Yesterday, Trump’s campaign announced that the candidate is preparing a new tax plan, featuring new taxes on the wealthy and no deficits. Advisors said specifics have yet to be finalized — the plan isn’t expected to be formally released for weeks after Trump is nominated.
Below we analyze the details of the new plan available, compare it to Trump’s original proposal, and imagine its reception in the next Congress.
Take Two on Taxes
After releasing a tax plan during the primary campaign with tax cuts that dwarf the GHW Bush cuts of 2001 and 2003, loading trillions onto the national debt, Trump is tacking toward fiscal reality. Per estimates by the Tax Foundation, the next plan will cost at least $3 trillion over the next decade; his original plan cost $10 trillion.
Trump advisors reportedly made “tough decisions” on which tax breaks to keep in order to reduce the cost by $7 trillion, and a number of deductions presently enjoyed by wealthy Americans have been eliminated. They have indicated that the plan will resemble House Speaker Paul Ryan’s recent proposal. Says one, there’s “not a heck of a lot of daylight” between the two proposals. House Ways and Means Chair Kevin Brady described the plans as “kissing cousins.” Both plans would reduce the corporate rate to 20 percent, as opposed to Trump’s original 15 percent. The new tax agenda will reportedly feature a top individual rate of between 30 and 33 percent, higher than the original 25 percent, and in line with Ryan’s proposed 33 percent.
The new plan is expected to be unveiled a few weeks after the Republican Convention in a speech at the Detroit Economic Club, though a date has yet to be officially announced.
The revision is seen as an effort to attract support from Congressional Republicans, many of whom have been reluctant to endorse the candidate. Allegedly included in the proposal is a tax credit for children and families similar to one supported by Sen. Rubio in his campaign, supposedly part of framing the plan as beneficial for the middle class.
The Original Plan
Trump’s original tax plan would have made sweeping changes to the individual and corporate codes. The seven tax brackets on the individual side would be collapsed into three, with the top bracket cut from 39.6 to 25 percent. The standard deduction would be raised to $25,000 for single filers and $50,000 for joint filers. It would repeal the alternative minimum tax and estate tax, reduce the corporate rate to 15 percent, and impose a tax of up to 10 percent on repatriated revenue. It would eliminate the 3.8 percent net investment income tax on people with incomes over $200,000, a tax paying for the Affordable Care Act.
The Trump campaign website describes his original tax plan as “revenue neutral” with numerous pay-fors, including a reduction in loopholes and deductions for the very rich. The Tax Policy Center has concluded the proposed loopholes are “nowhere near enough” to overcome the tax-rate cuts, hence the significant costs over a decade.
An analysis of the original plan and overall economic agenda by Moody’s Analytics found it “fiscally unsound,” resulting in “very large deficits and a much higher debt load.” It predicted a lengthy recession, enormous job losses, higher interest rates, increased unemployment, a plummeting stock market, reduced long-term growth opportunities, and a “diminished” U.S. economy.
In May, in repeated interviews, Trump stated his belief that taxes on the wealthiest Americans should be increased, albeit slightly. However, when later pressured for details, he revealed this “increase” pertained not to current rates, but the rates proposed in his original plan, which are far lower than under present law. If this intention holds true in his new plan, taxes on the wealthy would still be lower under Trump, assuming the candidate doesn’t change his mind again.
It would appear that Trump himself stands to gain a large sum of money as a result of his tax plan. According to one estimate, the Trump family would gain a tax cut of $7.1 billion. Such an estimate is necessarily speculative — Trump has shown no evidence that he has paid taxes in nearly forty years.
No matter what the election outcome, it won’t be easy for Congress to pass a major tax bill in 2017.
Both Trump and House Republican leadership have stressed their intention to prioritize tax reform, with Chairman Brady noting his preparation for a vote on tax reform in 2017. But the GOP may not control Congress next year and willy-nilly there is nothing close to consensus on comprehensive reform. Conservatives will insist on paying for it in full; progressives will emphasize increasing taxes on the wealthiest Americans. On the corporate side, multinational corporations will lobby for a revised system, with a top rate of no higher than 25 percent and favorable terms for dividend repatriation. Small businesses will push for equal treatment. Put all of that together, and you have a very expensive bill that probably can’t pass.
We don’t know what the tax reform landscape like in 2017, but as the primary campaign and this week’s convention show, tax policy though traditionally a headline GOP issue, has been particularly muted this year. This may reflect not only Trump’s uncertainty about his revised plan but also an abatement of the popular ardor for tax cuts in recent decades. Americans may have recognized that tax cuts are not an optimal solution, given the devastation of public services, the further crumbling of an unreliable infrastructure, and exacerbated inequality wrought by the recent recession.