Trump Tax Cut Plan Would Benefit Wealthiest Americans

Posted Aug. 2, 2017

MP3 Interview with Matthew Gardner, senior fellow at the Institute on Taxation and Economic Policy, conducted by Scott Harris

tax

During the 2016 presidential election campaign season, Donald Trump promised to give America’s beleaguered middle-class families a substantial tax cut, and said he would consider increasing taxes on the wealthy. However, earlier this spring, the Trump economic team released an outline of its tax reform proposal which consisted of bullet points on a single-printed page. While details were scarce, analysis of the tax plan found that it would disproportionately benefit the wealthiest Americans and the billionaire and millionaire members of Trump’s Cabinet. While Trump has refused to release his federal tax returns, it’s a safe bet that he himself – as well as his luxury real estate development company would be primary beneficiaries of the tax reform plan.

Analysis of the Trump administration’s tax plan by the Institute on Taxation and Economic Policy found that “the wealthiest one percent of households would receive 61 percent of all the Trump tax breaks, and would receive an average of $145,400 in 2018 alone.” In contrast “the middle 20 percent of taxpayers would receive about 6.2 percent of the cuts, and an average tax cut of just $730 next year. While the richest 1 percent would receive tax cuts equal to 6.9 percent of their income in 2018, the bottom 60 percent of taxpayers would receive tax cuts equal to just 1.2 percent of their income.”

Between The Lines’ Scott Harris spoke with Matthew Gardner, senior fellow with the Institute on Taxation and Economic Policy, who discusses his group’s analysis of the Trump administration's tax reform plan, and what a progressive reform plan focused on reversing growing economic inequality would look like. [Rush transcript]

MATTHEW GARDNER: Trump is answering is all the easy questions about tax reform and none of the hard ones, by which I mean he is proposing to sharply reduce tax rates, especially at the top on both the personal and the corporate side - and to repeal the estate tax, to repeal the alternative minimum tax – that's the main reason people like President Trump pay any taxes at all. But he is almost silent on the difficult question of how to pay for these reforms. You know, in a deficit environment, everyone agrees that it's important for tax cuts not to break the bank – that if you're going to reduce rates, you ought to look for loopholes to close and everyone knows we certainly have these.

But, especially on the corporate front, which is arguably where loophole closing is most needed at this time – there's just no detail there at all. There's very general language about taking away unwarranted loopholes. But notably, none of them are identified. So, it's fair to say that we're looking at sharp reductions of the taxes that the best-off Americans pay and much smaller cuts in the taxes that the rest of us pay, with the result that you're looking at a very large hole in our budget deficit of about $4.8 trillion over the next 10 years.

BETWEEN THE LINES: How much detail has been provided about their proposed tax cut policy? What do we know exactly?

MATTHEW GARDNER: We know that the tax rate on pass-through income - businesses on the individual side will go down from the current 39.6 percent to 15 percent, a huge cut that would benefit only a small number of the very best-off Americans. We know that estate tax rate would go to zero. And we know that the corporate tax rate would go as low as 15 percent, although Trump has back-pedaled on that a little bit. And we know as well that most itemized deductions would be repealed, leaving just charitable and mortgage. So the deduction for state and local taxes would go away. We believe personal exemptions would go away as well – the exemptions that you claim for every family member on your income taxes and that there would be a new tax break for childcare, which hasn't been very well-defined, but could be pretty big. The possibly unforeseen, likely unforeseen, impact of that is that larger families in the middle of the income distribution could actually see tax hikes under this swap. If you have a lot kids and you're losing all your personal exemptions, this could actually mean a tax hike for you.

Similarly, if you live in a state where state and local taxes are fairly high or fairly progressive – New York, California, states like that – the loss of the federal itemized deduction for state taxes can also make you into a loser under this plan. So, it manages to be a very large tax cut, trillions and trillions of dollars while simultaneously imposing some tax hikes on people who certainly are not expecting them, based on the rhetoric we've heard from the administration.

BETWEEN THE LINES: The United States, over many decades, has experienced growing income inequality and as you look at the process of tax reform, what are some of the most essential and important things that could be done with tax reform to specifically address the goal of reversing this growing economic inequality which certainly adversely affects the majority of people in the United States?

MATTHEW GARDNER: I think a sensible starting point, a starting observation to make about our tax system is that it taxes work more heavily than wealth. We have a capital gains and dividends top tax rate that is about half the tax rate on wages. Rectifying that, treating all kinds of income the same, would be an important step toward a fairer tax system. It's a step that would allow for affordable tax reductions for middle- and low-income families and it would just restore, I think, a little bit, the public's faith that the tax system is an impartial thing, that it's not there to help the Mitt Romneys and the Donald Trumps of the world to avoid taxes. We really need a tax reform that simultaneously takes away these visible indicators of institutional inequality and, as a result, helps to knit together the public's trust in our institutions, in our government and in our leaders. As long as you have these symbols of opulence and inequality in our tax system, it's a lot to ask for people to trust that their leaders have their best interests in mind. So ending corporate tax breaks – meaningfully ending them – taking away the tax break for wealth over work, these are both changes that would benefit low- and middle-income families that would get us closer to having something resembling a fairer tax system and would help solve our budget deficits and our democratic distrust deficit as well.

For more information, visit the Institute on Taxation and Economic Policy at itep.org.

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