Subscribe

Trump’s Reform Plan Is All About Cutting Taxes—For Trump

U.S. President Donald Trump answers reporters' questions during a joint news conference with Spanish Prime Minister Mariano Rajoy in the Rose Garden at the White House September 26, 2017 in Washington, DC. Chip Somodevilla/Getty Images

President Donald Trump seeks to sell his tax plan to a skeptical public by presenting it as an effort to “unrig” the tax code. He has said that his plan would “get rid of the loopholes and complexity that primarily benefit the wealthiest Americans and special interests.” He has even hinted that his own taxes would go up under his plan.

Behind Trump’s rhetoric, however, is his actual agenda. A look at that agenda shows that Trump is not unrigging the tax code for you. He is trying to rig the tax code for Donald Trump and give himself a huge tax cut.

One of the biggest and most costly proposals in the Trump-GOP tax plan is a giant new loophole for wealthy business owners like Trump himself.

Read more!

It would create a special, preferential tax rate for income from so-called “pass through” businesses, such as partnerships, S-corporations (privately held corporations that elect to be taxed as partnerships), and limited liability companies (LLCs). These entities don’t pay the corporate tax; instead, their owners pay taxes on their share of the business’s profits at their personal tax rates, which currently top out at 39.6% for the highest-income individuals. The Trump-GOP plan carves out a special new provision that would reportedly cap the rate on income from pass through businesses at 25%. (Trump’s original plan capped it at just 15%.)

Through the Trump Organization, Trump owns more than 500 pass through business entities. His new loophole would slash the tax rate on the profits from these entities by more than a third.

We don’t have a clear view of just how big a windfall that would confer on Trump—because he has not released his tax returns—but it is potentially millions of dollars. Trump’s family members who also own pass through businesses, including Ivanka Trump and Jared Kushner, also stand to receive a windfall.

Real tax reform would end special provisions that make the tax code more complicated and more prone to abuse. This new loophole does the opposite. It would invite very high-earners—lawyers, lobbyists, consultants, and doctors—to recharacterize their salaries as “business income” to claim the lower rate. Wall Street fund managers would undoubtedly structure their compensation to take full advantage of the lower rates as well—potentially giving them an even bigger break than the notorious “carried interest” loophole.

The people who would be left out of this bonanza would be regular workers, as well as the vast majority of small business owners who are already pay tax rates of 25% or less. (Of all business owners, 86% are in the 25% bracket or lower.)

But that’s not the only way that Trump’s tax plan would rig the tax code for Trump. Republican tax proposals also want to eliminate the Alternative Minimum Tax (AMT), which—as we know from Trump’s leaked 2005 tax returns—was the only reason he paid any substantial income tax that year. The AMT is an anti-loophole backstop in the tax code that ensures high-income taxpayers cannot take advantage of so many deductions and other preferences that they pay no tax or virtually no tax. In 2005, Trump paid a total tax rate of about 24% on $150 million of income; without the AMT, he would have paid less than 4%.

Trump and congressional Republican plans also have proposed to end the tax on estates of more than $5.5 million (and couples’ estates of more than $11 million)—another boon for Trump’s heirs and for the members of his cabinet. While only about one in 500 Americans are wealthy enough that their estates pay the estate tax, 13 of the 24 members of Trump’s cabinet qualify. Altogether, the cabinet stands to receive an estate tax cut estimated at $1.5 billion. (To put that in context, it’s about twice the amount that Trump’s budget proposes to cut from the Federal Emergency Management Agency’s state and local disaster-preparedness grants.)

And what about those loopholes that Trump promised to get rid of? We still have no idea what any of them are. It’s almost like he’s not serious about closing them.

Trump’s agenda is not “tax reform”; it is tax cuts for the wealthy, including massive tax cuts for Trump himself. The president is trying to rig the tax code in his favor, and rig it against regular Americans.

Seth Hanlon is a senior fellow at the Center for American Progress, and former special assistant to President Barack Obama for economic policy at the White House National Economic Council, where he coordinated the administration’s tax policy.

Outbrain
Read more!