President Trump understands why a tax cut for the rich and for corporations is a nonstarter. The Pew Research poll conducted in August found:
For starters, the administration’s representations about the plan’s impact on the debt are flat-out false. Gary Cohn, the president’s senior economic adviser, flat-out lied when he claimed the tax cuts pay for themselves:
The tax cuts are projected to cost at least $1.5 trillion and up to $2.2 trillion, according to one analysis. Tax reform, along with reduced regulation and infrastructure spending, was the cornerstone President Donald Trump’s 2016 election campaign.Cohn said the cuts won’t increase the budget deficit.
No honest independent-minded economist or public-policy expert agrees with Cohn. Tax cuts have never paid for themselves (which is why in 1982, 1984 and 1986 reforms President Ronald Reagan clawed back lost revenue from the 1981 tax cuts). When someone from the administration says this sort of thing, it is incumbent on the interviewer to inform the audience that this is untrue. (Even Sen. Bob Corker, a Republican from Tennessee who favors tax reform, acknowledges that dynamic scoring works only “to a degree,” and apparently is unwilling to approve a tax plan that creates more than $1.5 trillion in more debt.)
The even bigger falsehood is that the rich won’t pay less and the middle class won’t pay more. Consider the following (which the administration has left vague so as to prevent just such debunking):
- The plan takes the top bracket from 39.6 to 35 percent.
- The plan eliminates the alternative minimum tax (AMT).
- The plan allows someone who otherwise pays at the 39.6 percent rate to create a pass-through entity and pay at a top rate of 25 percent.
- The remnants of the estate tax ($5.49 million is excluded already) are repealed.
There are not enough tax breaks in the code that the plan could take away to insure that the rich don’t get a benefit — a substantial one, in many cases. Put differently, it’s impossible to imagine that, say, a wealthy real estate developer, who pays at a top rate of 39.6 percent wouldn’t pay a whole lot less if he could grab the 25 percent rate using his LLPs and not have to worry about the AMT. If he was stingy and gave nothing in charity, taking away the charitable deduction wouldn’t recoup any of the savings he would gain.
We don’t even have to guess at the result. The Post’s Fact Checker reminds us: “Trump’s claim that he would not benefit from the tax plan is not credible. Of course, he has not released his tax returns, so it is difficult to know for sure. But he is certainly subject to the AMT — and the one recent tax return that has been leaked, from 2005, shows that the AMT increased his tax bill from about $5.3 million to $36.5 million. So at least in that tax year, he potentially could have saved $31 million.”
So can it be true that the rich — at least many rich people — won’t benefit from Trump’s tax plan? No. “By lowering the top income tax rate, eliminating the AMT and estate tax, and sharply cutting the corporate and pass-through rates, this is of course total nonsense,” says Jared Bernstein of the Center on Budget and Policy Priorities. “Any offsets they’ve proposed come nowhere close to changing that conclusion. Add in their claim that ‘the tax cut will pay for itself through magic growth effects,’ and the extent of their shamelessness is, even for this crowd, pretty breathtaking.”
Howard Gleckman of the Tax Policy Center likewise finds, “It may cut taxes modestly for some middle-income households, but it appears to be a far bigger tax cut for high-income households. Individual rate cuts, repeal of the Alternative Minimum Tax and the estate tax, and preservation of tax preferences for charitable giving, mortgage interest, and retirement savings all primarily benefit those with high-incomes. Tax cuts for corporations and, especially, pass-through businesses, would mostly benefit the highest-income households.”
And Edward Alden of the Council on Foreign Relations tells me, “I would agree that the majority of the gains would go to the wealthy without any obvious growth benefits.”
This is so self-evident that it is unclear why the press is taking the administration’s representations seriously, as if they could conceivably be true.
If the administration wanted to insure that the rich didn’t get richer, it wouldn’t have eliminated the ATM, dropped the top bracket to 35 percent and set up the 25 percent pass-through dodge. The way to insure the rich don’t get a break is to not include breaks. Leave the code alone for the top income earners. Why isn’t that acceptable to the administration if the intent is make sure the rich don’t get a bonanza?
So next time Cohn says things like, “The wealthy are not getting a tax cut under our plan,” the interviewer should say simply, “That’s blatantly false.”