Taxes

Count the Broken Promises in the GOP Tax Plan

Trump said it won't break the budget or favor the wealthy. Of course, it will.

The polo party.

Photographer: Spencer Platt/Getty Images

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.

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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 upper-income 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 "revenue-neutral" 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 quarter-trillion-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 pass-through proposal.

(Corrects figure in quotation in 10th paragraph of article published Sept. 27.)

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    To contact the author of this story:
    Albert R. Hunt at ahunt1@bloomberg.net

    To contact the editor responsible for this story:
    Katy Roberts at kroberts29@bloomberg.net

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