Trump released a nine-page tax plan today. That’s like doing the architectural drawings for your house on a napkin. A small napkin.
What we do know:
- The plan will likely add to America’s $20 trillion debt. There are lots of tax cuts spelled out. There are almost no loopholes eliminated.
- The rich make out pretty well. The White House vows poor people won’t have to pay more than they do now, but there are few specifics in the plan so far to ensure that. We do know that the lowest rate goes up from 10% to 12%. The highest rate goes down from 39.6% to 35% and there will be only three marginal rates: 12%, 25%, 35%.
- Businesses (both small and large) get major tax cuts.
- The Estate Tax would be gone under Trump’s plan. It applies only to those individuals whose estates exceed $5.49 million – $11 for a married couple. Few small businesses or family farms are worth that. Now we’ve got a proposal that will be a boon to the Trumps, the Kochs, and the Mercers sold under the guise of helping small businesses and farmers.
When you hear Republicans and business boosters talking about lowering the tax rate for “small businesses,” that’s just a ruse. What they really are talking about is making the pass-through tax loophole even bigger for hedge funds, oil drillers, law firms, private-equity firms and real estate partnerships, most of which are quite large. Most pass-through small businesses are already paying less than 25% (the new Trump rate). It’s the wealthy few who are paying 39.6% who stand to benefit.
Corporate rates would drop to 20% which will be touted as competitive with other countries. BUT other countries don’t have the loopholes for corporations that the U.S. has. Once loopholes are taken into account, our effective corporate tax rates are about the same as those of other countries. BUT other countries don’t have the loopholes for corporations that the U.S. has. There is nothing on Trump’s napkin about taking away the loopholes, so corporations’ effective tax rates would be way below competitive countries. And that doesn’t do the economy much good, it’s just a payoff to the rich.
Trump’s big claim is that this tax overhaul will unleash economic growth. The United States has been growing at about 2 percent a year lately, below the historic norm. Trump keeps saying this plan will unleash growth of 3 percent — or more. Economists, even those who work at Wall Street banks and for big companies, only project a modest boost to growth. Estimates range from 2.1 percent to 2.25 percent.
That means the federal government is not going to see big new revenues from increased economic growth. QED: More debt. Republicans campaigned on not adding a single dollar to the federal debt. Right now, Senate Republicans have a deal to add $1.5 trillion to the debt over the next decade, so there’s a good chance this tax plan will add to the debt. (And, so much for campaign promises.)
According to the nonpartisan Tax Policy Center, the average rate of income tax paid by the American middle class — the 20 percent of households in the exact middle of the income ladder — has been going down for decades, and was at 2.6 percent of gross income in 2013, the last year for which statistics are available. For the 40 percent of household below them — what you might call the working class — the average household not only paid no tax, but because of refundable tax credits actually got money back from the government equal to 1.2 percent of income, helping to offset payroll taxes (Social Security and Medicare) that averaged around 8 percent. To whatever extent the middle class is struggling, it isn’t because of income taxes.
Tax cuts for the rich are the big enchilada that Republican donors paid for with their donations in the last election. Trump and the Republicans in Congress are desperate to deliver on this promise. Watch for the lies and tweets to roll out in force.
What’s at stake: Will income and wealth inequality make the U.S. into an oligarchy like Russia? Yes, the continuing battle for universal healthcare is very important. So is this.