Last week, Donald Trump proposed an enormous deficit-increasing tax cut slanted toward the interests of high-income families. That’s a tough sell at a time when public opinion has tilted sharply against cutting taxes on the rich, and when a low unemployment rate and Federal Reserve interest rate increases have eliminated the case for fiscal stimulus.
But in a series of interviews over the past few days, Trump and his team have made it clear that they have a plan to deal with these challenges.
Lie aggressively, lie shamelessly, and lie repeatedly.
It’s a strategy they’ve also been trying on health care, where the administration tends to simply assert that the various iterations of his plan would leave patients with better insurance coverage when the reality is the opposite. The White House has achieved only limited success with it. The “lie about what your health plan does” strategy only works if the plan doesn’t pass. Vulnerable Republicans — and Republicans in Medicaid expansion states — know that reality will kick back if they actually try to do the plan.
On taxes, where the windfall to the rich will be less visible, lying may be easier to get away with.
Trump’s tax plan is a bonanza for the wealthy
The easiest way to see how much Trump’s tax plan is a win for the richest Americans is to simply ignore the part of the plan that alters the main federal income tax. That set of reforms is, naturally, a major focus of media attention since those are taxes that most of the producers and consumers of political news pay.
But there’s a lot more going on in Trump’s proposal:
- He wants to cut the corporate income tax rate from 35 percent to 15 percent while halting efforts to try to collect taxes on companies’ foreign earnings. The precise incidence of the corporate income tax is somewhat controversial, but the vast preponderance of the evidence suggests that it falls mostly on shareholders in a country where 80 percent of stock is owned by 10 percent of households, with about half of that held by just 1 percent.
- He also wants to cut the top tax rate on the incomes of owners of closely held businesses from 39.6 percent to 15 percent. Republicans characterize a sharp cut in the taxation of passthrough businesses as a tax cut for “small businesses” but this means small in the sense of “small number of owners.” The Trump Organization would benefit from this tax cut, as would basically every hedge fund and private equity shop in the United States. Law firms are generally passthroughs. Businesses that have small profits will get a small tax cut from this measure, while businesses with millions of dollars a year in profits will get a huge one.
- He wants to repeal a 3.8 percent surtax on investment income that helps pay for some of the Affordable Care Act’s benefits: The Medicare surtax is paid only by households with over $200,000 in adjusted gross income.
- He wants to eliminate all federal taxation of estates: The estate tax, which is levied only on estates that are worth more than $5.45 million per person (i.e., $10.9 million for a married couple), raises $0 in revenue from 998 out of a 1,000 families. Among that top 0.2 percent of the wealth distribution that does have more than $5 million stashed away, about 55 percent of the wealth consists of unrealized capital gains that have never been taxed.
- He wants to eliminate the alternative minimum tax: More than 80 percent of the households affected by the AMT have more than $500,000 in income, and 99 percent have incomes over $100,000.
All of these proposals are overwhelmingly tilted toward the interests of the richest families. There is simply nothing in Trump’s tax plan that in any way offsets any of these measures. If you own a very profitable business or a lot of shares of stock, or if you stand to inherit a large fortune, Trump is delivering a major cut in your taxes.
The Trump administration is trying to trick people
The White House’s strategy to message around this reality is to simply ignore all of these tax changes. Instead, they want you to focus purely on Trump’s proposed changes to the federal income tax. Here he wants to consolidate to three tax brackets, cut the top rate from 39.6 percent to 35 percent, and offset the cost by eliminating most tax deductions.
“We’re eliminating the deductions that were added to tax legislation over years to favor the wealthy,” National Economic Council Director Gary Cohn said on CBS This Morning. “Middle-income people and lower-income people don’t have deductions. Wealthy people have deductions.”
Trump said much the same on an April 28 Fox News interview, arguing, “If I’m individually paying 35 percent, I will tell you that’s more. I’m going to end up paying more than I pay right now.” The reason, according to Trump, is that “I’m going to lose all the deductions.”
It’s certainly possible, in theory, to imagine high-income taxpayers for whom Trump’s proposed deduction-eliminating would negatively affect the impact of rate-lowering. Whether that’s true of Trump in particular or rich people in general is impossible to assess unless the White House provides more details about how its tax plan is supposed to work.
But the entire discussion around deductions versus rates simply ignores huge swathes of Trump’s proposal. Indeed, even Trump’s discussion of the idea was couched as a hypothetical — if I’m individually paying 35 percent. He would, in fact, be paying 15 percent rather than 35 on the majority of his income since it would be funneled through various Trump-owned limited liability corporations.
In general, while there are certainly some very high-income wage earners (Russell Westbrook is earning $26 million this year), this is fairly unusual. Prototypical rich Americans either own lots of capital in the form of stock or passthrough entities, or else they are big-time executives whose compensation package is tied to stock performance. Trump has laid out a very rich and specific bill of goodies for this category of rich person — as well as for kids who stand to inherit their fortunes — with not even a hint of a pay-for.
Trump’s political strategy hinges on a cover-up
The mere fact that a policy is disproportionately beneficial to high-income households does not, of course, indicate that it’s a bad idea. There’s a long tradition in right-of-center economics of arguing that regressive tax cuts will boost economic growth by providing more incentives to work, save, and invest. And there’s a distinguished philosophical tradition of arguing that regressive tax cuts are morally good and income redistribution is morally wrong.
Trump’s political fortunes do not hinge on such arguments, however. Polling done on behalf of the Democratic Super PAC Priorities USA shows that voters who switched from backing Barack Obama in 2012 to backing Donald Trump in 2016 believe that both congressional parties will prioritize the interests of the wealthy but that Trump will not.
Trump’s successful pitch was that he is a different kind of Republican, whose lowbrow shtick indicated a real desire to sideline the interests of wealthy. The reality is that Trump is an extremely rich man who has appointed extremely rich men to serve as his top economic policy advisors. And they have cooked up a tax plan that caters to the interests of people like them.