Trump's tax plans

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And Trump's tax plans aren't friendly for the middle class with children, and not at all for middle class single parents (from Business Insider):

But not all families would be so lucky. When you isolate tax filers with children, most still get some tax break on average, but those earning between $20,000 and $50,000 see their taxes go up.

Andy Kiersz/Business Insider
One reason some filers see a tax increase? The elimination of personal exemptions.
While the proposed plan increases the standard deduction for married couples from $12,600 to $30,000, many married couples also have children, who count for additional exemptions they would lose under the new plan. Since each exemption is currently worth $4,050, couples with three children or more would get a larger deduction under the system we have now than under the proposed plan.
Five exemptions — one for each parent and each of the three children — is worth $20,250. After factoring in the $12,600 standard deduction, a couple today would reap a break of $32,850, compared with the flat $30,000 under Trump's plan. That discrepancy would grow with each child added into the picture.
This chart also includes single parents, who would lose their head-of-household filing status under the new plan (we'll look at this in detail next). 
These lost exemptions would be offset to a degree by a proposal to allow families to deduct the average cost of childcare, but not enough to cover the difference in many cases, according to a Tax Policy Center study.

Head-of-household filers, as a group, fare the worst on average. It's not a huge increase, but these filers who earn between $20,000 and $200,000 would see their federal taxes go up rather than receive a tax cut. For many of these families, though, every dollar counts.

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Voodoo economics at work. 10% increase in defense spending will be financed by...

Host Steve Doocy asked how the White House planned to fund this increase, noting that recently proposed cuts to the Environmental Protection Agency and the State Department would not cover the cost, and even cutting all funding to both would cover only about $50 billion. "Well, I think the money is going to come from a revved-up economy," Trump said. "I mean you look at the kind of numbers we're doing, we were probably GDP of a little more than 1%, and if I can get that up to 3 or maybe more, we have a whole different ball game." Trump also said in the interview he would not touch Social Security in budget cuts. As Business Insider's Linette Lopez recently pointed out, however it's difficult to pay for increased defense spending by targeting only domestic agencies outside major entitlement programs like Social Security and Medicare. As the graph below explains, Trump would need to nearly completely eliminate the EPA, State Department, and International Assistance Programs to reach the $54 billion military increase

President Trump Fox & Friends interview - Business Insider

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And now, for something completely different (after the health care fiasco)..... tax cuts! But these are not so easy either..

But it's not going to be that easy, especially not without the spending cuts the passage of the AHCA would've provided. Republicans needed those cuts because they are trying to pass tax reform through a mechanism called budget reconciliation. That allows a measure to be passed by a simple majority — so no Democracts can filibuster — as long as its revenue neutral (doesn't add to the deficit).

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The border adjustment tax would be a huge change for us. Most simply, it's a tax on imported goods and a tax break for exported goods. The way supporters of the measure reason it, the tax domestic importers have to pay will be offset by a strengthening dollar. Plus, it will go a long way in raising revenue to make this tax bill passable through reconciliation, so fiscal hawks (like the intractable Freedom Caucus) like it.

But the measure is controversial, and here's why.

• Domestic importers hate it. Wal-Mart and the Koch network have already mounted an offense against the legislation. The CEO of Kohl's said the impact on the consumer "would be massive" in an interview with CNBC because prices will go up dramatically. It could also result in job losses for those companies. 
  
• We should note that smaller importers are even more terrified than the big guys. Republicans have said they will try to find a way to make this policy work for them, but have also said they have no plans to create an exemption for small businesses.
  
• A bunch of economists don't think the dollar will get strong enough to offset taxes on imports, turning the whole policy into a drag on the economy.
  
• It doesn't sound like the White House is totally sold on it. Trump said he didn't like it in an interview with the Wall Street Journal last month (though he's also said positive things about the proposal). And former Goldman Sachs COO and Trump’s National Economic Council head Gary Cohn has sounded pretty non-commital about the whole idea.
  
