Is Trump’s tax plan revenue-neutral?
Donald Trump claims his tax plan is “revenue-neutral,” but tax experts say that just isn’t so. Not by a long stretch. Even assuming the tax cuts would promote economic growth, the pro-business Tax Foundation estimates the Trump plan would reduce revenue to the Treasury by more than $10 trillion over 10 years.
Separately, Roberton Williams of the non-partisan Tax Policy Center said it would require “substantial budget cuts” to make up for lost revenue.
The Trump tax plan, which he unveiled in a Sept. 28 news conference, includes deep tax cuts for individuals and businesses alike. And, he said, “all of this does not add to our debt or our deficit.”
Trump is banking on the plan spurring growth to generate new revenue. In a piece in The Wall Street Journal, he boasted, “With moderate growth, this plan will be revenue-neutral.”
Given the generous tax cuts proposed in the plan, though, Alan Cole, an economist with the Tax Foundation, said he was “puzzled” by Trump’s claim the plan would be revenue-neutral.
After performing an analysis of Trump’s proposal, Cole wrote in a blog post, “I do not believe this to be true under any scenario remotely resembling Mr. Trump’s plan.”
The Tax Foundation estimates Trump’s plan would cut taxes by nearly $12 trillion over a decade on a so-called “static” basis, meaning not taking into consideration how tax cuts could spur economic growth and increase revenues. The Tax Foundation believes the plan would increase incentives to work and invest, thereby spurring the economy. But even assuming that added revenue bump, called “dynamic scoring,” the Trump plan is expected to reduce tax revenues by just over $10 trillion over a decade, the Tax Foundation estimates.
And that’s because the tax cuts proposed by Trump are so deep, Cole does not believe any of the offsetting revenue streams — like reducing or eliminating personal and corporate tax expenditures — would be nearly enough to offset the revenue lost by those cuts.
THE PROPOSED CUTS
On the individual side, Trump’s plan would consolidate the current seven tax brackets into four. One of the biggest revenue reducers would come from Trump’s proposal to reduce the top individual income tax rate from 39.6% to 25%. Trump would also expand the number of Americans who pay no taxes.
Under the Trump plan, single filers making $25,000 or less, or married couples making $50,000 or less, would pay zero income tax (or as Trump put it, they would fill out a one-page letter to the IRS that says “I win”). Trump says that would remove nearly 75 million households — over 50% — from the income tax rolls. But many of them are already not paying federal income taxes.
While the Tax Foundation analysis found that the tax cuts would lead to lower taxes for taxpayers at all levels of income, the biggest winners would be those in the top 10% of filers, particularly those in the top 1%. Still, Cole wrote that the plan “also contains a very large middle-class tax cut.”
Trump would cut the corporate income tax rate from 35% to 15%. Similarly, pass-through businesses — independent contractors, small LLCs, etc., which are currently taxed as ordinary income up to a top rate of 39.6% — would be taxed at 15%. Trump also would do away with the estate tax.
THE OFFSETS
According to the Trump campaign website, the Trump tax cuts are “fully paid for” through three main revenue generators: “reducing or eliminating most deductions and loopholes available to the very rich”; a “one-time deemed repatriation of corporate cash held overseas at a significantly discounted 10% tax rate, followed by an end to the deferral of taxes on corporate income earned abroad”; and “reducing or eliminating corporate loopholes that cater to special interests, as well as deductions made unnecessary or redundant by the new lower tax rate on corporations and business income.”
Trump’s plan would “phase in a reasonable cap on the deductibility of business interest expenses.”
Notably, however, Trump said he would preserve charitable giving and mortgage interest deductions — two of the largest income tax deductions — which account for about 10% of all tax expenditures. Trump also would keep the earned income tax credit, expected to cause a revenue hit of $63 billion this year, and the child tax credit, which reduces revenue by about $46 billion.
But even if all of the exclusions, deductions and tax preferences were cut, Cole said, “it’s not possible to get there (to revenue-neutral).”