Tax reform: Who would benefit from Trump’s plan?
President Trump’s tax plan represents “the most pro-growth fiscal agenda” since Ronald Reagan unleashed the economy in the 1980s, said Charles Gasparino in the New York Post. Under the initial blueprint announced last week, the number of tax brackets would collapse from seven to three, simplifying our “messy tax system,” while the top individual tax rate would drop from 39.6 percent to 35 percent. The bottom rate would rise slightly, from 10 percent to 12 percent, but lowerto middle-income folks would see their standard deduction double, to $12,000 for individuals and $24,000 for married couples, and enjoy an as yet unspecified increase in the child tax credit. Trump’s plan also “contains a mountain of incentives” for small and large businesses, said Larry Kudlow in NationalReview.com. It cuts the corporate tax rate from 35 percent—one of the highest rates in the world—to a much more competitive 20 percent, encouraging U.S. companies to expand and hire more workers. “This is a revolutionary change,” said Trump, “and the biggest winners will be the American workers.”
Unfortunately, “none of that is true,” said David Leonhardt in The New York Times. Trump insists that his plan favors middle-income Americans and not the rich. But an analysis by the nonpartisan Tax Policy Center found that about 30 percent of taxpayers earning between $50,000 and $150,000 would see their taxes increase under the GOP plan. Meanwhile, by 2027, 80 percent of the plan’s benefits would go to the wealthiest 1 percent. Republicans howl about the national debt when a Democrats is president, said Jonathan Chait in NYMag.com, but don’t seem to care that their plan would explode the deficit by reducing federal revenues by $2.4 trillion over a decade. The GOP hopes to claw back about $1 trillion by closing loopholes and tax breaks, including eliminating the deduction for state and local taxes. But every existing deduction will be vigorously defended by its beneficiaries and lobbyists. Republicans could avoid their math problem by not giving “a tiny number of extremely affluent people” a big tax cut in the first place—but that’s “the motivation of the entire exercise.”
Trump’s critics must be “clairvoyant,” said The Wall Street Journal in an editorial. They’ve denounced his tax plan even before “crucial details are known.” And the Tax Policy Center’s analysis doesn’t even attempt to factor in the “growth impact from tax cuts.” After years of “stagnation” under Obama, Trump’s plan could encourage at least 3 percent growth, adding some $2.5 trillion to the Treasury. Actually, that’s a long-disproven Republican myth, said Catherine Rampell in The Washington Post. Recent history shows no evidence that tax cuts create so much economic growth they pay for themselves. When Kansas passed sweeping tax cuts in 2012, it experienced below-average growth, huge budget shortfalls, and brutal cuts to school funding and social services. Eventually, after realizing their supply-side experiment had failed, red-faced Republicans were forced to raise taxes again.
Trump is peddling another outright lie, said Seth Hanlon in Fortune.com. The president claims he and other wealthy people wouldn’t personally benefit from his tax plan—when, in fact, he and his billionaire-filled Cabinet will enjoy a huge windfall if it passes Congress. His proposal eliminates the estate tax, which applies only to the 1 in 500 U.S. families whose assets are worth more than $5.5 million—saving Trump and his family an estimated $1.1 billion. It also creates a special, preferential 25 percent “passthrough” tax for partnerships and limited liability companies; Trump owns more than 500 such entities. And it eliminates the alternative minimum tax—essentially the sole reason Trump paid any tax on his $150 million income in the 2005 return that was partly leaked to the press. Trump “doesn’t just benefit from his tax plan,” said Jamelle Bouie in Slate.com. “He flourishes under it.”
That’s if Republicans manage to pass the tax plan, said Adam Brandon in WashingtonExaminer.com. Already, their “backs are up against the wall.” Blue-state Republicans are threatening “no” votes if GOP leaders go through with eliminating deductions for state and local taxes—a change that would hurt taxpayers from high-tax states such as California and New York. Meanwhile, Republican Sen. Bob Corker of Tennessee says he won’t back any plan that adds “one penny to the deficit.” But failing to pass something isn’t an option. The GOP has already botched Obamacare repeal, despite controlling Congress and the White House. The 2018 midterms are creeping ever closer. “If Republicans don’t pass tax reform, they’re screwed.”