Trump tax plan may be a mixed bag for Mary­land


Cap­i­tal News Ser­vice

—A ma­jor­ity of Mary­lan­ders weren’t par­tic­u­larly keen about the prospect of a Don­ald Trump pres­i­dency. Demo­cratic nom­i­nee Hil­lary Clin­ton car­ried the Old Line State by roughly 624,000 votes on Nov. 8, good for a com­fort­able 25-point win.

But a quick look at the pres­i­dent-elect’s plans for changes in the tax laws re­veal some po­ten­tial ar­eas for broader pub­lic sup­port in Mary­land.

Mary­land res­i­dents earn more on av­er­age than the rest of the coun­try. Me­dian house­hold in­come in Mary­land was $74,149 in 2014, ac­cord­ing to the U.S. Cen­sus Bureau, sig­nif­i­cantly higher than the na­tional me­dian in­come of $51,939.

Higher in­comes mean many Mary­land res­i­dents are set to ben­e­fit more from the mas­sive tax cuts the pres­i­dent-elect pro­posed on the cam­paign trail than res­i­dents of other states.

“We will mas­sively cut taxes for the mid­dle class, the for­got­ten peo­ple. The for­got­ten men and women who built our coun­try,” Trump said dur­ing a cam­paign rally in Scran­ton, Penn­syl­va­nia, the day be­fore the elec­tion.

In Septem­ber, the Trump cam­paign rolled out a re­vised edi­tion of its tax plan pro­posed dur­ing the Repub­li­can pri­mary, cut­ting the num­ber of in­come brack­ets to three. The cur­rent in­come tax code splits earn­ings into seven dif­fer­ent tax brack­ets, top­ping out at a mar­ginal tax rate of 39.6 per­cent on in­come earned above $415,050.

Trump en­vi­sions set­ting the high­est mar­ginal rate at 33 per­cent for all in­come earned above $225,000. In the low­est tax bracket, in­come up to $75,000 would be taxed at a rate of 12 per­cent. In­come earned be­tween $75,000 and $225,000 would be taxed at 25 per­cent.

Amer­i­cans would see their fed­eral in­come tax obli­ga­tions de­cline by an av­er­age of 3.3 per­cent in 2017 un­der the Trump tax pro­posal, ac­cord­ing to the Tax Pol­icy Cen­ter, a non­par­ti­san think tank man­aged by the Brook­ings In­sti­tu­tion and the Ur­ban In­sti­tute. The high­estearn­ing fifth of Amer­i­can work­ers would see their tax rates de­cline by roughly 4.9 per­cent.

But the large sav­ings for the nation’s high­est earn­ers dis­torts how much lower in­come Amer­i­cans would ac­tu­ally save on the tax plan.


The low­est-earn­ing fifth of Amer­i­cans would only save 0.8 per­cent on their taxes, ac­cord­ing to es­ti­mates from the Tax Pol­icy Cen­ter. Even the se­cond-high­est-earn­ing fifth of Amer­i­cans would only see their tax obli­ga­tions fall 1.8 per­cent.

Trump’s tax plan might even in­crease taxes on some mid­dle-class work­ers. Some pro­vi­sions call for the con­sol­i­da­tion of var­i­ous cred­its into one larger stan­dard de­duc­tion, pos­ing a risk for large fam­i­lies who would lose the abil­ity to write off per­sonal ex­emp­tions for de­pen­dents. And the pro­posed elim­i­na­tion of the head of house­hold fil­ing sta­tus could leave sin­gle par­ents foot­ing a larger tax bill, ac­cord­ing to some an­a­lysts.

The dis­pro­por­tion­ate ben­e­fits of the plan have drawn crit­i­cism from many con­gres­sional Democrats.

“His tax plan helps the Don­ald Trumps of the world at the ex­pense of ev­ery­body else, at the ex­pense of the mid­dle class and peo­ple work­ing their way into the mid­dle class,” Se­na­tor-elect Chris Van Hollen (D-Md.) told Cap­i­tal News Ser­vice.

