Not long ago, Donald Trump claimed that his rivals would allow “Wall Street” and the “hedge fund guys” to continue to “rip off the people by paying no or very little in taxes.” The implication was that Trump would raise the tax burden on top earners, which he seemed to underscore at the most recent GOP debate, when he ridiculed an opponent’s suggestion that raising taxes on the wealthy would constitute “socialism,” adding: “I know people that are making a tremendous amount of money and paying virtually no tax, and I think it’s unfair.”
As I had argued, if Trump’s plan really did raise the overall tax burden on top taxpayers — which very much remained to be seen — it would have made him a real outlier in the GOP field.
Today, Trump finally rolled out his tax plan. According to a leading tax expert I spoke to today, it would probably result in a tax cut, possibly a very large one, for many of the highest earners.
You’re probably very surprised by this.
Trump’s plan seeks to cut taxes for everybody. Those with the very lowest incomes do not pay any income taxes, which Trump claims would remove 75 million people from the tax rolls.
For all other Americans, the tax code would be simplified down to three tax brackets — 10 percent, 20 percent, and 25 percent (down from the current top rate of 39.6 percent). The 25 percent tax rate would be on income of $150,000 and up for single filers and $300,000 and up for married filers. The plan also cuts all taxes on businesses down to 15 percent and eliminates the estate tax.
Trump claims that his plan nonetheless will be “revenue neutral,” because it reduces or eliminates unnamed deductions and loopholes for the “very rich.” It also ends the current treatment of “carried interest,” which seems in keeping with his vow to go after the “hedge fund guys,” but also would appear to only bump up the tax rate on carried interest going to the wealthiest beneficiaries to 25 percent, the top rate on ordinary income.
Roberton Williams, a senior fellow at the Tax Policy Center, told me today that it’s hard to see how this plan could attain revenue neutrality. While he cautioned that we still need to see a lot more detail, the plan seems to cut tax rates on the highest income so dramatically that there might be no way to offset that lost revenue through the elimination of deductions and loopholes.
“For the plan to be revenue neutral, somebody has to pay more if someone is going to pay less,” Williams told me. “If there’s a tax cut for middle income people, there has to be a tax hike for high income people for it to be revenue neutral.” In a reference to the elimination of all those loopholes and deductions, Williams said: “I don’t see enough there to offset these big rate cuts.”
How would Trump’s plan impact high earners? It is possible, Williams said, that some high earners (say, those who make most of their money in carried interest) would see a higher tax burden. But many top earners would see their rates come down, he said, and it’s unlikely (though we still need more detail to be sure) that this could be offset by eliminating loopholes and deductions.
“From what I’ve seen so far, the cuts in tax rates are large enough that getting rid of tax preferences would not recoup the lost revenues,” Williams says. “The tax rates for high income taxpayers are large enough that you need very big cuts in the tax preferences to make up the lost revenue. I don’t see anything in the plan that indicates there would be a large reduction enough in those preferences.”
The plan “doesn’t appear to make the rich pay any more, and what detail we have suggests they would probably pay less,” Williams said. “From the looks of it, they would do very well. But without the details, we can’t say for sure.”
To be sure, Williams noted, at his presser today, Trump (just like some of his rivals have done) vowed that his tax cuts would unleash spectacular economic growth, which he presumably believes would bring in enough revenues to ensure revenue-neutrality. This is an old favorite, of course.
Trump also claimed today that “my tax plan is going to cost me a fortune.” Whether or not that proves to be true — and I’m sure some hearty fact-checkers will have at it soon enough — the question that is compelled by Trump’s own previous claims is: How many other very wealthy people would really see a tax hike?
Jeb Bush’s tax plan contained middle class tax relief and an elimination of certain loopholes in an apparent effort to get the plan described as “populist.” But closer examination revealed that Bush’s plan would deliver a big windfall to the top earners and add anywhere from $1 trillion to over $3 trillion to the deficit. Marco Rubio’s plan also contains middle class tax relief, but it eliminates taxes on capital gains, dividends and estates, which would result in what some experts describe as a hugely regressive, revenue-draining tax cut.
We may soon have it confirmed that Trump’s plan also delivers a windfall to many top earners and would blow up the deficit. If so, then the temporary threat posed by the billionaire’s soak-the-rich talk — that there might be a genuine outlier of a tax plan from a Republican candidate, forcing a GOP debate that challenged party dogma on the imperative of slashing the tax burden at the top — will have been averted. And order will have been restored to the universe.