President Trump’s proposed tax cuts would lower federal revenue by $7.8 trillion over a decade and mostly benefit the highest earners, according to a new study released Wednesday by the nonpartisan Tax Policy Center.
About 40 percent of the tax cut would go to the top 1 percent of earners, who’d see an average after-tax gain of 17.8 percent. By contrast, the middle one-fifth of Americans would see an average gain of 3.3 percent, the study said.
When accounting for suggested revenue-raisers like ending most itemized deductions and personal exemptions, the 10-year revenue loss under the Trump tax plan would be $3.5 trillion, the study found. And the top 1 percent’s gains would be 11.5 percent, while middle-income gains would be 1.3 percent, the report said.
The study, which evaluated the one-page outline released by the White House on April 26, provides a glimpse into the political hurdles facing Trump’s dream of enacting the largest tax cut in US history. It shows that even if it achieves all the revenue-raisers it calls for, it would add trillions to the deficit — and face criticism as a boon to upper earners.
Trump’s outline would create a 15 percent tax rate for businesses of all stripes — down from current rates that can top 35 percent. It would also consolidate the existing seven individual tax rates to just three — cutting the top rate to 35 percent from the current 39.6 percent. The plan would also eliminate a 3.8 percent tax on investment income for high earners that was enacted as part of Obamacare.
The White House plan lacked sufficient detail for full-out revenue scoring; for example, the three individual tax rates weren’t attached to specific income brackets. So the TPC analysis filled in some blanks using proposals from Trump’s presidential campaign.
At the same time, some proposals, such as repealing the alternative minimum tax and the estate tax, were relatively easy to score, said Mark Mazur, tax center’s director.
Trump administration officials have repeatedly pitched the president’s plan as a benefit for middle-class taxpayers. But some elements in it would be of particular benefit for wealthier people, Mazur said. For example, the estate tax applies only to estates worth more than $5.49 million for individuals or $10.98 million married couples.
“If you’re serious about not cutting taxes for higher income people you probably wouldn’t repeal the estate tax,” Mazur said. Overall under the plan, “The benefits largely flow to the top.”
The study also shines a light on the procedural struggle awaiting the plan in Congress. Under a maneuver that Senate Republican leaders plan to use to avoid Democrats’ opposition, any tax changes that add to the deficit after a decade must automatically expire. The cost of the tax cuts alone in the second decade would be $13.1 trillion.
“There’s a fairly substantial revenue hole to fill,” Mazur said.
When TPC applied a “dynamic” scoring method, which accounts for economic growth, the revenue cost of Trump’s tax cuts decreased slightly to $7.7 trillion; when factoring in the revenue-raisers on a dynamic basis it’s $3.4 trillion.
Dynamic scoring can vary depending on which model is applied, making it somewhat controversial among economists.
Overall, the TPC study found if all the cuts and revenue raisers contemplated by Trump’s one-page outline were applied, 70 percent of US households would enjoy a tax cut, while 20 percent would see a net tax increase under the plan.