Senior Director of Federal Tax Policy
Donald Trump’s tax plan conflicts with his claim that it’s fully paid for and focused on average Americans. In reality, the plan hemorrhages revenue and tilts heavily toward the wealthiest Americans.
It includes a number of expensive tax cuts — cutting the top individual and corporate tax rates sharply, to 25 and 15 percent, respectively; creating a special 15 percent rate for business income that’s passed through to the firm’s owners and taxed as individual rather than corporate income, thereby providing a large new loophole disproportionately benefiting people at high income levels; eliminating the Alternative Minimum Tax; ending the estate tax; and cutting the rate on capital gains and dividends to 20 percent.
The plan does far less, and has less detail, on the revenue-raising side. It would limit itemized deductions but says that two of the largest deductions — for mortgage interest and charitable giving — would be untouched. It would wisely tax foreign corporate profits like domestic corporate profits but sets the rate very low. It also includes some small specific tax loophole closers, like eliminating the carried-interest tax break for private equity managers.
All told, the plan would hemorrhage revenue because its deep rate cuts simply overwhelm the rest of the plan. The package would lose trillions of dollars, despite claims that it would not add to deficits. Citizens for Tax Justice estimates the plan’s price tag at more than $10 trillion over the next decade. The Tax Foundation’s estimate is at least $10 trillion.
That’s not particularly surprising; the 2014 tax plan from then-House Ways and Means Chairman David Camp — which had much higher rates on individuals and corporations than the Trump plan and more aggressive cuts in tax subsidies — achieved revenue neutrality over the first decade only through timing shifts, tax-rate cut phase-ins, and other maneuvers.
The Trump plan notes that it “eliminates the income tax for over 73 million households.” It concedes, however, that 42 million of them don’t pay federal income taxes now; they simply wouldn’t have to fill out tax forms showing they don’t owe any. For another 31 million households, who do pay federal income taxes, eliminating those taxes would save them less than $1,000 a year on average, according to the plan.
For people at the top, in contrast, the top tax rate on their salaries would fall from 39.6 percent to 25 percent, the tax rate for their partnership and other pass-through income would fall from 39.6 percent to 15 percent, and the tax on inherited wealth would disappear. Despite limits on deductions and other measures, the big tax cuts for people at the top would dwarf those for more modest-income Americans.