• Then there's the idea that BAT could be a violation of World Trade Organization rules. Specifically, "like" goods made domestically should be treated the same (tax-wise) as goods made abroad and imported. "Publicly available descriptions of the Republican proposal raise concerns that it would permit certain deductions (and thus establish lower tax rates) for domestically-produced goods, while denying the same deductions for the same imported products," write tax experts at law firm White and Case.
  

border adjustment tax makes tax reform complicated - Business Insider

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Republicans’ spectacular failure to repeal and replace Obamacare threatens to sabotage another cornerstone of their agenda, tax reform — because of simple math. The GOP was counting on wiping out nearly $1 trillion in Obamacare taxes to help finance the sweeping tax cuts they’ve got planned for their next legislative act. And now it’s unclear where all that money will come from. “This does make tax reform more difficult, but it does not in any way make it impossible,” House Speaker Paul Ryan said at a news conference on Friday. “We will proceed with tax reform.” While Obamacare taxes will remain, he said, “We’re going to fix the rest of the tax code.” But losing the revenue from Obamacare repeal is fueling speculation that Republicans will settle for just tax cuts rather than sweeping reform. 

Ultimately the issue centers on House Republicans’ desire to pass a tax overhaul that would raise the same amount of money as the current tax code. Eliminating taxes tied to the Affordable Care Act would have made reform cheaper by pulling down the budget baseline of how much money was expected to come in to the federal government. About $43 trillion in revenue is expected from the 2018 federal fiscal year through fiscal 2027, according to projections from the CBO, a sum that includes money raised by ACA taxes. “That is a huge issue,” a corporate tax adviser and ex-House staffer said on condition of anonymity to protect client sensitivities. But Republicans may have to trim their sails. Rather than dramatically rewriting the tax code, they might fall back on their bedrock policy of tax cuts, perhaps with a smattering of policy changes and money raisers to offset some of the cost.

Tax reform next? Maybe not. - POLITICO

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Gluskin Sheff's David Rosenberg harped on a similar theme in a note to clients on Monday. Rosenberg noted that it took Reagan five years to get his tax reform crafted and through Congress — and right now, there is "no one firm GOP plan for the initiative." This is compounded by the fallout from the healthcare fight. "In any event, a leader with a sub-40% approval rating and who spent political capital on his failed 'repeal and replace' Obamacare bill, is not likely to have an easy time getting a tax bill through the Republican Party, where the schisms are wide as ever," Rosenberg said.

Trump, Paul Ryan, Congress to fight on taxes, debt ceiling - Business Insider

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Does corporate America actually need a big tax cut? That's debatable, their profits are at records and corporate taxes are an ever smaller part of tax income:

The second category is corporate income taxes, which may be changed drastically in coming months if some Republicans have their way. These taxes take a portion of businesses’ profits. Many corporate leaders complain bitterly about the taxes they pay, pointing to the fact that the statutory rate is the third-highest in the world at 39%.
Nevertheless, many corporations have become quite skilled at avoiding taxes, meaning the effective rate they actually pay is considerably less, or an average of 19% in 2012. As a result, overall businesses’ funding of the federal government has fallen dramatically since 1945. Back then, corporations provided over one-third of all federal revenue. In 2015, the figure was a bit over 10%, a threefold reduction.

The share of tax dollars coming from you is growing — and the share from companies is shrinking - MarketWatch

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And then there is this:

Tax cuts and financial deregulation proposed by the Trump administration could embolden American companies to boost risk taking to undesirable levels, the International Monetary Fund warned. President Donald Trump has proposed cutting the corporate income-tax rate to 15 percent and taxing offshore earnings at a reduced level when companies repatriate the money. He has also suggested allowing firms to immediately expense capital spending, though they would have to give up their ability to deduct net interest expenses. The plan would prompt U.S. companies to significantly boost capital spending, the IMF said Wednesday in its semi-annual Global Financial Stability Report. But the proposals may have the unintended consequence of causing companies to take too much risk, said the Washington-based fund. “Cash flow from tax reforms may accrue mainly to sectors that have engaged in substantial financial risk taking,” the IMF said. “Such risk taking is associated with intermittent large destabilizing swings in the financial system over the past few decades.”

U.S. Tax Cuts May Lead Companies to Take Too Much Risk, IMF Says - Bloomberg

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We now have the outline of the latest Trump tax plan, from Business Insider:

Here are the key points of the plan as it was released:

• Corporate tax rate of 15%: Such a rate would deliver on Trump's campaign promise. The current federal statutory rate is 35%.
  
