President Donald Trump released his proposal of broad principles to overhaul the tax code on Wednesday. But it will not bear much resemblance to tax reform that Congress might legislate. For example, it’s likely Congress will not lower corporate and pass-through tax (business taxes that are passed through to personal income tax returns) rates to 15 percent. Without some way of compensating for low rates－like huge reductions in federal spending－these rates would result in a large increase in the national debt.
Here are some of the other tax reforms that Trump proposes:
The proposal reduces seven tax brackets to three brackets with tax rates at 10 percent, 25 percent, and 35 percent.
“The tax plan will pay for itself with economic growth,” said Treasury Secretary Steven Mnuchin.
Part of Trump’s proposal calls for doubling the standard deduction that people can claim on their income tax returns. Gary Cohn, the director of Trump’s National Economic Council said that the higher standard deduction means that fewer people will have to file itemized deductions to reduce their taxable income, which could lead to a simpler tax return.
Treasury Secretary Steven Mnuchin said that most tax deductions are going away. All individual tax deductions would be eliminated with the exception of deductions related to home ownership and charitable contributions.
But here’s the real kicker: DONALD TRUMP STANDS TO MAKE MILLIONS OFF HIS OWN TAX PLAN
Here’s the Full text of Trump administration tax reform principles.
Robert Reich says Trump wants to cut the corporate tax rate from 35 percent to 15 percent, in order to “make the United States more competitive.”
This is truly dumb, for 5 reasons:
1. The White House says the United States has one of the highest corporate tax rates in the world. Baloney. After corporate deductions and tax credits, the typical corporation pays an effective tax rate of 27.9 percent, only a tad higher than the average of 27.7 percent among advanced nations.
2. Trump’s corporate tax cut will bust the federal budget. According to the Congress’s own Join Committee on Taxation, it will reduce federal revenue by $2 trillion over 10 years. This will either require huge cuts in programs for the poor, or additional tax revenues from the rest of us.
3. The White House says the tax cuts will create a jump in economic growth that will generate enough new revenue to wipe out any increase in the budget deficit. This is supply-side nonsense. The Congressional Research Service reviewed tax cuts since 1945 and found no evidence they generate economic growth. Ronald Reagan and George W. Bush both cut taxes, and both ended their presidencies with huge budget deficits. Bill Clinton raised taxes, and the economy created more jobs than it did under Bush or Reagan.
4. American corporations don’t need a tax cut. They’re already hugely competitive as measured by their profits – which are at near record highs.
5. The White House says corporations will use the extra profits they get from the tax cut to invest in more capacity and jobs. Rubbish. They’re now using a large portion of their profits to buy back their shares of stock and to buy other companies, in order to raise their stock prices. There’s no reason to suppose they’ll do any different with even more profits.
Don’t fall for Trump’s corporate tax giveaway. It will be a huge windfall for corporations and a huge burden on ordinary Americans.
By Damian Paletta
