In announcing his tax reform proposal Wednesday in Indianapolis, President Donald Trump addressed the biggest political problem his plan will face — the suspicion that most of the benefits would favor wealthy Americans like Trump himself.
“It’s not good for me,” Trump said. “Believe me.”
What is known about Trump’s plan — which is really the framework of a plan that lacks crucial details — belies the president. Consider just two ways it would be very good for him:
— It would eliminate the 40 percent tax levied on individuals with estates valued at more than $5.45 million, or $10.9 million for couples. Bloomberg estimates that if Trump is worth $3 billion, eliminating the estate tax would save Trump’s heirs $564 million.
— It would eliminate the Alternative Minimum Tax, levied only on high earners with lots of deductions to ensure they pay something. Trump refuses to release his tax forms. But the partial 2005 return obtained by MSNBC shows that the AMT accounted for nearly all the taxes he paid.
Trump simply wasn’t telling the truth in Indianapolis when he said, “Our framework includes our explicit commitment that tax reform will protect low-income and middle-income households. Not the wealthy and well-connected.”
The middle 20 percent of all households — the core of the middle class — would benefit slightly. Trump’s proposal would raise the standard deduction for individuals to $12,000 from $6,350 but eliminate the personal exemption ($4,050). The standard deduction for married couples would go to $24,000 from $12,700.
Most of the bottom 40 percent of households — the poor and working class — already don’t pay income taxes when tax credits are factored in. They pay payroll taxes averaging 8 percent of income; that wouldn’t change.
Upper-middle-class homeowners in some states could pay more. Corporations and wealthy individuals wouldn’t. All “pass-through” entities that treat corporate income as personal income (95 percent of all companies) would be taxed at 25 percent. Why would anyone pay the new 35 percent top individual tax rate when he or she could form a limited liability corporation and pay 25 percent?
The Tax Policy Center estimates that the richest 1 percent of taxpayers (taxable income of $450,000 or more) would pay at least $1 trillion less over 10 years, depending on how Congress tries to pay for this. That group includes the Republican donor class that is driving this issue.
The biggest untruth is that the tax cut will pay for the $5.5 trillion it could add to the deficit over 10 years by sparking dramatic economic growth. Studies on the right and left say that if there were any gain at all, it would be modest.
The biggest truth: This is a tax cut primarily for wealthy people. No surprise there.