  
• Allows pass-through rate for business owners: Instead of self-owned businesses being taxed at the personal income rate, business owners would have incomes from operations taxed at the 15% rate. So if you own your own business, income from that business would be taxed at the corporate rate. According to The New York Times, that could apply to the Trump Organization.
  
  
• No border-adjustment tax: The tax on imports was favored by House GOP leaders such as Speaker Paul Ryan and Kevin Brady, the chair of the Ways and Means Committee. Mnuchin said the White House talked to Ryan and Brady but thought the tax did not "work in its current form."
  
  
• A slight adjustment to individual tax rates: White House officials said there would be three tax brackets with rates of 35%, 25%, and 10%, down from the current seven brackets. Cohn told reporters that he did not have the exact incomes associated with the brackets.
  
  
• Doubling of the standard individual tax deduction: This would allow individual filers to deduct their first $12,700 in income from their taxes and $25,400 for joint filers, as opposed to the current $6,350 for individuals and $12,700 for joint filers.
  
  
• A one-time repatriation tax: This would allow companies to bring back money from overseas to the US with a slightly lower, one-time tax. The White House did not clarify the rate at which this money would be taxed. President George Bush enacted a repatriation tax at a 5.25% rate in 2004, but studies show the money brought back mostly went to stock buybacks and dividends rather than hiring workers.
  
  
• Elimination of the estate tax: This would eliminate a tax on assets being transferred through a will.
  
  
• Elimination of itemized tax deductions other than charitable donations and mortgage payments: Mnuchin said this provision would close "loopholes" and offset the decrease in base tax rate for high income Americans.
  
  
• Repeal a 3.8% tax on net investment income: The tax was levied on "individuals, estates and trusts" with higher than a certain threshold in investment income. For instance, the threshold for an individual was $200,000 in investment income last year.
  
  
• Repeal the alternative minimum tax: This tax requires some people who have large numbers of deductions to calculate their income tax under the normal tax rate and the alternative and pay the higher amount. According to the Tax Policy Center, the tax was originally designed to eliminate large deductions by wealthier people, but now applies to about 5 million people.
  
  
• No infrastructure spending: Reports on Tuesday said Trump was considering including infrastructure spending in the plan to try to win over Democrats. Mnuchin denied the report in the speech, saying the proposal would be "just a tax plan."
  

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Expect a lot of "dynamic scoring" (arguing that the tax cuts boost growth so much that they're budget neutral, or close to that). In fact, Mnuchin already said as much. This isn't likely, for a host of reasons:

• Business investment, which is the main mechanism through which this accelerated growth is supposed to arrive, isn't very sensitive to interest rates so it isn't very sensitive to tax rates either
  
• Anyway, businesses aren't exactly lacking funds to invest. Profits are at record highs, interest rates still near record lows, companies sitting on records amount of cash. Unlikely a tax cut will make a big difference. Companies prefer to return cash to shareholders.
  
• The economy is nearing supply constraints, the growth of the labor force is much less compared to a decade ago, and much more dependent on immigrants (for up to half that growth). Productivity growth is sluggish and can only be revived after years of sustained increase in investments.
  
• The tax cuts are likely to be highly regressive (abolishing the estate tax, the drastic reduction in corporate tax, the pass-through tax, etc.) which is likely to shift income from low savers to high savers. This could turn out to be deflationary.
  

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Some sensible analysis (below just the summary) from the outlines of the new Trump/Mnuchin plan

The case for slashing corporate tax rates is thin: U.S. companies are posting record profits, and what they actually pay (after tax breaks and loopholes) is in line with other high-income countries. Corporate rate cuts are costly: for example, President Trump’s proposal to cut the top corporate rate to 15 percent would cost more than $2 trillion over ten years. 

Most of the benefit would flow to high-income investors, and if such tax cuts were not paid for by reducing corporate tax breaks and loopholes, they could hurt growth and the majority of Americans by increasing budget deficits or requiring cuts to investments that help working families and the economy. 

Instead of slashing the corporate tax rate, true corporate tax reform — which addresses inefficient corporate tax breaks, loopholes, and the tilt of the tax code towards debt and foreign investment — would be more likely to foster growth.

Corporate Rate Cuts Are a Poor Way to Help the Economy and Most Workers — and Could Hurt Them | Center on Budget and Policy Priorities