Donald Trump speaks during a rally in Colorado Springs earlier this month.
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During a speech last week in New York, Mr. Trump said his tax plan would reduce federal revenue by $4.4 trillion over a decade and that economic growth and other non-tax-policy changes would make the plan have no effect on budget deficits.
The Republican presidential nominee’s new and improved tax plan, unveiled during an economic policy speech in NY last Thursday, would reduce federal revenue by between $4.4 trillion and $5.9 trillion on a static basis (meaning not accounting for macroeconomic effects), according to a new analysis from the Washington, D.C. -based conservative-leaning think tank the Tax Foundation.
The new plan adopts individual tax brackets from the House Republicans’ tax plan, creating three brackets of 12, 25, and 33 percent (down from the current seven brackets).
Very low-income families would see more benefits under the revised plan, the Tax Foundation said in its analysis, thanks to Trump’s recently announced child-care tax credit. In addition to these possibilities, which we see as upper and lower bounds for total revenue generation, the policy may reduce federal revenue somewhere in between.
If all pass-through income were taxed at 15%, the top 1% of households would see their income grow by 16% instead of 10.2%, according to the Tax Foundation. The pass-through structure is a mainstay of both small businesses and investment partnerships.
Trump’s original plan called for applying the 15 percent rate to income that passes through a business to the individual returns of a business owner, down from 39.6 percent.
That makes a huge difference when it comes to revenue. A spokeswoman for the Trump campaign did not respond to request for comment on the matter. If pass-through income is taxed at the lower rate, revenue would shrink by $5.9 trillion over 10 years on a static basis (that is, not including the effects of economic growth).
And economic growth wouldn’t close those holes.
The tax cut for the 1 percent would be even larger using the Trump campaign’s assumptions about economic growth under the plan. Dynamic estimates take more factors into account than static estimates, but economists don’t all agree on the growth effects of different tax changes. It would also offer substantial tax cuts to corporations.
“It’s hard right now to say how much they’re trying to come up with a coherent proposal, as opposed to a politically palatable one”, he said.
The plan would raise the after-tax incomes of people in every group, with those in the top 1 percent seeing the biggest increase, according to the Tax Foundation. The income increase for the top earners would decline to 10 percent.
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Then there’s economic growth, which wouldn’t be almost as impressive under this plan as Trump would like. The larger economy would result in 5.4 percent higher wages and a 20.1 percent larger capital stock under the higher-rate assumption, or 6.3 percent higher wages and a 23.9 percent larger capital stock under the lower-rate assumption. For example, the USA real GDP will grow by 19.2% from 2016-2025, according to the Congressional Budget Office (CBO), even if policy remains unchanged.[9] This paper predicts that the greater incentives for labor and investment provided by this tax reform plan would increase the end-of-period GDP by an additional 6.9% under the higher-rate assumption, or 8.2 percent under the lower-rate assumption, over and beyond the baseline growth already predicted. Last year, U.S. GDP increased roughly 2 percent.
