of worrying traditional anti-tax Republicans with talk of a crackdown on the rich, experts across the political spectrum say Trump’s plan looks like a windfall for the wealthiest of the wealthy and for big corporations.
September 28, 2015
Trump’s tax proposal: Buyer beware!
Donald Trump’s position on winning is clear: He’s for it. So it’s perhaps not surprising that Trump himself looks like the biggest winner in his tax plan, which includes a number of changes that would slash taxes for himself, his company, and the children who stand to inherit his fortune.
“I fight like hell to pay as little as possible,” Trump said at his press conference announcing the plan on Monday. “Can I say that? I’m not a politician. I fight like hell always because it’s an expense.”
After weeks of worrying traditional anti-tax Republicans with talk of a crackdown on the rich, experts across the political spectrum say Trump’s plan looks like a windfall for the wealthiest of the wealthy and for big corporations. The top tax rate for individuals would be reduced to 25% from 39.6%, the top corporate tax rate would be cut by more than half to 15% from 35%, and the estate tax – which only applies to inheritances over $5.4 million – would be eliminated entirely. In addition, Trump would eliminate a 3.8% surcharge on capital gains taxes for wealthy investors created to finance the Affordable Care Act, which provides subsidies to lower and middle income Americans to buy insurance. All of these changes would likely benefit people like Trump and businesses like his own in a major way.
“The much lower top marginal rate of 25 percent will mean a large cut for the top, even with the limitation on itemized deductions,” Kyle E. Pomerleau, an economist as the conservative Tax Foundation, which is scoring all the GOP plans, told msnbc in an email. “It will also be a cut for those on the bottom, but the cut will be small or minimal. Trump is claiming a tax increase on wealthy individuals, but I do not believe this will be the case.”
There would be some offsets to go with the cuts. Though the details are still vague, Trump said he would eliminate or cap deductions that benefit the wealthy in order to help finance the plan as well as some corporate deductions. He’s proposed a one-time tax of 10% on corporate money stored abroad and ending companies’ ability to defer paying taxes on future overseas earnings, an idea with some support in progressive circles. He’s also made a big show of ending the carried interest loophole, which benefits hedge fund investors. But the carried interest loophole is mostly symbolic: the Congressional Budget Office estimated it would save just $17 billion over a decade. By comparison, ending the estate tax alone will cost $246 billion.
Economists also see the potential for a new and far more lucrative loophole in Trump’s plan. Under his proposal, business owners who pay individual income taxes on their company’s earnings – a type of taxation known as pass-through – would see their top rates reduced Trump’s 15% corporate tax rate rather than the already-reduced 25% income tax rate. As a result, high earners could try and rearrange their finances in order to exploit the change.
“Every wealthy person, whether they have a business or not, now has a huge incentive to at least look like an incorporated business so as to pay the 15% rate instead of the top rate of 25% on income under Trump,” Jared Bernstein, former chief economic adviser to Vice President Joe Biden and a senior fellow at the Center on Budget and Policy Priorities, told msnbc. The current system, by contrast, lines up the pass-through and individual income rates to avoid creating the same hazard.
It’s not just the rich that benefit from the Trump plan. Looking to put a more populist spin on the plan, Trump is playing up its inclusion of a new 0% income tax rate for Americans earning $25,000 individually or $50,000 as a married couple. “They get a new one page form to send the IRS saying, ‘I win,’” according to the campaign’s white paper.
Some important context is in order here, though. Many Americans already pay an effective rate of 0% or less on their income taxes thanks to various deductions. This is the famous 47% of Americans that Mitt Romney mentioned in his secret camera tape in 2012, a number that’s dropped slightly since then as the economy’s improved. Many working lower-income families actually get a net gain from the Earned Income Tax Credit, a refundable credit that adds up to a net benefit for millions, which Trump spokeswoman Hope Hicks told msnbc would remain unchanged. Trump claims that his tax plan would add an additional 31 million households to the no-tax zone, putting the total at 75 million filers.
The problem with cutting taxes across the board is that the cost starts adding up very quickly. The Tax Foundation pegged the cost of Jeb Bush’s tax plan, for example, which only cut top rates to 28% and corporate taxes to 20%, at $3.6 trillion over 10 years by the Tax Foundation using traditional scoring methods and other analyses found similar price tags. They put the cost of Senator Marco Rubio’s plan, which kept top rates higher at 35% but added new lower and middle income tax credits and eliminated capital gains taxes, even higher at $4 trillion.
Both plans have some things in common with Trump’s, including lower income and corporate tax rates, simpler deductions, and an end to the estate tax, among other changes. This leads economists who’ve evaluated those plans to expect similarly expensive costs for Trump’s proposals. Neither Bush nor Rubio , however, claimed their plans would be deficit neutral. Trump’s white paper, by contrast, says his reform proposal “doesn’t add to our debt and deficit.”
“On its face, the plan looks similar to Governor Jeb Bush’s plan,” Pomerleau, the Tax Foundation economist, told msnbc. He added it was “highly unlikely that it will be revenue neutral.”
Analyses of Bush’s plan have also found that the majority of its lost revenue would be to finance major tax reductions for the ultra-rich. Citizens for Tax Justice, which favors a higher tax burden on the wealthy, estimated that 53% of the cost would go to the richest 1% of taxpayers versus 3% of the cost that would go to the bottom 20%. The Tax Foundation also found that the top 1% would score an average 11.6% increase in net income while the bottom 80% of taxpayers would get smaller bumps between 1% and 3%.
Trump’s plan cuts rates at the top even more than Bush, making it likely that the distribution ends up raising similar inequality concerns.
In a telling move, Club For Growth Action, a conservative anti-tax group that’s spent $1 million on ads attacking Trump for threatening to raise taxes on the rich, found nothing to attack in Trump’s plan on Monday. Instead, they claimed it proved he’d come around to their views.
“[Trump’s] tax plan begs the question: Does this mean you were completely wrong about all your liberal policies on taxes, trade, health care, bailouts, and eminent domain?” the group’s president, David McIntosh, said in a statement.
Benjy Sarlin is a political reporter at MSNBC
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