Trump’s tax plan ‘boon for rich, unclear for middle class’

Bloomberg

President Donald Trump’s economic advisers pitched his new tax plan as a cut for the middle class and not the wealthy, but the opposite may be true. Tax policy experts say its current provisions would undoubtedly mean lower taxes for top earners, while the impact on middle incomes is less clear.
Trump’s blueprint — a list of bullet points released on April 26 — would directly reduce taxes for upper earners by cutting the top income-tax rate to 35 percent from 39.6 percent; eliminate the Alternative Minimum Tax, which raises the tax bills of certain taxpayers on the higher side of the income scale; and scrap a 3.8 percent investment income tax under Obamacare that applies to individuals with incomes of more than $200,000. The plan would also repeal the estate tax, which would save an estimated $200 billion over a decade for individuals with estates worth more than $5.45 million.
So-called pass-through businesses also would pay the same 15 percent tax rate that Trump has proposed for corporations, which would financially benefit not only mom-and-pop shops but also big partnerships like law firms and business empires like his own. “We can confirm that outline shows plenty of benefits to high-income earners,” said Alan Cole, an economist with the conservative-leaning Tax Foundation. “And for the middle class? Honestly, we don’t know.”
TRUMP’S OWN TAXES
As the name suggests, pass-through businesses pass their income through to their owners, who pay taxes at their individual rates. For high-income owners, that rate is currently 39.6 percent, and reducing it to 15 percent would be a major tax cut.
In an interview with Fox News the aired on April 28, Trump brushed aside concerns about the pass-through cut. He focused on his call to cut the top individual rate to 35 percent and to eliminate most deductions.
“If I’m individually paying 35 percent, I will tell you that’s more,” he said during the interview. “I’m going to end up paying more than I pay right now.” He added: “The reason I will pay more is because I’m going to lose all the deductions.”
The one-page blueprint proposes, without specifics, to “eliminate targeted tax breaks that mainly benefit the wealthiest taxpayers.” It calls for protecting the popular and costly deductions for mortgage interest and charitable giving.
Cole estimated that eliminating every itemized deduction would raise about $2.2 trillion over a decade, which he said is less money than would be lost because of lower tax revenues. “So you’re at a larger net cut for the wealthy,” he said. William Gale, a senior fellow on taxes and fiscal policy at the nonpartisan Brookings Institution, also said that even if all available deductions were eliminated, “I don’t see how the plan could avoid being an enormous tax cut for high-income households.”
One group might see higher taxes: Investment managers stand to lose the carried-interest tax break, which allows for them to pay lower tax rates on their earnings than average workers, Reince Priebus, Trump’s chief of staff, said on ABC’s “This Week” program.
Trump’s one-page tax-plan outline didn’t mention the break, but “the president wants to get rid of carried interest,” Priebus said. Cole said the pass-through business tax cut to 15 percent would go “almost exclusively to the wealthy.” Leonard Burman of the Tax Policy Center called it “a giant, juicy loophole for high-income people.”
Burman said “there’s no way” that Trump’s plan won’t lower taxes for top earners, despite the rhetoric from his administration.
“This isn’t about a dramatic cut in taxes for the wealthy,” Treasury Secretary Steven Mnuchin said on NBC’s Today show on April 27, one day after unveiling the plan with White House economic adviser Gary Cohn. “This is about a middle-income tax cut.”