President Donald Trump, the self-proclaimed champion of American workers, promised in a tweet to announce “Big TAX REFORM AND TAX REDUCTION.”
What he delivered Wednesday was tax simplification of a sort, but focused far more on tax cuts that would be a huge bonanza for big business and the 1 percent, and that would cost many middle-class Californians big money.
Trump didn’t even unveil the tax plan himself, but dispatched his chief economic adviser and treasury secretary to hand out a one-page outline that largely repeats his campaign proposals:
▪ Slash the top corporate tax rate from 35 percent to 15 percent, even though many companies already take advantage of loopholes and creative accounting to pay far less.
▪ Grant that lower rate to many business partnerships that file personal tax returns and now pay a top rate of 39.6 percent. They range from mom-and-pops to hedge funds and real estate empires like Trump’s.
▪ Repeal the alternative minimum tax, created in 1970 to stop the rich from using loopholes to avoid paying taxes. The AMT added $31 million to Trump’s own tax bill in 2005, which otherwise would have been only $5 million on $150 million.
▪ End the 3.8 percent surtax on investment income that helps fund Obamacare, a proposal also part of his failed Trumpcare. That’s another big tax break for the wealthy.
▪ Kill the estate tax, saving the heirs of family fortunes $300 billion over a decade, perhaps even the Trump clan.
For most of us, Trump’s tax blueprint would be a mixed bag.
It would double the standard deduction, eliminating federal taxes on the first $24,000 of income a year for a married couple, and increase the write-off for child care.
But the plan would end all itemized deductions except for mortgage interest and charitable donations. That would be a big hit for Californians who deduct state and local taxes. In 2013, 5.8 million taxpayers in the state deducted an average of $5,624.
The big simplification is to reduce the seven individual tax brackets to three – 35 percent, 25 percent and 10 percent.
Besides being unfair, Trump’s tax plan could explode federal deficits.
According to tax think tanks, cutting the corporate rate to 15 percent would reduce revenues by about $2 trillion over the first 10 years, and extending that lower rate to “pass-through” businesses by another $1.5 trillion over a decade.
That wouldn’t nearly be offset by revenue brought in by a one-time lower tax rate of 10 percent on the estimated $2.6 trillion in profits that U.S. multinational corporations have stashed overseas.
Mnuchin claims the tax cuts would pay for themselves by boosting economic growth and generating “trillions of dollars” in additional tax revenue. That sounds suspiciously like the supply-side economics of the Reagan years that produced massive federal deficits.
This is an important point because a tax cut bill that adds to the deficit requires 60 votes to pass in the Senate under current rules, and that would require some Democratic votes. Republicans worried about the federal deficit aren’t jumping on board yet, either.
Given the lack of detail and groundwork, the president’s “big” announcement seems more about adding to his list of “accomplishments” in his first 100 days than putting forward a serious proposal on tax reform and economic growth.