Schumer’s claim that ‘mil­lions would pay more’ un­der Trump’s tax plan

The Washington Post Sunday - - POLITICS & THE NATION - Glenn.kessler@wash­post.com

Sen. Charles E. Schumer (DN.Y.): “Well, but he also takes away things like the mort­gage in­ter­est de­duc­tion, the lo­cal — state and lo­cal prop­erty . . .” Chris Wal­lace: “No, no, no, that’s not true. He doesn’t take away the mort­gage. No, he does not take away the mort­gage in­ter­est de­duc­tion.”

Schumer: “You can­not do it with­out the stan­dard de­duc­tion. He takes away state and lo­cal, as well, and mid­dle­class peo­ple get far less of a ben­e­fit. Many of them were hurt. One es­ti­mate said that mil­lions would pay more, and the rich do ex­tremely well.”

— Ex­change on “Fox News Sunday,” April 30

A reader asked about this ex­change, given that one of the few clear state­ments re­gard­ing President Trump’s tax plan is that al­though many item­ized de­duc­tions would be elim­i­nated, the pop­u­lar de­duc­tions for mort­gage in­ter­est and char­i­ta­ble con­tri­bu­tions would not be touched. In­deed, Wal­lace calls out Schumer, say­ing that Trump’s plan “does not take away the mort­gage in­ter­est de­duc­tion.”

Matt House, Schumer’s com­mu­ni­ca­tions di­rec­tor, said the sen­a­tor mis­spoke dur­ing the in­ter­view and in­stead meant to re­fer to the de­duc­tion for prop­erty taxes.

Th­ese taxes of­ten help fund schools and lo­cal gov­ern­ments and can be high in ur­ban ar­eas such as New York.

We don’t play gotcha when a politi­cian ad­mits an er­ror. But we were also cu­ri­ous about Schumer’s state­ment that “one es­ti­mate said that mil­lions would pay more, and the rich do ex­tremely well.”

Given that Trump has pitched his plan as ben­e­fit­ing the mid­dle class, what’s the ev­i­dence for the no­tion that mil­lions will see an in­crease?

The Facts

The one-page doc­u­ment is­sued by the White House of­fered only a few de­tails. For mid­dle-in­come fam­i­lies, there were three key el­e­ments:

Re­duc­ing the seven tax brack­ets to three tax brack­ets for 10 per­cent, 25 per­cent and 35 per­cent.

Dou­bling the stan­dard de­duc­tion.

Pro­vid­ing tax re­lief for fam­i­lies with child- and de­pen­dent-care ex­penses.

The doc­u­ment claimed that tar­geted tax breaks that ben­e­fit mainly the wealthy would be elim­i­nated. But the plan would also re­peal the al­ter­na­tive min­i­mum tax, the estate tax and a 3.8 per­cent tax on in­vest­ment in­come that was part of the Af­ford­able Care Act. Re­mov­ing the AMT, de­signed to en­sure that the wealthy pay at least some tax, es­pe­cially might save some tax­pay­ers a lot of money; Trump’s 2005 tax re­turn that was re­cently re­vealed showed that he paid an ad­di­tional $31 mil­lion be­cause of the AMT.

Since Trump has not iden­ti­fied all of the tax breaks that might be elim­i­nated, it is un­clear whether those items would make up for the elim­i­na­tion of the AMT.

Nev­er­the­less, since the wealthy pay most of the taxes — and be­cause this is a broad­based tax re­vi­sion that re­duces in­come-tax brack­ets — it is safe at this point to as­sume that the wealthy will garner most of the ben­e­fits. Small-busi­ness own­ers, in fact, might be able to re­duce their top rate from 39.6 per­cent to 15 per­cent un­der Trump’s plan. So there are po­ten­tially large gains in after-tax in­come for wealth­ier Amer­i­cans.

Oddly, the White House has not even in­di­cated that in­come range for the new tax brack­ets, al­though in an in­ter­view with “CBS This Morn­ing” on May 1, the di­rec­tor of the White House Na­tional Eco­nomic Coun­cil in­di­cated that the 10 per­cent bracket would at least ex­tend to the mid-$30,000s.

“The me­dian in­come in the United States to­day is about $56,000. You take the $24,000 away from the $56,000, you’ve got tax­able in­come of $32,000,” Gary Cohn said. “At a 10 per­cent rate, that’s $3,000 of tax.”

But what about the no­tion that mil­lions of mid­dle-class Amer­i­cans would pay more?

Schumer’s of­fice pointed to a study writ­ten in Oc­to­ber for the Tax Pol­icy Cen­ter by Lily Batchelder, a pro­fes­sor of pub­lic pol­icy at New York Univer­sity who was deputy di­rec­tor of the Na­tional Eco­nomic Coun­cil in 2014-2015. Un­der her anal­y­sis, more than half of the United States’ sin­gle par­ents and one­fifth of its fam­i­lies with chil­dren could see their fed­eral in­come taxes in­crease un­der the Trump tax plan re­leased dur­ing the cam­paign.

