Revenue loss put at $7.8 trillion if taxes cut

President Donald Trump’s proposed tax cuts would lower federal revenue by $7.8 trillion over a decade and mostly benefit the highest earners, according to a study released Wednesday by the nonpartisan Tax Policy Center.

The study evaluated the one-page outline released by the White House on April 26.

About 40 percent of the tax cuts would go to the top 1 percent of earners, who would see an average after-tax gain of 17.8 percent. By contrast, the middle one-fifth of Americans would see an average gain of 3.3 percent, the study said.

When accounting for revenue-raising measures, like ending most itemized deductions and personal exemptions, the 10-year revenue loss under the Trump tax plan would be $3.5 trillion, the study found. The top 1 percent’s gains would be 11.5 percent, while middle-income gains would be 1.3 percent, the report said.

Trump’s outline would create a 15 percent tax rate for businesses of all stripes — down from current rates that can top 35 percent. It would also consolidate the existing seven individual tax rates to just three — cutting the top rate to 35 percent from the current 39.6 percent.

The plan would also eliminate a 3.8 percent tax on investment income for high-earners that was enacted as part of the 2010 Patient Protection and Affordable Care Act.

The White House plan lacked sufficient detail for complete revenue scoring; for example, the three individual tax rates weren’t attached to specific income brackets. So the Tax Policy Center analysis filled in some blanks using proposals from Trump’s presidential campaign.

At the same time, some proposals, such as repealing the alternative minimum tax and the estate tax, were relatively easy to score, said Mark Mazur, the tax center’s director.

Trump administration officials have repeatedly pitched the president’s plan as a benefit for middle-class taxpayers. But some elements in it would be of particular benefit for wealthier people, Mazur said. For example, the estate tax applies only to estates worth more than $5.49 million for individuals or $10.98 million for married couples.

“If you’re serious about not cutting taxes for higher-income people, you probably wouldn’t repeal the estate tax,” Mazur said. Overall, the plan’s benefits “largely flow to the top,” he said.

The study also shines a light on the procedural struggle awaiting a tax proposal in Congress. Under a maneuver that Senate Republican leaders plan to use to avoid Democratic opposition, any tax changes that add to the deficit after a decade must automatically expire. The cost of the tax cuts alone would be $13.1 trillion in the second decade, according to the study.

“There’s a fairly substantial revenue hole to fill,” Mazur said.

When the Tax Policy Center applied a “dynamic” scoring method, which accounts for economic growth, the revenue cost of Trump’s tax cuts decreased slightly to $7.7 trillion. When factoring in the revenue-raising measures on a dynamic basis, the cost is $3.4 trillion.

Dynamic scoring can vary depending on which model is applied, making it somewhat contentious among economists.