Director of Federal Fiscal Policy
President Trump’s tax policy announcement slated for tomorrow reportedly includes a 15 percent rate for so-called “pass-through” business income, a 15 percent corporate tax rate, and child care tax subsidies similar to what he proposed during the campaign. Here are some key CBPP resources for understanding these policies:
“Pass-through” tax cut. This tax cut would cost about $1.5 trillion, with $650 billion going to tax avoidance by high earners and the rest flowing overwhelmingly to wealthy investors. As our brief report explains:
A centerpiece of President Trump’s campaign tax proposal and House Speaker Paul Ryan’s “Better Way” tax plan is a special, much lower top rate for “pass-through” business income — which is currently taxed at the business owners’ individual income tax rates rather than the corporate rate and then as dividend income in the hands of shareholders. About half of pass-through income flows to the top 1 percent of households, while only about 27 percent goes to the bottom 90 percent.
Both Trump’s and Ryan’s plans would cut the top rate on this income sharply from its current 39.6 percent rate to 15 and 25 percent, respectively — well below the 33 percent top individual income tax rate that both plans propose. This would overwhelmingly benefit high-income people and create a costly loophole. Trump’s proposed pass-through rate cut would cost $1.5 trillion over ten years, accounting for about one-fourth of his campaign tax plan’s total cost.
Our full report has more detail.
Corporate rate cut. Cutting the corporate rate to 15 percent would cost more than $2 trillion over ten years, the Tax Policy Center estimates. Our two new briefs explain:
U.S. companies are posting record profits, and what they actually pay (after tax breaks and loopholes) is in line with other high-income countries. Corporate rate cuts are costly: for example, President Trump’s proposal to cut the top corporate rate to 15 percent would cost more than $2 trillion over ten years. Most of the benefit would flow to high-income investors, and if such tax cuts were not paid for by reducing corporate tax breaks and loopholes, they could hurt economic growth and the majority of Americans by increasing budget deficits or requiring cuts to investments that help working families and the economy.
Various GOP tax plans propose to dramatically lower the top corporate tax rate, arguing that the U.S. rate is one of the highest in the world and that it makes U.S. companies “uncompetitive.” But these comparisons are misleading. Rather than focusing on the top “statutory” corporate rate, they should focus on what companies actually pay. Plus, they should focus on large, high-income countries, which companies are likely to view as similar to the United States in terms of being attractive places to locate and invest for reasons not related to the tax system. When taking into account tax breaks and loopholes that corporations use to lower their taxes, U.S. corporate tax rates are well below the 35 percent top statutory rate and are in line with corporate tax rates in similar countries (see chart).
Child care tax subsidies. President Trump’s campaign tax plan included a series of child care tax breaks, and his announcement tomorrow reportedly includes a “similar” proposal. The campaign proposal was highly regressive, delivering more than 70 percent of its benefits to families with incomes above $100,000, while families with incomes between $10,000 and $30,000 would receive just $10 a year on average. The proposal cost about $115 billion over ten years – less than a twentieth of the campaign tax plan’s $2.8 trillion in tax cuts for millionaires. So, even if the child care proposal released tomorrow has been tweaked, it likely will do little to offset the top-heavy tilt of provisions like the pass-through and corporate tax cuts. For more, see:
Trump plan and GOP tax promises. The policies announced tomorrow — like the Trump campaign tax plan — will apparently fall far short of promises from key Republicans, including the President and other top Administration officials, that tax reform should not reduce overall revenues, not cut taxes for the wealthy, and focus its benefits on workers and families.
Instead, President Trump appears to be doubling down on core elements of his campaign tax plan that are tilted towards the wealthy.