“It is a conversation about how to make America great again for everyone,” Trump said in his speech at the Detroit Economic Club. “Especially, and I say especially for those who have the very least.”
The speech was supposed to help reset his campaign on a serious policy path. Instead, some economic analysts said the speech revealed shaky details and a mix of proposals that could deliver even more tax breaks for top earners and a windfall for wealthy hedge fund managers and Wall Street executives.
But many tax experts said Trump’s latest speech reveals an even sketchier picture of his economic vision than previous proposals.
“In general, it’s less clear of a tax plan than it was before,” said Ryan Ellis, a senior fellow at the Conservative Reform Network.
First, Trump pitched new, less aggressive tax cuts and appeared to be backing away from his pledge to end tax liability for 75 million households. Then he introduced a proposal for an investment income loophole that could actually benefit hedge fund managers and suggested a tax break for child care that would do little for the lowest income earners.
“He’s actually doing less for the middle class than he originally planned,” said Martin A. Sullivan, the chief economist at Tax Analysts.
Ellis, who previously served as the tax policy director for Grover Norquist’s group Americans for Tax Reform, said Trump’s proposal to allow parents to deduct the cost of child care would provide no benefit to low income workers and single parents who are unlikely to have any tax liability to begin with.
A tax deduction is only valuable if a taxpayer is trying to reduce the amount of taxes they owe to the federal government. Low income workers typically have no tax liability at the end of the year — some even receive refunds — meaning a deduction would do nothing to help their bottom line.
Trump could convert the deduction to a refundable tax credit, Ellis said. But that’s not what he pitched in his speech on Monday.
Low income workers are also far less likely to be paying for traditional child care, Ellis said.
“If I don’t have any income tax, it doesn’t help me,” Sullivan said. “If I take the standard deduction, it doesn’t help me. [Trump] is also talking about increasing the standard deduction, so even fewer people would be helped, and the higher your income, the higher your deduction.”
Trump also walked away from an earlier promise of trimming individual rates from the current system of seven tax brackets with a top rate of 39.6 down to four brackets with rates of 0 percent, 10 percent, 20 percent and 25 percent. On Monday, he proposed less aggressive tax cuts, setting rates at 12 percent, 25 percent and 33 percent. Those rates line up with a plan backed by House Speaker Paul D. Ryan (R-Wis.) and other House Republicans.
It was the first time Trump has explicitly embraced portions of the “Better Way” policy agenda House Republicans crafted earlier this year in an attempt to establish an independent policy platform. That may help Trump repair his ailing relationship with Ryan and Republicans in Congress but it is a less aggressive cut than he has promised in the past.
Trump also mentioned a plan to eliminate a preferential tax rate for carried interest investment income. The idea has been popular among Democrats for years, but Trump’s version could actually wind up being a net tax cut for rich investment fund managers.
“As part of this reform, we will eliminate the carried interest deduction, well known deduction and other special interest loop holes that have been so good for Wall Street investors and for people like me but unfair to American workers,” Trump said.
Carried interest is income that flows to private investment fund partners and is taxed at a 23.8 percent rate rather than at the top individual tax rate of 39.6 percent. The issue became a key line of attack against Mitt Romney during the 2012 presidential campaign and has been an enduring battle ever since.
The trouble is that Trump has set his top business tax rate at 15 percent and there is nothing stopping wealthy hedge fund managers from reclassifying their income to take advantage of the far lower tax rate. His attempt at closing a loophole would wind up being a massive tax cut.
“Whoever wrote this, I don’t think they know what carried interest is or how it works,” Ellis said.
Ellis and Sullivan both said the speech was a far cry from the economic reset Trump promised.
“It’s a big disappointment compared to the radical reform he could be proposing,” Sullivan said.