Trump's tax outline would cost trillions, benefit wealthy: analysis

Trump's tax outline would cost trillions, benefit wealthy: analysis
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A tax plan that’s consistent with the proposal the White House released in April would lower federal revenue by trillions of dollars over 10 years and largely benefit wealthy taxpayers, according to an analysis from the Urban-Brookings Tax Policy Center (TPC).

The tax cuts described in the administration’s outline would cost $7.8 trillion over 10 years under traditional budget scoring, and a plan that combines those cuts with possible revenue-raisers would cost $3.5 trillion, TPC said. The centrist think tank did not find significant changes to these estimates when they took into account the macroeconomic effects of the proposals.

TPC’s report comes as the White House is working with House and Senate Republicans to flesh out a tax plan and reach an agreement on a unified proposal. Administration officials have said they hope to release the more detailed plan in September.

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The proposal that the Trump administration released several months ago was a single page and lacked many details, so TPC stressed that their estimate was not an analysis of the White House’s plan.

“Rather, this exercise provides perspective on the revenue and distributional effects of a plan containing the tax ideas raised by the administration, as well as some of the trade-offs that the administration is grappling with while attempting to craft a fleshed-out plan,” the think tank said in its report.

TPC’s findings suggest that the White House would need to make significant changes if it wants its tax bill to be revenue-neutral and follow the so-called “Mnuchin rule” that there be no net tax cut for high earners.

Tax cuts suggested by the administration, even offset by significant tax increases, would disproportionately benefit high-income households while substantially increasing the federal deficit,” TPC senior research associate Joe Rosenberg said on a call with reporters.

The tax cuts described in the White House’s April plan include cutting the top individual tax rate from 39.6 percent to 35 percent and lowering the corporate tax rate from 35 percent to 15 percent. Businesses whose income is currently taxed through the individual code would also be eligible for the 15-percent rate.

The White House’s plan would also repeal the alternative minimum tax, the estate tax and ObamaCare’s net investment income tax, and it would double the standard deduction and provide a tax benefit for child care costs.

The administration’s plan also discussed eliminating tax breaks, though it did not get into great detail about exactly what preferences would be repealed. The White House said that it would do away with itemized deductions besides those for mortgage interest and charitable giving. TPC also assumed that various industry-specific tax breaks would be eliminated.

When TPC looked at possible revenue-raisers to help pay for the White House’s plan, it took into consideration several tax changes that were part of Trump’s campaign plan but were not mentioned in the administration’s outline. These include repealing the head of household filing status and personal exemptions.

Treasury Secretary Steven Mnuchin said in November that there would be “no absolute tax cut for the upper class” — a concept that Democrats have dubbed the Mnuchin rule. Mnuchin has been less committed to that idea in recent months, but told ABC News on Sunday that the administration’s objective is for no middle-class taxpayer to have a tax increase.

In TPC’s analyses of both the administration’s proposed tax cuts and a plan that combines the cuts with potential revenue-raisers, those with higher incomes would see the greatest benefit.

Under the scenario with tax cuts and revenue-raisers, about 70 percent of households would receive net tax cuts, while about 20 percent would pay higher taxes, largely because of reductions in itemized deductions and personal exemptions, TPC analysts said.

Every income group on average would see a tax cut, but almost half of the aggregate net tax cut would go to taxpayers in the top 1 percent of income. The taxpayers who would receive net tax increases are spread across income groups, though smaller percentages of the lowest- and highest-income taxpayers would see their taxes go up, according to the report.

TPC Director Mark Mazur says the report “points out a little bit of the difficulty that Secretary Mnuchin has in following the rule that was named after him.”

TPC analysts said that if the administration wants to follow the Mnuchin rule, they might not want to repeal the estate tax and the net investment tax and might not want to cut the rate on business income to 15 percent.

Administration officials and congressional Republicans intend to use “dynamic scoring” of their tax bill that will take into account the economic growth that their proposal will produce.

TPC’s revenue estimates that incorporate macroeconomic changes do not materially differ from their estimates using static scoring that excludes those effects. The group said that the tax cuts would boost the economy in the short run, but that over time, “those positive effects on output are offset as additional debt from the large net tax cuts acts as a drag on the economy by raising interest rates and crowding out business investment.”

Mnuchin told ABC News on Sunday that the administration’s plan “will be paid for over 10 years” but noted that there are multiple economic models for how to score tax bills. The administration is projecting that economic growth could lead to about $2 trillion in additional revenues that could help to pay for a tax bill, but Mnuchin said he’s not sure whether Congress’s official scorekeeper will give credit for that full amount.

Trump aides have been critical of TPC in the past. During the campaign, economic adviser Peter Navarro accused the group of liberal bias, which the think tank had rebutted.