Meeting #10: Tax Policy
Members of the Hiring Committee,
After commencing examinations into Mr. Trump’s energy policy and trade policy the past two weeks, the Committee now turns to his tax policy. Our initial investigation into the matter indicated that the candidate was proposing an arrestingly extreme plan that would reduce federal tax revenues by nearly 12 trillion dollars. However, the candidate has since released a new tax plan that seems to lessen some of the sharpest cuts in his original plan, and the Committee has begun to evaluate this new proposal.
Reviewing Mr. Trump’s plan, however, has not been easy, as critical details still remain in limbo with only seven weeks remaining until the election. It remains unclear whether the candidate intends to tax partnerships and other “pass-through” businesses at a flat 15% rate or at the individual rates at which they are currently taxed. The former option would decrease federal tax revenues by an additional $1.5 trillion. A third option emerged this week, as the candidate’s team indicated that pass-through businesses would pay 15% tax on money kept in the business, but an additional 20% tax on any money withdrawn.
Independent of the substance of Mr. Trump’s tax policy, the uncertainty surrounding it is very troubling to the Committee. One of the fundamental goals of any tax system should be offering a level of predictability and certainty to citizens and businesses so that they can structure their financial affairs with confidence. By failing to provide clarity into his tax plan, Mr. Trump has left individuals like Brian Reardon, president of the S Corporation Association, stating, “We are not really sure what the plan is at this point.”
Examining the more solid features of the candidate’s tax plan reveals a revamping of the ordinary income rate brackets, paring down the current seven brackets to only three. Combined with more than doubling the standard deduction for both individuals and married couples filing jointly, Mr. Trump’s proposal would increase after-tax incomes across all income groups. While the broad impact of the candidate’s proposal is commendable, further investigation by the Committee indicated that the percentage gains in after-tax income would be more than ten times as large for those in the top 1% (10.2%) as those in the 20% to 40% income group (0.8%). In a country where income inequality has been rising for decades, this plan would only serve to further exacerbate such trends, which the IMF has determined drag down economic growth.
But the Committee found itself most concerned by the misleading messaging which the candidate used to describe his tax plan. Mr. Trump has stated that his tax plan is “Especially, and I say especially for those who have the very least.” However, the candidate’s tax plan contains provisions like abolishing the estate tax, which only affects estates with a value of over $5.4 million. The estate tax impacts the estate of only the wealthiest one out of every 495 people who pass away, and its elimination thus aids only the very wealthiest families in the United States.
The Committee understands Mr. Trump’s lack of clarity and misleading messaging with respect to his tax plan to be part of a larger pattern. It is worth noting that taxes are a tenuous subject for the candidate on several fronts of his personal and professional life. Mr. Trump has refused to release his tax returns, and is set to be the first major-party presidential nominee in four decades to withhold them. Mr. Trump’s businesses have been involved in scores of tax related disputes. The candidate has not established a record of transparency or good faith with respect to tax matters, and the Committee therefore finds itself unsurprised that Mr. Trump himself could be one of the chief beneficiaries of his tax plan.
This meeting is formally opened for discussion until we reconvene next Tuesday when we will continue our review of the candidate’s broader environmental policy.