The Trump team in­sists elim­i­na­tion of cer­tain write­offs and the cap­ping of item­ized de­duc­tions at $200,000 for mar­ried cou­ples will pre­vent wealthy Amer­i­cans from see­ing any tax cuts, though analy­ses from the Tax Pol­icy Cen­ter and other think tanks casts doubt on that claim.

With Repub­li­cans dom­i­nat­ing Congress, it ap­pears likely Trump will get at least some of the tax cuts he wants. House Speaker Paul Ryan (R-Wis.) listed tax re­form as one of his top pri­or­i­ties for the up­com­ing congress, along­side re­peal­ing the Af­ford­able Care Act and cut­ting back on cer­tain reg­u­la­tions.

One fear Mary­land might have is what Trump’s tax plan could do to fed­eral spend­ing.

Res­i­dents here may earn more on av­er­age than the rest of the coun­try, but the state is also far more re­liant on fed­eral spend­ing than other ar­eas. Gov­ern­ment spend­ing made up 27.5 per­cent of Mary­land’s gross do­mes­tic prod­uct in 2014, ac­cord­ing to Pew Char­i­ta­ble Trusts, be­hind only four states and Wash­ing­ton, D.C.

The Trump plat­form of­fers few specifics on spend­ing plans, but it does in­clude a pro­posal to re­duce non­de­fense, non-en­ti­tle­ment spend­ing 1 per­cent each year. Still, the sav­ings alone — which the Trump team es­ti­mates at $1 tril­lion over 10 years — wouldn’t be nearly enough to com­pen­sate for the loss of tax rev­enue.

Es­ti­mates from in­de­pen­dent think tanks, such as the Tax Pol­icy Cen­ter and the Com­mit­tee for a Re­spon­si­ble Fed­eral Bud­get, place the rev­enue loss from Trump’s en­tire tax plat­form — which in­cludes major cuts to the es­tate, cap­i­tal gains and cor­po­rate in­come taxes — be­tween $5.8 tril­lion and $6.2 tril­lion over the next decade.

“The mag­ni­tude of the tax cuts makes them very hard to off­set,” said Joseph Rosen­berg, a se­nior re­search as­so­ciate with the Tax Pol­icy Cen­ter. “Politi­cians like to pre­tend they can bal­ance the bud­get by sim­ply elim­i­nat­ing waste­ful and in­ef­fi­cient gov­ern­ment spend­ing, but to the ex­tent that you have cuts in real gov­ern­ment ser­vices, that could re­duce de­mand in the short run and even have longer term ef­fects.”

Trump and his sur­ro­gates sug­gest eco­nomic growth is the fo­cus of their en­tire tax re­form plan, par­tic­u­larly the cuts to cap­i­tal gains and cor­po­rate in­come taxes, and have played down con­cerns over rev­enue.

“We think by cut­ting cor­po­rate taxes we’ll cre­ate huge eco­nomic growth, and we’ll have huge per­sonal in­come,” Steven Mnuchin, Trump’s re­cently an­nounced nom­i­nee for trea­sury sec­re­tary, told CNBC on Nov. 30. “So, the rev­enues will be off­set on the other side.”

The the­ory that rapid eco­nomic growth re­sult­ing from major tax cuts can off­set any loss in rev­enue is not a new idea — it’s been a fairly stan­dard part of Repub­li­can tax ide­ol­ogy in many cir­cles since the ad­min­is­tra­tion of Pres­i­dent Ron­ald Rea­gan.

Crit­ics ar­gue tax cuts don’t pro­duce nearly as large of a boost to eco­nomic growth as is re­quired to off­set the loss of rev­enue.

“It is the case that sim­ply giv­ing peo­ple more dis­pos­able in­come and busi­nesses more af­ter-tax prof­its should boost de­mand in the short run,” Rosen­berg said. “But what our macro anal­y­sis finds is re­ally those ef­fects are more than off­set by the im­pact of higher deficits caus­ing higher in­ter­est rates and de­press­ing eco­nomic ac­tiv­ity. In the long run, we ac­tu­ally find that it would be on net neg­a­tive for the econ­omy.”

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