Tax plan

Analysis undercuts Trump's claim that his tax plan would cost him

By BERNIE BECKER

GOP front-runner Donald Trump’s tax reform plan would cut taxes by $9.5 trillion over a decade, with most of the benefits flowing to high earners like Trump, according to a new analysis from the Urban-Brookings Tax Policy Center.

Trump, a billionaire real estate magnate, has said that he would pay far more in taxes under his own plan. But the non-partisan Tax Policy Center said that the wealthiest would get a far greater tax cut than anyone else under Trump’s plan, a finding in line with other projections.

“We know the people in his income group get huge tax cuts,” Len Burman, the center’s director, told reporters today.

In fact, the top 0.1 percent of earners would get a $1.3 million tax cut in 2017 under Trump’s plan, boosting after-tax income by almost 19 percent, according to the Tax Policy Center. The top 1 percent would get a tax cut of more than a quarter-million dollars.

The average household would get a $5,100 tax cut, about 7 percent of after-tax income. The bottom 20 percent of taxpayers would see their after-tax incomes rise the least — 1 percent. They would get, on average, a tax cut of $128.

Trump’s plan would collapse the current seven individual income tax brackets into three, and cut the top rate for individuals from 39.6 percent to 25 percent. The GOP contender would greatly increase the standard deduction, as well, in addition to repealing both the estate tax and the Alternative Minimum Tax.

Both corporations and pass-through businesses would pay a top rate of 15 percent, while Trump would also tax the current foreign profits of multinational corporations at an up to 10 percent rate.

Most Republicans want to shift toward a territorial system that would limit U.S. taxation of offshore corporate profits over the long-term, an idea embraced by most other industrialized countries. But Trump moves in the other direction, ending the current set-up that allows companies to defer paying taxes on those profits until the money is brought to the U.S.

In discussing his plan, Trump frequently focused on his proposal to end the carried interest provision favored by private equity, and talks up tax relief for the middle class. Trump also appears to repeal the 3.8 percent surtax on investment income earned by the wealthiest taxpayers, putting the top rate for capital gains at 20 percent.

All in all, the Tax Policy Center said those ideas would lose so much revenue that it would take “unprecedented spending cuts to avoid adding to the federal debt.”

If Trump’s plan were enacted, the group said, Congress would need to cut spending by more than one-fifth by 2025 to avoid adding to the debt. Lawmakers could accomplish that by cutting discretionary spending by more than 80 percent, or Medicare and Social Security by roughly 40 percent.

The Tax Policy Center’s findings on Trump’s plan are similar to those of the more free-market Tax Foundation, which estimated that the proposal would cost between $10.1 trillion and $12 trillion over a decade.

But officials at the Tax Policy Center suggested that even their $9.5 trillion figure doesn’t tell the full story of the Trump plan’s costs. The proposal would lose another $15 trillion over a second decade, and the center didn’t add on interest costs.

Plus, the center’s analysis suggested there were plenty of ways that higher earners could game the system under Trump’s plan. For instance, the group said that “establishing a top rate on pass-through business income that is 10 percentage points below the top rate on wages would create a very strong incentive for wage earners to become independent contractors, who would be taxed at the preferential pass-through business rates.”

For its projection, the Tax Policy Center assumed that the government could put rules into place that would limit taxpayers’ ability to get the lower pass-through rate. But the group’s analysts also said such rules would be difficult to enforce.

Roberton Williams, another of the center’s officials, added that Trump’s decision to scrap tax deferral for corporate earnings abroad might not be as seismic a change as it seems at first glance.

Companies currently get a credit on taxes paid to foreign governments. Williams said that, because Trump slashes the corporate rate, there aren’t many situations where companies would still owe the Treasury after paying taxes abroad.

“It’s worth noting that with a 15 percent rate, that’s not a very big deal,” Williams said.