Trump’s Tax Plan Would Be Bad for Those Who Don’t Own Yachts, Study Basically Finds

By
Gary Cohn and Steve Mnuchin. Photo: Mark Wilson/Getty Images

Back in April, the White House released a plan to transfer trillions of dollars from the federal government to the wealthiest individuals and corporations in America. They called it “tax reform.”

Okay, that description may not be entirely fair — the litany of half-baked proposals for regressive tax cuts that the administration unveiled three months ago can hardly be called a plan. In his vision for fundamentally reforming the American tax system, Donald Trump didn’t bother to propose specific income tax brackets. The administration claimed that its massive cuts wouldn’t substantially increase the deficit, but stipulated few pay-fors beyond the elimination of unspecified “special interest” tax breaks.

The Trump White House had allowed the congressional GOP to take the lead on health care. Tax reform was its number-one policy priority. And nearly six months after Trump’s election, Steve Mnuchin and Gary Cohn couldn’t come up with anything better than a less-detailed version of the plan that the mogul had campaigned on.

They have offered no additional details in the months since. This presented a challenge to the economists at the Tax Policy Center (TPC), who had hoped to offer the public a detailed analysis of the plan’s likely effects.

To account for the policy’s ambiguities, the TPC decided to make two separate projections. The first would score solely the effects of the plan’s (relatively) well-defined tax cuts. The second would pair those cuts with every revenue raiser that the president and his staff had expressed some interest in. The think tank’s findings aren’t exactly surprising, but they do offer some insight into why Trump’s team shied away from putting details into their tax plan.

Looking exclusively at what the White House knows that it wants to do with the tax code, TPC finds Trump’s plan would increase the deficit by $7.8 trillion over ten years, with 60.9 percent of that lost revenue accruing to the top one percent of income earners. Neither of those figures are too surprising, given that the president’s plan includes the repeal of the estate tax, the alternative minimum tax, and Obamacare’s capital-gains tax on high-income households, along with a 25 percent cut in the rate on owner-operated businesses — all of which stand to deliver significant gains to the wealthy and almost no one else. (You can read more about the details of Trump’s proposed cuts here).

So, Trump’s plan amounts to a blueprint for how the rich can raid the federal treasury. But at least the “all candy and no vegetables” version manages to toss a few dollars in hush money to the witnesses in the middle class. Once you begin to pair the regressive tax cuts with revenue boosters, however, ordinary Americans see their cut dwindle to a pittance — or else, become a net loss.

The one major source of new revenue Mnuchin and Cohn proposed in April was the elimination of the deduction for state and local taxes — a reform that would (rather conveniently) fall hardest on relatively affluent households in blue states.

During the 2016 campaign, the Trump campaign tossed out a few other schemes for raising revenue, including the repeal of the personal exemption; the abolition of the “head of household” filing status for single parents; the imposition of a capital-gains tax on certain wealthy estates; and limiting the tax cut on owner-operated businesses to companies that aren’t “large.”

After adding all these measures to Trump’s plan, TPC saw a significant improvement on the deficit front. Instead of swelling the deficit by $7.8 trillion, the “responsible” version of Trump’s tax package would grow it by a mere $3.4 trillion — only a bit more expensive than the Iraq War!

Alas, such fiscal probity comes at a cost. With the revenue raisers in place, 19 percent of households would actually see a tax increase under Trump’s plan. And that sacrifice won’t be equitably shared. The top one percent would enjoy 76.3 percent of the benefits from this version of reform, while the top 5 percent would lay claim to 94.8 percent. Meanwhile, nearly one-quarter of households in the middle quintile of the income ladder would see their tax burdens increase.

Vox’s Dylan Matthews spotlights the insane inequity of the plan with this stat:

Including the tax hikes, the overall plan would give the average family earning under $25,000 per year a $40 tax cut, or a 0.3 percent boost in after-tax income. The top 0.1 percent, earning above $3.4 million a year, would get an average tax cut of $937,700, or a 13.3 percent boost in after-tax income. 

Remember, even under this version of the plan, the White House is allowing itself to expand the deficit by more than $3 trillion. It’s far from clear that congressional Republicans are ready to rubber-stamp a deficit increase of that size. Which means that, if the White House is to stick by its official (profoundly regressive) priorities, then their actual plan is going to have to soak the non-rich a bit more. (Paul Ryan’s proposal for tax reform provides a good model for how to cut the middle class out of the bargain.)

Perhaps, this has something to do with the administration’s decision not to sweat the details of its own plan.

To be sure, much of the upper middle class would still derive some benefit from the cuts. But these gains might well pale in comparison to what such households stand to lose from an underfunded federal government. Already, the GOP is finding that its commitments to ever-higher military spending and ever-lower taxes can’t be reconciled without draconian cuts to popular safety-net programs and public services. The super rich can insulate themselves from such cuts. But the broad middle class mostly can’t.

And they’re starting to realize that, even in right-leaning parts of the country. Last night in Oklahoma, a state currently suffering the consequences of conservative economic orthodoxy, two Democrats were elected to deep-red statehouse seats after pledging to reverse cuts to public-school funding.

Republicans are unlikely to pass a tax-reform bill all that similar to the White House’s haphazard sketch. But every tax plan congressional Republicans have produced in recent years shares the Trump proposal’s top priority — relieving the economic anxiety of multimillionaires and billionaires.

So long as that’s the case, it’s hard to see how Democrats can lose by sharpening their economic message around themes of class warfare. As Matt Yglesias argued Wednesday, if Team Blue can succeed in turning 2018 into a referendum on the one percent’s class war, they should end up with the larger army.

Trump Tax Plan Only Good for the Rich, Study Basically Finds