When one of President Trump's senior economic advisers was asked what the White House's plans for tax reform would mean for a typical middle-class family, he answered with confidence.
“Going to mean a tax cut,” said Gary Cohn, the director of Trump's National Economic Council, at a news conference in April. Asked for more details, Cohn repeated himself: “Going to mean a tax cut,” he said again.
The White House has promised the biggest tax cut in the history of the country, and the promise of tax relief was a crucial aspect of Trump's pitch to voters as a candidate. Many Americans are probably expecting that Trump will bring down their taxes.
In fact, while Trump has not yet laid out a detailed plan, the proposals that administration officials have put forward so far would result in an increase in taxes for nearly 1 in 5 American households, according to an analysis published Wednesday by the nonpartisan Tax Policy Center (TPC).
And among those in the middle class, almost a quarter would see their taxes go up, according to the TPC analysis. For households with annual incomes between $49,000 and $86,000, those facing a hike would see an average annual increase of $1,000.
Among the other three-quarters of taxpayers in that range who would enjoy a tax cut, the average annual decrease of their household tax bill would be about $1,320, according to the TPC.
The figures demonstrate the difficult compromises confronting GOP policymakers as they work on a plan to overhaul the tax system.
Trump has promised to bring down taxes, dropping the rates on individual and corporate income, throwing out the estate tax and simplifying the system for ordinary taxpayers overall.
But to make up for some of the revenue that the federal government would forgo with reduced rates, his advisers have also proposed a few tax hikes as well — mainly in the form of eliminating write-offs. The result is that while many households would pay less, some would pay more.
The benefits of the proposals from the Trump administration, however, are overwhelmingly concentrated among the very richest taxpayers.
Nearly half of the total savings (49 percent) would accrue to the richest 1 percent of households. Among the richest 0.1 percent — the wealthiest 1 in 1,000 households, those with more than $3.4 million in annual income — only 2 percent would pay more in taxes.
The other 98 percent would receive a tax cut, worth an average of nearly $1 million a year per household.
Will the Trump tax cut 'pay for itself'?
Trump's advisers have also said that they will rely on more rapid economic growth to help make up some of the forgone revenue from lower tax rates. In theory, if tax relief encourages more Americans to work and invest, there will be more overall income for the federal government to tax. Steven Mnuchin, Trump's treasury secretary, has even argued that the tax cut will “pay for itself.”
The TPC analysis contradicts that claim. In the short term, reducing taxes would stimulate the economy, the authors predict. Over the long term, however, Trump's proposals would force the federal government to borrow more to make up the difference, and the tax cut would become a burden on the economy overall because of the additional federal debt.
Republicans could prevent that by reducing federal spending at the same time, although Trump has pledged not to reduce benefits for Medicare and Social Security, the entitlements that are the principle reasons for rising outlays.
Another option would be to reform the tax system in ways that encourage Americans to work and save, but finding enough alternative sources of revenue to avoid adding to the deficit, said Douglas Holtz-Eakin, a conservative economist and the former director of the Congressional Budget Office.
He argued that without more detail, it was difficult to assess the administration's plans. “I don’t think the TPC has enough grist for their mill,” Holtz-Eakin said. “Given that they’ve got these policies that aren’t well fleshed out, you can’t do anything more than say, 'Gee, this is a huge hole in the deficit, and that has to be bad.' "
“We thought we had enough to begin, with the contours of a plan,” said TPC director Mark Mazur, a former assistant secretary in President Barack Obama's Treasury Department. The administration did not respond to a request for more details on Trump's plans, Mazur said.
“Part of what motivated us to do this analysis was to try to understand what the impact is — in the outline and in the campaign," Mazur said. "It just points up some of the difficulties in undertaking tax reform.”
Tax hikes for some
The analysis is based on a one-page list of proposals published by the White House in April, along with other public statements by Trump and his advisers, including some of the ideas they floated during the campaign.
Those proposals include eliminating four of the seven current tax brackets and bringing down marginal rates on income. Trump would also double the standard deduction — the minimum amount of income on which Americans do not have to pay taxes — and provide tax relief on parents' child-care expenses.
Trump and his advisers have also talked about repealing the estate tax, which is paid by wealthy families when a member dies, and bringing down the rate on income from businesses and corporations to 15 percent.
All these changes would mean less money for the federal government, and Trump and his advisers have talked about ways of raising revenue in other areas.
For instance, Trump's campaign proposed eliminating the special status for heads of household, which gives single parents a break on their taxes. Getting rid of it would result in a tax hike for many in the lower middle class.
Among more affluent households, some would pay more as a result of the proposal to end the personal exemption. A taxpayer would no longer be able to claim a break for each member of the household. And Trump's lieutenants have also discussed eliminating all of the individual deductions, with exceptions for writing down interest paid on mortgages and gifts to charity.
If those changes were implemented, they would most negatively affect Americans who are rich but not quite rich enough. Nearly a third of households with incomes between $217,000 and $308,000 — those in the 90th through 95th percentiles — would pay more in taxes. The average annual hike for households in this group would be $3,900.