President Trump's top tax lieutenants are billing his approach as relief for the middle class, saying ordinary taxpayers would see big cuts while the rich would go on paying as much as they do now.
That description, however, is sharply at odds with what details the administration has put forward thus far.
On Wednesday, the administration released a one-page document consisting of 19 bullet points describing how Trump planned to approach tax relief as president. The plan would sharply reduce taxes on businesses while also bringing down rates on individual income, with the goal of simplifying the process of filing taxes.
Pitching the plan on Wednesday evening, Treasury Secretary Steven T. Mnuchin said again it will not cut taxes on the rich overall: “Effectively, the effective tax rate will not be a reduction for the rich,” Mnuchin told Tucker Carlson. “This is really about a middle-income tax cut.”
But experts on taxation who have reviewed Trump's ideas say the wealthy would enjoy the greatest benefits, with uneven and uncertain savings for ordinary households.
The broad outline was generally similar to a proposal that Trump had put forward as a candidate, which the nonpartisan Tax Policy Center estimated would save a typical taxpayer in the richest 1 percent of households $317,000 a year. That amounts to 14.1 percent of the annual income of a typical household in that rarefied group. By contrast, typical households with middling income would save about $1,100 a year on average, which translates to only 1.5 percent of their yearly income.
Meanwhile, some could even pay more, especially single parents and large families. Trump's plan would eliminate certain provisions that currently work to these groups' advantage.
The dearth of detail in Trump's plan suggests it's still possible that, between now and in its final form, the plan could radically alter who would benefit from it.
Mnuchin said that while Trump wants to reduce the marginal rate wealthy taxpayers owe on their income, he also wanted to eliminate exemptions and deductions that the rich can use to reduce their tax bills.
It would be difficult, however, for Trump's aides to identify enough breaks and loopholes to make up for the major tax cuts that Trump wants to grant affluent taxpayers. In addition to reducing the rate from 39.6 percent to 35 percent, Trump would also eliminate the estate tax — which is paid almost exclusively by wealthy heirs when a family member passes away — and a 3.8 percent surcharge that the rich pay on income from their investments imposed as part of President Barack Obama's health-care reforms, also known as Obamacare.
Trump would reduce the rate on businesses, which is now 35 percent for large corporations, to 15 percent, a provision that would help the rich in several ways. For instance, because corporations could hang onto more of their profits, shares in public companies would become more valuable, benefiting shareholders — a group that tends to be well off. At the same time, wealthy taxpayers could set up corporations to handle their personal income in order to take advantage of that reduced rate and avoid the higher rates on household earnings.
“If the tax rate is this low on business income, relative to non-business income for individuals, then there is no way to prevent a substantial amount of income from shifting over to business income,” said Douglas Elmendorf, the former director of the Congressional Budget Office.
Meanwhile, Trump plans to maintain two of the largest breaks for wealthy taxpayers, the deductions for interest paid on mortgages and contributions to charity. That doesn't leave much fat to trim, according to William Gale, who served as a senior economist on President George H.W. Bush's Council of Economic Advisers.
“I don't see how it would be possible NOT to have a net tax cut for high income households — and a big one at that — given what is proposed,” Gale wrote in an email.
Mnuchin's claims recall those of former Massachusetts governor Mitt Romney, who made a similar pledge as the Republican presidential nominee in 2012. At the time, Gale and other experts concluded that making up for tax cuts on the rich by getting rid of breaks and loopholes would be difficult if not mathematically impossible. Trump is proposing more tax relief for the wealthy than Romney did, noted Gale, who is now at the Tax Policy Center.
Whether Trump's proposals can in fact avoid a tax cut for the rich remains to be seen, Gale wrote, given that the administration has only made general statements so far and has not laid out a detailed plan.
As a candidate, Trump talked often about increasing taxes on the wealthy — but he also sometimes said that the wealthy would receive a cut. “They will go up a little bit,” Trump said of taxes on the rich in an interview with George Stephanopoulos on ABC News last May. The next day, however, Trump said that the well off would pay less in taxes compared to the current system.
Mnuchin had said on at least two previous occasions that the administration's plan would not reduce the burden on the wealthy — in an interview on CNBC a few weeks after Trump's election and again at his confirmation hearing in the Senate in January.
Trump's proposals would also benefit many ordinary Americans. Wages would likely rise somewhat if business taxes were reduced, and Trump is also planning on helping parents deal with the expenses of child care.
Some middle-class households could pay more, however. Those with many members or single parents are particularly at risk.
During the campaign, Trump proposed eliminating features of the tax system that give single parents a break and that allow families to pay less depending on their size. In all, that plan was projected to increase taxes on about 8 million families.
It was unclear from the brief document the administration released Wednesday whether the administration looking for a different approach, but in an interview with Stephanopoulos on Thursday, Mnuchin declined to say whether some families would have to pay steeper bills.
“Can you guarantee that no one in the middle class is going to pay more?” Stephanopoulos asked.
“I can't make any guarantees until this thing is done and it’s on the president's desk,” Mnuchin said.