Trump’s Tax Plan: What We Know So Far
The plan could increase the deficit by an estimated $3 trillion to $7 trillion over the next decade
By Camille Garcia-Mendoza
The Progressive Teen Staff Writer
LAST WEEK STEVE MNUCHIN, TRUMP’S SECRETARY OF TREASURY, and Gary Cohn, the director of the National Economic Council released the first draft of President Trump’s tax plan. Although the details of the plan have yet to be fully explained, analysts have already begun making predictions of how different demographics will be impacted and how it will supposedly generate growth.
The most important aspect of the plan is the new business tax rate, which would cut the corporate tax rate down 35%. This tax break is supposed to encourage spending and incentivize companies to build more firms domestically rather than outsource. However, analysts have questioned the efficacy of this proposal, citing the fact that shareholders are likely to reap the most benefit of the tax breaks. This is due to the use of shared buybacks, which is when company officials buy stock for their own company in order to maximize its value, and make it seem as though less of its stocks are available.
Analysts from Pavilion noted that most of the benefits would go toward shareholders and the cuts would have little effect on the overall economy. In addition to the questionable effects of the tax plan on the entire economy, the 15% tax rate may also create a problematic loophole. This loophole applies to those who receive their income from Limited Liability Companies, which are people who claim their income through their business instead of as a wage. In simple terms, this loophole would allow people to claim their income as profit for the company, and thus avoid the individual income tax and pay the much smaller flat business tax rate instead. This would result in large federal losses, as this loophole is easily exploitable.
Another large faction of the plan involves cuts on individual taxes in a number of ways. First of all, the number of individual tax brackets would decrease to five, which will reduce taxes across the board. The top rate will also be reduced to 35% percent, thus reducing the top income owners’ taxes. The alternative minimum tax would also be eliminated. This tax targets the wealthiest Americans and limits their deductions, forcing them to pay a higher tax rate either through the tax bracket of the alternative minimum or the regular tax bracket.
Another tax cut comes from the elimination of the 3.8% tax to fund Obamacare. This tax was only paid for by citizens with an investment income of over two hundred and fifty thousand dollars, thus this tax cut would only affect the upper class. Additionally, the removal of the highly contentious estate tax would allow people to pass down estates with no extra taxes. Thus, individuals who mainly reside within the top economic classes of the United States would experience significant tax breaks. The philosophy behind tax breaks for the upper class comes from Mnuchin’s projected 3% of continuous growth. If Trump’s plan works as promised, the sustained projected growth that would come as a result of the tax cuts would allow for economic growth that could essentially allow the tax cuts to pay for themselves.
A part of the plan that has caused deep unrest amongst the upper middle class of Democratic-leaning states is the elimination of federal deductions for state and local taxes. The elimination of this means that states that pay high taxes like California and New York will not receive any tax breaks from the government as reparation for paying such high localized taxes.
Although the tax plan has an abundance of provisions favored by conservatives and some moderates, there are missing pieces that have angered some. The centerpiece of Paul Ryan’s tax plan, the Border Adjustment Tax, is nowhere to be found. The Border Adjustment Tax essentially levies extra taxes on imported goods as a way to stimulate domestic growth and encourage domestic development. Although no one has indicated their disapproval of the elimination of this part of the proposal, Ryan and others who championed it before are most likely disappointed. Another conservative faction that is likely to express anger are the fiscally conservative and anti-government deficit spending hawks. The tax cuts under Trump’s plan are likely to be the biggest in history, and unless federal spending is significantly reduced, the federal deficit is likely to grow larger than it ever has before.
Donald Trump’s tax policy has not fully come to terms with many questions; however, the information that has been provided thus far offers a view into how the taxation system of the United States may change under Trump. These changes include large tax cuts mainly for the wealthier citizens and reductions in government profit. These tax cuts are supposed to stimulate growth by encouraging domestic investment and job creation; however, whether this growth will be achieved is yet to be seen as further details are revealed.
