A tax re­form plan built on bro­ken prom­ises

Pawtucket Times - - OPINION - Al Hunt Hunt is a Bloomberg colum­nist.

The Repub­li­can tax plan, still only a rough blue­print, has lost its first bat­tle: It doesn't live up to the prom­ises that Pres­i­dent Don­ald Trump and top Repub­li­cans made.

The pro­posal, un­veiled in a short doc­u­ment, pro­poses to slash cor­po­rate and in­di­vid­ual taxes, claim­ing that this loss of fed­eral rev­enue will be off­set by elim­i­nat­ing un­spec­i­fied de­duc­tions. Based on what's avail­able, how­ever, it's clear the plan won't deny net tax cuts to the wealthy, will not be rev­enue-neu­tral, and will not stick it to wealthy hedge-fund and pri­vate-eq­uity ex­ec­u­tives. All these el­e­ments are at vari­ance with com­mit­ments made by Trump and prom­i­nent Repub­li­cans.

Any tax bill will be re­shaped by the leg­isla­tive process, which is more likely to min­i­mize re­forms. Still, politi­cians court trou­ble when they vi­o­late prom­i­nent pledges. In sell­ing the Af­ford­able Care Act, Barack Obama promised that if peo­ple liked their health-care plan, they could keep it. When that proved un­true, support for the mea­sure suf­fered.

Here are some of the false claims Trump and the Repub­li­cans have made about their tax plan:

• "The rich will not be gain­ing at all with this plan," Trump de­clared again last week. From the out­set, Trea­sury Sec­re­tary Steven Mnuchin vowed that "any re­duc­tions we have in up­per­in­come taxes will be off­set by less de­duc­tions so that there will be no ab­so­lute tax cut for the up­per class."

Wealth­ier tax­pay­ers get some huge tax cuts in this Repub­li­can plan. The top in­di­vid­ual top rate would be cut from 39.6 per­cent to 35 per­cent; the max­i­mum cor­po­rate rate would be slashed to 20 per­cent, which helps cor­po­rate ex­ec­u­tives and in­vestors. The es­tate tax, paid pre­dom­i­nately by wealthy heirs, would be elim­i­nated to­tally, as would the al­ter­na­tive min­i­mum tax. In a pro­vi­sion that would sig­nif­i­cantly help some up­per-in­come in­di­vid­u­als, it would al­low a spe­cial "pass through" to pay a lower 25 per­cent in­di­vid­ual rate. The lib­eral Cen­ter on Bud­get and Pol­icy Pri­or­i­ties es­ti­mates al­most 70 per­cent of these ben­e­fits would go to in­di­vid­u­als with in­comes over $1 mil­lion.

Some of the ben­e­fits would be off­set by elim­i­nat­ing ex­pen­sive de­duc­tions, such as the write-offs for state, lo­cal and prop­erty taxes, which dis­pro­por­tion­ately fa­vor wealth­ier tax­pay­ers. But tax ex­perts say this broad­en­ing of the base won't come close to match­ing the up­per-in­come-cen­tric cuts.

"The top 1 per­cent will do well with this plan," says Eric Toder, the co-di­rec­tor of the Tax Pol­icy Cen­ter, a joint project of the Ur­ban In­sti­tute and Brook­ings In­sti­tu­tion.

• The tax plan "breaks even" in the bud­get "over a 10-year pe­riod," said House Ways and Means Com­mit­tee Chair­man Kevin Brady. Se­nate Ma­jor­ity Leader Mitch McCon­nell like­wise said the pro­posal will be "rev­enu­eneu­tral" over that decade. No, it wouldn't be. "Tax cuts shouldn't be handed out like Hal­loween candy," com­plained the non­par­ti­san Com­mit­tee for a Re­spon­si­ble Fed­eral Bud­get. "To grow the econ­omy, they must be paid for, and the de­tails of this plan ap­pear to come up $2 to $2.5 tril­lion short."

Well-heeled cam­paign con­trib­u­tors will be es­pe­cially pleased by the sub­stan­tial rate re­duc­tions and the elim­i­na­tion of pro­vi­sions like the es­tate tax. The idea of off­set­ting them by curb­ing de­duc­tions is a false hope. The Repub­li­cans have al­ready said that two of the big­gest de­duc­tions, for home-mort­gage in­ter­est and char­i­ta­ble con­tri­bu­tions, won't be touched. You can be cer­tain that the quar­ter­tril­lion-dol­lar an­nual ex­emp­tion from tax­able in­come for em­ployer-spon­sored health in­sur­ance won't be on the ta­ble, ei­ther. The health-care is­sue gave the party enough headaches this year, and it won't want to tackle these po­lit­i­cally dif­fi­cult op­tions in its tax bat­tle.

• "Car­ried in­ter­est was un­fair, and it's gone," Trump promised this year, re­fer­ring to the loop­hole that per­mits hedge-fund and pri­vate-eq­uity ex­ec­u­tives to treat cer­tain in­come at the lower cap­i­tal gains rate in­stead of as or­di­nary in­come. He made this vow re­peat­edly dur­ing his pres­i­den­tial cam­paign, and said it showed he was no apol­o­gist for rich fi­nan­cial in­ter­ests.

There is no men­tion of car­ried in­ter­est in the tax doc­u­ment. But even if the Repub­li­cans fol­low through on the pres­i­dent's vow, it would be, to use that ter­ri­ble cliche, a noth­ing­burger. Cur­rently, the top cap­i­tal gains rate is 23.8 per­cent — which is a lot lower than the max­i­mum in­di­vid­ual rate of 39.6 per­cent. But un­der Trump's pro­posed 25 per­cent pass-through pro­vi­sion, which tax ex­perts say would be a ve­hi­cle for this car­ried-in­ter­est in­come, there would be al­most no dif­fer­en­tial.

• Trump's spokes­men have dis­missed crit­i­cism that the tax plan will ben­e­fit the pres­i­dent and his fam­ily.

But there is no in­di­ca­tion the plan would curb some of the most gen­er­ous real-es­tate write-offs that the Trump fam­ily and his son-in-law, Jared Kush­ner, have en­joyed. (The mea­sure prob­a­bly would elim­i­nate the de­ductibil­ity of prop­erty taxes and re­duce the num­ber of peo­ple tak­ing item­ized de­duc­tions, both of which af­fect real es­tate, though this pales next to the big ben­e­fits Trump has taken.) The pres­i­dent re­fuses to re­lease his tax re­turns, but ex­perts say it's a very good guess that he and his fam­ily would ben­e­fit from the passthrough pro­posal.

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