Trump’s plan cuts tax rates across board
WASHINGTON — President Trump unveiled tax cuts of historic proportions Wednesday, proposing deep reductions for wealthy Americans and corporations — combined with what looks like more modest relief for the middle class — that administration officials promised would trigger explosive economic growth.
Critics, including some Republicans, warned that the plan would send federal budget deficits soaring. Democrats called the plan a betrayal of the working-class voters whom Trump promised to aid during his 2016 presidential campaign.
“It certainly doesn’t pass the fairness test to have crumbs for working families and very scrumptious cakes for the fortunate few,” said Senator Ron Wyden or Oregon, the top Democrat on the tax-writing Senate Finance Committee.
The plan would slash corporate tax rates from 35 percent to 15 percent and extend the same reduction to business partnerships — which include everything from hedge funds run by billionaires to mom-and-pop businesses on Main Street. It would eliminate the estate tax and reduce certain investment taxes that apply almost exclusively to rich people.
For individual taxpayers, Trump would double the standard deduction — putting several thousand dollars back into taxpayers’ pockets a year — and create a simpler tax code with three brackets (instead of seven) of 10 percent, 25 percent, and 35 percent. But the administration did not say who would fall into each of the new tax brackets, so judging the actual impact on middle-class taxpayers was impossible.
The plan also would eliminate a number of personal income tax deductions, most notably the deduction for state and local taxes, costing homeowners in communities with high real estate taxes thousands of dollars a year. Mortgage interest and charitable giving deductions would be preserved.
The White House didn’t offer a lot of details Wednesday. But the rough picture suggested there would be an array of generous breaks for businesses and the rich.
The plan, laid out in a bare-bones one-page list of bullet points, was presented by Treasury Secretary Steve Mnuchin, a Hollywood financier and former Goldman Sachs investment banker, and Gary Cohn, director of the White House National Economic Council, who was the No. 2 executive at Goldman Sachs before joining the Trump team.
Democrats pointed out that Trump and his heirs stood to benefit greatly from his own tax plan, with its emphasis on cuts for business partnerships and the elimination of the estate tax and the what’s known as the alternative minimum tax.
The latter tax was created to ensure the rich pay their fair share of taxes, though the measure has come under bipartisan criticism in recent years as it increasingly hits upper-middle-class earners.
Trump had to pay more than $30 million in taxes under the alternative-minimum tax in 2005, based on the portion of his decades-old tax return that was leaked to reporters earlier this year. Without the alternative minimum tax, Trump would have paid only about $4 million in taxes that year.
“The president and those at his level of wealth would benefit while tens of millions of American families are hurt,” said Senate minority leader Chuck Schumer, Democrat of New York.
But Cohn said the president’s tax cuts for individuals would particularly benefit those in the middle and lower income brackets.
“He cares about making the economy work better for all American people,” said Cohn.
In response to a question, Mnuchin said Trump has “no intention” of releasing his own personal income tax returns. He said he couldn’t estimate whether Trump would pay more or less taxes under the plan.
“I can’t comment on the president’s tax situation since I don’t have access to that,” he said.
Mnuchin reiterated the administration's belief that the tax plan, coupled with plans to trim regulations and renegotiate trade deals, would deliver “3 percent or higher” economic growth. The US economy grew just 1.6 percent in 2016.
“We will unlock economic growth that’s been held back for too long in this country,” he said.
Critics doubted that outcome, saying Trump’s plan relies excessively on uncertain economic stimulus theory.
Republicans ranged in their enthusiasm, but they generally treated it as a opening bid in a negotiation, subject to plenty of change. House and Senate GOP leaders issued an upbeat but pointedly vague joint statement.
“The principles outlined by the Trump administration today will serve as critical guideposts for Congress and the administration as we work together to overhaul the American tax system and ensure middle-class families and job creators are better positioned for the 21st century economy,” was the message from House Speaker Paul Ryan, Senate majority leader Mitch McConnell, and the chairman of both tax-writing committees.
Still, for many Republicans who spent the Obama years railing against deficits and demanding cuts to offset anything that moved, the administration’s insistence that its tax plan would pay for itself with tremendous economic growth has left them uneasy.
“The [Treasury] secretary is just wrong,” said Douglas Holtz-Eakin, president of the conservative think tank American Action Forum, on the claims the plan would generate the $2 trillion or soneeded to compensate for the lower tax rates.
Ryan has spent the past year working on a more detailed tax measure that sought to balance cuts to the corporate tax rate with a new levy on imports to avoid adding to the deficit. Ryan’s approach, called a border adjustment tax, is not part of Trump’s proposal.
“Exacerbating the deficit is an issue you need to consider in everything that we’re doing,” said Representative Mike Conaway, a Republican from Texas. “We’re $19 trillion in debt. I’ve got seven grand kids. They’re going to paying the interest on that debt all of their lives. That haunts me.”
But elsewhere on the Hill, Trump’s plan — and the idea that the tax cuts he’s proposing would pay for themselves with greater economic growth — was warmly received.
“Most Republicans believe that. I actually believe that,” said Senator Lindsey Graham, who has not shied away from criticizing Trump. Anti-tax crusader Grover Norquist proclaimed Trump’s lower business tax rates “will turbocharge the economy,” and he gave the whole plan his influential seal of approval.
On the business side, the 15 percent rate would apply to both corporations and companies where profits pass through to owners, who pay income tax on those earnings. This latter category of partnerships and “S Corporations,’’ known as “pass-through” entities, includes many small businesses but also an increasing number of big-profit enterprises including fancy law firms, hedge funds, and real estate developers — including the Trump Organization.
The very wealthiest Americans would benefit from: the complete and immediate elimination of the estate tax, which only affects estates worth more than $5.49 million for a single individual; the disappearance of the alternative-minimum tax; lower investment taxes; and a reduction in the top income tax rate from 39.6 percent to 35 percent.
It’s less clear how those in the middle would fare. Trump’s plan would strike most deductions, saving only the immensely popular deductions for mortgage interest payments, charitable giving, and retirement savings. Those who hail from high-tax states such as New York and California — and the wealthy suburbs of Boston — would lose a valuable write off for state and local taxes, for instance.
Trump’s plan would double the standard deduction so that a married couple would pay no income tax on the first $24,000 of earnings, said Cohn. Trump’s plan also promises unspecified “tax relief” for child and dependent care costs.
“We want to make the system very fair,” said Cohn.
On Twitter after the briefing, Wyden noted the plan was “light on details for those who work for a living, but very detailed for the elite.”
“No estate tax, cut in capital gains and cut in top rate? All in #elitegiveaway,” he wrote. The Oregon Democrat referenced an exchange in which a reporter asked Cohn how the plan would impact an average middle-class American family making $60,000 a year. Cohn said he couldn’t say, other than to say they would get a tax cut, because the details are under negotiation.
The broad strokes the White House has offered closely mirror the tax goals Trump outlined as a candidate. That campaign proposal translated to $1.1 million in annual savings for America’s highest earners, those with incomes over $3.7 million, while the poorest fifth of Americans would only save $110 each year — less than one percent of their income, according to an analysis by the Tax Policy Center.
Under the campaign proposal, middle-class families would receive a tax break of $1,010, less than 13 times the savings the rich would receive.
“When Mnuchin first came in, he was talking about middle-class tax cuts, and that’s not what we’re seeing,” said Joseph Rosenberg, a fellow at the Tax Policy Center who helped produce the analysis.