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Trump's “massive” tax plan was a single page of bulleted ideas

Trump’s “massive” tax reform proposal was a single page of bulleted ideas

Trumponomics: VICE Money comments on the economics of the Trump era.

Trump administration officials laid out broad-brush ideas for a tax overhaul Wednesday, asserting that large tax cuts focused heavily on businesses and affluent American households would pay for themselves through a burst of economic growth.

Despite the day’s announcement being billed by President Trump as “massive tax reform,” Wednesday’s proposal contained almost no detail, consisting of a single-page of bulleted ideas sent out moments before a brief press conference held by Treasury Secretary Steven Mnuchin and top Trump economic adviser Gary Cohn. Cohn called the announcement a “broad-brush overview” stressing that administration officials were still in discussions on the details of the plan, which would have to be translated into legislation and passed by Congress before taking effect.

The White House document contained the most specifics on steep tax cuts for business, which seemed in-line with previously reported aspects of the proposals. (Though without all the details it’s not possible to say.) The lack of details also makes determining the cost of those proposed tax cuts difficult. But the best guess of the Committee for a Responsible Federal Budget is that Trump’s proposals could cost $5.5 trillion.

As presented, the White House proposal appears to call for cutting taxes on U.S. corporate income to 15 percent from 35 percent. Treasury Secretary Steven Mnuchin called that 35 percent rate “perhaps the most complicated and uncompetitive business rate in the world.”

It’s true that the official U.S. corporate tax rate rate of 35 percent, which is much higher than other rich countries the U.S. competes with. Germany’s official rate is 15.8 percent. The U.K.’s is 19 percent, for example.

But the thing to keep in mind about the official U.S. corporate tax rate is that nobody pays it.

Because of the Swiss Cheese quality of the loophole-heavy U.S. tax code, the “effective” U.S. corporate tax—that is, what U.S. companies actually pay—was somewhere around 14 percent according to a 2016 study from the Government Accountability Office.

The plan did not shed any clear light on what had been reported to be another component of the Trump administration’s tax plan. That bigger change—the Wall Street Journal’s excellent tax writer Laura Saunders calls “radical”—was reported to be cutting the top tax rate to 15 percent from 39.6 percent on business income collected by people running owner-operated businesses known as “pass-through entities.” These are people with ownership stakes in firms like sole proprietorships, partnerships and a popular form of ownership for privately held companies, called an S-Corporation.

People that own these companies “pass through” the money they earn from their business, counting it as personal income and reporting it as part of their personal income taxes.

These types of companies are important, accounting for the vast majority of American businesses. According to the Tax Foundation, which pushes for lower federal and state taxes, roughly 90 percent of all U.S. businesses are organized as pass-throughs.

But only a small percentage of the wealthiest owners pay that 39.6 percent rate. You only have to pay that rate if you’re a married couple earning $470,700 or more. ($418,400 for single filers.) Who are those people? They’re mostly “hedge fund managers, doctors, lawyers, consultants, and investment managers,” according to the an analysis from the left-leaning Brookings Institution.

The administration also laid out a few other specifics as part of its plan. It called for repealing the estate tax, which is only paid by the super wealthy. (For instance, for married couples you don’t pay the estate tax unless you have an estate valued at more than $10.9 million.)

It also called for repealing the Alternative Minimum Tax, which is also mostly paid by rich Americans. And in fact, while the president has been shy about sharing his tax returns, his 2005 return leaked out recently, showing that he paid $31 million because of the Alternative Minimum Tax, according to the New York Times.

Administration officials offered some details on how the plan would cut taxes for middle-class families. The administration said it would consolidate the number of tax brackets from seven down to three. (The administration declined to say the dollar limits that it thought should define the brackets.)

The administration also said it would double the standard tax deduction, while doing away with all individual tax deductions, except some a few such as deductions for charitable giving and mortgage interest payments.

Again here the lack of detail makes it difficult for any given taxpayer to determine how it would work out for them. For instance, during the press conference administration officials clarified that their plan would do away with state and local tax deductions, which can be significant for taxpayers in high-tax states like New York, New Jersey and California. Asked what the goals laid out by the administration means to middle-class taxpayers, Cohn said simply: “It’s going to mean tax cut.”

Middle-class Americans need a lot more information to know if that’s true.

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