Give Donald Trump credit. His tax plan, which calls for big cuts in rates, may not be consistent with his previously articulated vision of taxation, but it is fully in line with his vision of marketing. For him, bigger is better.
Trump’s plan would cut the top income tax rate from 39.6 to 25 percent (there would be only four rates, the other three being 20, 10, and 0) and the top corporate rate from 35 percent to 15 percent. His plan is similar in this respect to those of Marco Rubio and Jeb Bush, but calls for bigger cuts in rates. Bush’s plan, to which Trump’s bears the greatest resemblance, calls for a top income tax rate of 28 percent (and then 20 and 10) and a corporate tax rate of 20 percent.
Trump’s plan would enable dozens of millions of households to pay no income tax. That’s because neither single individuals who earn less than $25,000 per year nor married couples who jointly earn less than $50,000 per year would owe any income tax. They would simply send a postcard to the IRS saying “I win.”
This aspect of the plan shows Trump at his showman best. But I believe, with Ben Carson, that every American who earns money should contribute something by way of income tax. Free-loading may be winning in a sense, but saying so isn’t much of a civics lesson.
In the past, Trump has talked about the need for the very wealthy to pay more income tax. Lowering tax rates isn’t necessarily inconsistent with this talk because the wealthy might lose out due to the elimination of certain deductions and loopholes.
Trump’s plan doesn’t fully disclose the deductions and loopholes he intends to alter. However, as discussed below, there are provisions in Trump’s plan that disfavor many who are wealthy.
Nonetheless, early analyses of Trump’s plan suggest that, on balance, the rich will win (though they won’t get to send in a postcard declaring victory). Steve Gill, a tax and accounting professor at San Diego State University, said his quick calculation found that as a group, Americans making more than $200,000 a year would pay $400 billion to $500 billion less in taxes under Trump’s plan. Similarly, Michael Strain of the American Enterprise Institute says “the rich love this plan.” He calls Trump’s plan “not serious.”
In principle, lower taxes on the wealthy are fine with me. But Kyle Pomerleau, an economist at the Tax Foundation which favors lower rates, says that Trump’s tax cuts could easily cost more than $7 trillion over the next decade.
Assuming that Trump wants to keep the debt crisis from substantially worsening, how will he make up for the lost revenue? He talks of cutting spending. However, he has also talked of significantly increasing military spending and of universal health insurance (which we are far from having now).
This means that Trump’s plan simply doesn’t add up unless one assumes a massive increase in the rate of economic growth. Trump has mentioned six percent growth — surely an unsustainable rate unless you’re Chinese and get to fake the numbers.
Trump’s plan would bring in some revenue by attempting to force the repatriation of companies’ overseas profits (he would offer a 10 percent rate to soften the blow). President Obama also favors this approach.
I think I agree with Kevin Williamson that forced repatriation is unfair (by what right does the U.S. take a cut when a U.S. company builds something in Asia and sells it in Europe) and misguided (it will create another incentive for U.S. firms to move abroad). In any event, “repatriation” and Trump’s vaunted tax increase on hedge funds and private equity firms will not raise the kind of money needed to make Trump’s plan anything close to revenue neutral.
In sum, Trump’s plan contains the same good ideas that Republican tax plans typically feature — e.g., lower income tax rates, lower corporate tax rates, simplification — but like typical candidate-offered plans is more a political document than a serious proposal.
As a political document, Trump’s plan purports to offer more breaks than his competitors do. This suggests to me that it is somewhat less serious than rival plans.