Wednesday saw the Trump administration roll out their new tax plan, or at least a single page of bullet points. So far it seems that the beneficiaries are the wealthy and corporations, with the rest of America footing the bill.
Currently, there are seven tax brackets ranging from 10 percent to 39.6 percent. Without spelling out where the brackets would begin and end, Trump’s plan narrows that down to three brackets: 10 percent, 25 percent, and 35 percent. That means individuals earning over $418,400 would see a nearly 5 percent tax reduction.
On the plus side, Donald Trump’s tax plan doubles the standard deduction. This would make preparing taxes easier on many people and would give more money to those that do not itemize their deductions. However, there is a catch. The President’s plan would no longer allow someone to deduct state and local taxes from their federal filing. Those that live in New York or California for instance have high local taxes and would subsequently see an increased federal tax burden.
Under the new plan, corporations would see their tax rate reduced from 35 percent to only 15 percent. The Trump plan also rolls back the alternative minimum tax, which would make it easier for high-earning corporations to exploit loopholes in the tax code.
Additionally, the capital gains tax is lowered by 3.8 percent by eliminating funding for the Affordable Care Act, while benefitting those that can afford to invest their money. The estate tax would also be eliminated. Currently if an individual takes in a $5.5 million or greater inheritance, it is taxed at 40 percent.
Despite these benefits to the highest-income earners, Trump’s economic advisor Gary Cohn says:
“We are going to eliminate most of the tax breaks that mainly benefit high-income individuals. Home ownership, charitable giving, and retirement savings will be protected – but other tax benefits will be eliminated.”
The White House claims that this tax reform will lead to economic growth and job creation, hearkening back to the tickle-down or supply-side economics of the Reagan administration. But even Reagan worked with Congressional Democrats to push through his plan. That is something the Trump White House is not likely to do.
Treasury Secretary Steven Mnuchin signaled that the administration could pursue a “reconciliation” strategy, which would allow the plan to be approved without Democratic support, but would also mean the plan would expire after 10 years. This would side-step the so-called “Byrd Rule” of 1974.
The Tax Policy Center released an analysis of the Trump tax plan and estimates that:
“[T]he federal debt would rise by at least $7.0 trillion over the first decade and by at least $20.7 trillion by 2036.”
While publicly Republican leaders have responded favorably to the plan, many conservatives worry that without addressing spending, tax cuts are nothing more than an attempt to grab headlines. South Carolina Republican Rep. Mark Sanford said:
“Anything that completely spikes the ball with regard to deficits going forward I think will be problematic within the Congress.”
House Minority Leader Nancy Pelosi echoed those concerns:
“What few details are here overwhelmingly cut taxes for the richest and do little for middle class Americans and those trying to get there. Besides which, nowhere does President Trump indicate how his deficit-exploding tax plan will actually be paid for. There is room for bipartisan tax reform, but it must be fiscally-responsible and it must not come at the expense of hard-working Americans.’
Additionally, Speaker of the House Paul Ryan had previously been opposed to many of the previsions of Trump’s new tax plan. He and Representative Kevin Brady had been working on tax reform legislation, while insisting that federal revenue would stay consistent – something that was more likely to garner bipartisan support.
For instance, the Ryan-Brady plan calls for a corporate tax rate reduction to 20 percent but would off-set that cut with a controversial border-adjustment tax and eliminating corporate deductions on interest payments. Though, even those plans have seen sharp criticism from Democratic lawmakers. New York’s Rep. Joe Crowley said of the House GOP tax reform efforts:
“They talk about revenue neutral, initially here in the House, but not distributionally neutral.”
Not presented by Cohn in his release of the Trump plan were two rumored provisions that Democrats would have likely been in favor of: infrastructure spending and tax credits for childcare (though Ivanka’s proposed child care plan only benefits higher-income families). The only mention of child care came as Cohn explained that the standard deduction might be of assistance to families:
“Families in this country will also benefit from tax relief to help them with child and dependent care expenses.”
The Trump plan seems to be significantly lacking in detail and relatively unlikely to get passed in its current form. With so many failures in his first 100 days, it is possible that the President merely wanted to grab some headlines as a government shutdown looms. After all, this is the man that compared his TV ratings to the 9/11 attacks in an interview with the AP:
“I have, seem to get very high ratings. I definitely. You know Chris Wallace had 9.2 million people, it’s the highest in the history of the show. I have all the ratings for all those morning shows. When I go, they go double, triple. Chris Wallace, look back during the Army-Navy football game, I did his show that morning […] it had 9.2 million people. It’s the highest they’ve ever had. On any, on air, (CBS ‘Face the Nation’ host John) Dickerson had 5.2 million people. It’s the highest for ‘Face the Nation’ or as I call it, ‘Deface the Nation.’ It’s the highest for ‘Deface the Nation’ since the World Trade Center. Since the World Trade Center came down. It’s a tremendous advantage.”