Batchelder “con­ser­va­tively” es­ti­mated that “Trump’s plan would in­crease taxes for about 8.7 mil­lion fam­i­lies,” but the num­ber could be as high as 11 mil­lion un­der “rea­son­able as­sump­tions.”

The main rea­sons: Dur­ing the cam­paign, Trump said he would elim­i­nate the per­sonal and de­pen­dent ex­emp­tions (cur­rently $4,050 per fam­ily mem­ber) and the head-of­house­hold cat­e­gory, which ben­e­fits mostly un­mar­ried tax­pay­ers with de­pen­dents. So, even with the in­crease in the stan­dard de­duc­tion, un­mar­ried tax­pay­ers with de­pen­dents and mar­ried tax­pay­ers with large fam­i­lies would end up as net losers.

For in­stance, she said, a sin­gle par­ent with $75,000 in earn­ings and two school-age chil­dren would face a tax in­crease of about $2,440, while a sin­gle par­ent with $50,000 in earn­ings and three school-age chil­dren would face a tax in­crease of about $1,188.

The ex­ist­ing stan­dard de­duc­tion that Amer­i­cans can claim is $6,300 for in­di­vid­u­als and $12,600 for mar­ried cou­ples fil­ing jointly. Dur­ing the cam­paign, Trump pro­posed rais­ing the stan­dard de­duc­tion to $15,000 for in­di­vid­u­als and $30,000 for fam­i­lies. So the of­fi­cial pro­posal has a smaller in­crease, mean­ing that even more work­ing-class fam­i­lies could see a tax in­crease.

But here’s the big­gest change: The Trump tax plan is silent on whether it would still re­peal the per­sonal and de­pen­dent ex­emp­tions or elim­i­nate the head-of-house­hold cat­e­gory. A White House of­fi­cial said that the only items off the table are mort­gage in­ter­est, char­i­ta­ble con­tri­bu­tions and pre­tax sav­ings of re­tire­ment ac­counts such as 401(k)s. But he in­di­cated that the per­sonal ex­emp­tion might re­main in place.

“Any other de­duc­tion a per­son or busi­ness takes to­day is sub­ject to po­ten­tial elim­i­na­tion. That doesn’t mean any ad­di­tional de­duc­tion will be elim­i­nated, but means it’s not a deal­breaker out of the gate,” he said. “If the plan doesn’t ad­dress it, that falls into the realm of un­cer­tainty, where scor­ing or mak­ing de­fin­i­tive state­ments is pre­ma­ture.”

In­ter­est­ingly, when Cohn gave “CBS This Morn­ing” his hy­po­thet­i­cal ex­am­ple of the $56,000-a-year fam­ily, he did not in­clude per­sonal ex­emp­tions in his off-the-cuff cal­cu­la­tions. De­spite the of­fi­cial po­si­tion, that ap­pears to be a pretty good clue to the ad­min­is­tra­tion’s think­ing. For a mar­ried cou­ple with two or more chil­dren, that is likely to mean at least a small tax in­crease, ac­cord­ing to cal­cu­la­tions of David Kamin of New York Univer­sity.

Batchelder said that if per­sonal and de­pen­dent ex­emp­tions re­main elim­i­nated, her anal­y­sis prob­a­bly would not change much. “I don’t ex­pect it to change dra­mat­i­cally, pro­vided that the un­spec­i­fied fea­tures from last week are the same as his pro­posal from the fall,” she said.

How­ever, she said, “it would sig­nif­i­cantly change the cal­cu­la­tion if they with­drew their pro­pos­als to re­peal per­sonal and de­pen­dent ex­emp­tions and head-of­house­hold sta­tus.” But she was skep­ti­cal of that hap­pen­ing. “All they would have had to do is add about 10 words to the bul­let points they re­leased,” she noted. “They chose not to do so, de­spite the fact that they have known that their plan raises taxes on mil­lions of mid­dle-class fam­i­lies since last Septem­ber.”

The Pinoc­chio Test

The new Trump tax pro­posal is sim­i­lar to his cam­paign plan but dif­fers in key re­spects. That makes it prob­lem­atic to cite an anal­y­sis of the cam­paign plan, as Schumer did. But at the same time, the White House has been in­cred­i­bly vague about key de­tails of the new plan, mak­ing it im­pos­si­ble to as­sess how it would af­fect tax­pay­ers in dif­fer­ent in­come groups.

The key here is what hap­pens to per­sonal and de­pen­dent ex­emp­tions, es­pe­cially be­cause Trump de­cided not to in­crease the stan­dard de­duc­tion as much as he pro­posed in the cam­paign. Schumer’s com­ment may well be cor­rect, es­pe­cially given Cohn’s pub­lic com­ments. But un­til fur­ther de­tails are re­leased, we will have to la­bel this as Ver­dict Pend­ing.

MELINA MARA/THE WASHINGTON POST

A spokesman for Sen. Charles E. Schumer (D-N.Y.) said he mis­spoke and meant to re­fer to the prop­erty tax de­duc­tion, not the mort­gage in­ter­est de­duc­tion, in an April 30 in­ter­view on “Fox New Sunday.”

The Fact Checker GLENN KESSLER

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