Trump tax plan would break six of Trump’s campaign promises
Congressional Republicans and White House negotiators released their long-awaited tax cut plan on Wednesday.
After failures to make progress on their health care, budgetary, and infrastructure agendas, “tax reform” has been the one potential bright spot for the Trump administration’s legislative goals. The next step is for the tax-writing committees in the House and Senate to actually work on a bill using this plan as a framework. But how does this first step measure up to what Candidate Trump told voters before he took office?
As his advisers will readily note, the president is not a wonk, but he did get into some level of specificity during the campaign about what kind of changes to the tax code he would implement.
Judging by the little that is in the plan, Trump would break six campaign promises if he signed a bill based on it into law. One tax cut promise has already been broken, making seven total. Here are the promises Trump would break with this plan:
1. Sticking it to the “hedge fund guys”
Trump asserted in September 2015 that he would cut taxes for the middle class, “but for the hedge fund guys, they’re going to be paying up.” This is less in reference to income tax rates than capital gains tax loopholes. Trump promised several times to eliminate this loophole, which allows financial managers to pay taxes on their income at the capital gains tax rate, which is lower, instead of the income tax rate. He said in Iowa in 2015 that he’d take out the loophole, “and let people making hundreds of millions of dollars pay some tax, because right now they are paying very little tax.”
The plan does not even mention the capital gains tax loophole.
2. Cutting the corporate tax rate
The main promise Trump made about corporate taxes for both small and large businesses is to drop the rate to 15 percent — which in his words “cuts taxes way down, way down for corporations.”
The plan would actually cap the corporate tax rate at 20 percent. The law currently taxes most levels of corporate income at rates of 34 to 38 percent. For small businesses, the plan would cap the top tax rate at 25 percent.
3. A freelancer tax cut
Trump promised to extend this 15 percent corporate tax rate to small businesses and freelancers. Allowing many “high earners” to recategorize their normal income as business income would be an even bigger tax cut. It would be a lot easier to pay a lower corporate rate instead of a higher top-bracket income tax rate.
The draft plan makes no mention of freelancer income being recategorized, yet it does state: “The framework contemplates that the committees will adopt measures to prevent the recharacterization of personal income into business income to prevent wealthy individuals from avoiding the top personal tax rate.”
4. Putting tax preparation companies out of business
Trump promised to simplify the tax code so much that H&R Block went out of business.
There are some simplifications in the tax code, but as of now it is completely unrealistic to conclude that H&R Block will have no place in the economy with this plan.
5. Closing loopholes
Trump promised to close “many” business tax loopholes.
The plan says it will “deliver fiscally responsible tax reform by broadening the tax base, closing loopholes and growing the economy.” But it fails to identify any loopholes to close. In fact, the plan appears to create a loophole that would benefit people like Donald Trump.
6. Eliminating business deductions
He also promised to eliminate “deductions made unnecessary or redundant by the new lower tax rate on business income.”
The plan calls for the elimination of one specific business deduction (the section 199 manufacturing deduction). Other than that, it calls for the elimination of other deductions, but does not identify any in particular. One deduction, plus some mystery deductions is not equal to “many.”
In all, Trump made 18 specific promises about tax cuts before he became president. He would definitely keep one promise with this plan if it is passed, and the plan is not specific enough to judge the remaining promises. Those depend on the smaller decisions the White House policy staff and Congress will make.
Trump promised that families earning less than $25,000 per year would pay no taxes: “the people at the very bottom economically, less than $25,000 if it’s a family pay zero.” He told Sean Hannity that while he would like to have the family pay a “token,” it would cost too much in paperwork to collect it. However, the plan doubles the standard deduction for married couples to $24,000, which is less than the $25,000 Trump promised.
It’s unclear if his promise to phase in “a reasonable cap on the deductability of the business interest expense,” will be kept from the current framework. Capping or eliminating the ability of corporations to deduct expenses from debt interest payments would affect the bond bankers who rely on the loophole. The draft plan says it would partially limit interest deductibility, which if present in the final bill, would be a kept promise.
Trump promised to tax overseas income at just 10 percent in a bid to repatriate some of the trillions of dollars currently sitting in offshore accounts. The plan does include a provision allowing companies to repatriate their overseas profits. It says those profits will face a one-time tax, payable over several years, but it does not specify the tax rate.
Trump said in August 2015 that “I want to lower taxes for people making a lot of money that need incentives.” The plan does not specify the income levels for its new tax brackets of 12 percent, 25 percent, and 35 percent, so it is difficult to judge how much lower taxes will be for wealthy people. The current brackets end with the highest rate of 39.6 percent for any income an individual makes over $415, 051 in a year, so those super-wealthy taxpayers would see a break. Income down to $190,150 per year, however, is taxed at rates of 33 percent of 35 percent, which would not be a break. The plan does preserve tax incentives for higher education and retirement, however.
In his first proposal on the subject, Trump promised to eliminate the estate tax (or as conservatives call it, the death tax): “no family will have to pay the death tax.” The estate tax currently exempts over $5 million per individual, and thus is not relevant to people who are not already wealthy. In his campaign’s second proposal that dealt with the estate tax, Trump said he would eliminate the estate tax except for capital gains held after death and valued over $10 million. The plan says it would eliminate the estate tax but provides no detail about capital gains exemptions.
“We’re going to be reducing taxes for the middle class,” Trump told CBS News in September 2015. Specifically, he promised later in the campaign that the middle class tax bracket would fall to 12.5 percent, without specifying what income level middle class would be. The plan does not specify income levels for the new tax brackets it sets — 12 percent, 25 percent, and 35 percent — so it is difficult to judge how much lower taxes will be for middle class income earners. The bottom bracket rises from 10 percent to 12 percent but the plan would double the standard deduction, so it is not clear what the impact would be on lower and middle-class earners.
The plan also neglects to mention how the tax cuts would be paid for, the details of which would threaten Trump’s promises about shrinking both the deficit and the debt.
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Reposted from ThinkProgress
