Trump tax plan could be good news for many, bad for deficit
Dismissing concerns about ballooning federal deficits, President Donald Trump on Wednesday proposed dramatic tax cuts for U.S. businesses and individuals – outlining an overhaul his administration promises will spur economic growth and simplify America’s tangle of tax code rules.
His proposal, a one-page sketch short on detail, would reduce the top corporate tax rate by 20 percentage points and allow private business owners to claim the new lower rate for their take-home pay. It would whittle the number of tax brackets for individuals from seven to three, lower the top tax rate from 39.6 percent to 35 percent and double the standard amount taxpayers could deduct.
It would eliminate the estate tax and reduce taxes on investments, typically paid by the rich. It would further reduce the tax burden for the wealthy by eliminating the catch-all alternative minimum tax, which takes an additional bite out of high-income Americans.
More lower-income Americans would pay no tax at all, and there would be relief – still undefined – for families with child-care expenses.
The plan does not propose any budget cuts or tax increases that might offset the lost revenue, a choice that alarms some fiscal conservatives in Trump’s party who have spent years railing about the dangers of deficit spending.
It also does not fully embrace tax proposals backed by Republican House Speaker Paul Ryan, an essential ally if the president is to make good on his promise to deliver a tax overhaul that creates growth and brings jobs to struggling parts of the country.
Still, “I would never, ever bet against this president. He will get this done for the American people,” said Gary Cohn, director of the White House National Economic Council. “He understands that there are a lot people who work hard and feel like they’re not getting ahead.”
The president’s proposal marks a rehash of an economic theory popularized in the 1980s. Trump officials essentially argue that benefits from the tax cuts will trickle down from higher profits for companies into stronger pay raises for workers and greater consumer spending. This expected surge in growth, in theory, would be enough to keep the federal budget deficit from shooting upward.
Some economists agree, but most budget experts say it’s unlikely.
“Unfortunately, it seems the administration is using economic growth like magic beans – the cheap solution to all our problems,” said Maya MacGuineas, president of the non-partisan Committee for a Responsible Federal Budget. “But there is no golden goose at the top of the tax cut beanstalk, just mountains of debt.”
Trump’s plan resembles aspects of the tax ideas he campaigned on last year. The right-learning Tax Foundation estimated that, even after accounting for growth, the Trump campaign plan would put a $2.6 to $3.9 trillion hole in the budget over 10 years.
“We know this is difficult,” Cohn said. “We know what we’re asking for is a big bite.”
Despite the details provided Wednesday, the proposal leaves significant open questions that could affect its impact on taxpayers and the economy.
The administration has yet to decide the incomes at which the new personal tax rates – 10 percent, 25 percent and 35 percent –would apply, meaning that some Americans might see their taxes increase if they get bumped into a higher bracket. It also has yet to spell out how the plan would stop wealthier Americans from exploiting a lower corporate rate to reduce their own taxes.
Administration officials intend to finalize details with members of the House and Senate in the coming weeks for what would be the first massive rewrite of the U.S. tax code since 1986.