Trump's tax plans

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resident Donald Trump rose to power by painting himself as a political outsider who, despite his own wealth, would stand with working Americans against Wall Street and other big-money interests. Instead, not only has Trump packed his Cabinet with bankers and rich corporate chieftains, but he is also pitching a tax cut plan that the administration is billing as helping the middle class but that most independent experts say is heavily tilted toward the wealthy.

Look no further than Trump’s proposal on so-called "pass-through" businesses. If you’ve never heard of a pass-through business or are unfamiliar with its definition, you are not alone: they disproportionately benefit the wealthy, because they are a way of reclassifying the income of business owners so that they are not taxed at higher, individual rates. 

They are also big contributors to ever-worsening US income inequality, according to a 2015 analysis from a group US Treasury Department tax economists and outside academics, published by the National Bureau for Economic Research. "Pass-through businesses like partnerships and S-corporations now generate over half of U.S. business income and account for much of the post-1980 rise in the top- 1% income share," wrote Michael Cooper and co-authors in the paper.

No wonder Reuters reported on hedge fund managers’ fist-bumping reaction to the president’s tax outline. Trump’s proposals, which would allow rich business owners and investors to pay a 25% pass-through rate rather than pay individual income tax, are a far cry from the message of candidate Trump, who often accused his opponent Hillary Clinton of being beholden to financial interests.


"The hedge fund guys didn't build this country," he argued as a candidate. "These are guys that shift paper around and they get lucky." In a campaign ad, Trump went directly after Goldman Sachs CEO Lloyd Blankfein, calling him the embodiment of the global elites that "have robbed our working class." Now that Trump is surrounded by former Goldman bankers himself, the message sounds a lot different. And here’s a small coincidence, the cherry on top: While Trump is the only president in history to never have released his tax returns, multiple outlets have reported that a large portion of his own earnings appear to be the result of pass-through income.
[img=620x0]http://static6.businessinsider.com/image/59d3a023c68d7bf8448b6433-609/brookings%20pass-through.png[/img]

Trump tax plan pass through perk supercharges a driver of inequality - Business Insider

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For years they railed against the budget deficit, predicting impending doom, even shutting down the government, and all that when the economy had plenty of spare capacity and real interest rates were negative.

Can you believe these guys..

Few current politicians can lay tighter claim to the Tea Party mantle than White House Budget Director Mick Mulvaney. The South Carolina Republican rode the 2010 Obama backlash into a House seat as one of Paul Ryan’s “Young Guns,” a more establishment-friendly subset of the broader right-wing surge. The group build its political house atop deficit panic and promises to rein in a supposedly malcontrolled federal spending apparatus.

As a junior back-bench figure in the new GOP majority under then-Speaker John Boehner (R-OH), Mulvaney didn’t get as much of the spotlight as Reps. Paul Ryan (R-WI) and Eric Cantor (R-VA). But he remained a staunch cheerleader for the austerity Republicans demanded and the White House grudgingly agreed to. Through years of stunt votes, spending intransigence, do-nothing debt commissions, and even a government shutdown, Mulvaney and the right-wing brigade held budgetary balance as a sacred duty even as every economic indicator called for spending more money on a population starved of dignity and basic economic security.

But now Donald Trump is president, and Mick Mulvaney suddenly loves deficits. “We need to have new deficits,” Mulvaney told Fox News Sunday, in response to questions about the budget-busting implications of Trump’s proposed tax cuts. “We need to have the growth. If we simply look at this as being deficit-neutral, you’re never going to get the type of tax reform and tax reductions that you need to get to sustain 3 percent economic growth. We really do believe that the tax code is what’s holding back the American economy.”

Mick Mulvaney’s flagrant flip-flop on deficits is a reminder of GOP’s Obama sabotage – ThinkProgress

And the notion that the tax code is what's holding back the American economy is nonsense, and their tax plan isn't even directed at that, it's simply a tax cut overwhelmingly for the wealthy.

And just to give you a notion of Mulvaney's extremism and his incredible hypocrisy:

In 2013, he tried to block relief funding for Superstorm Sandy’s carnage unless the emergency spending came with offsetting cuts. His zeal for keeping spending down in fealty to the debt gods is so stern that even after a friend who had volunteered for his campaign told him that Mulvaney-backed budget cuts had gotten him laid off and left his family on the brink of eviction, he excused it as simply the concerns of a single constituent.

Mick Mulvaney’s flagrant flip-flop on deficits is a reminder of GOP’s Obama sabotage – ThinkProgress

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The only thing they now have left, smearing independent studies if they expose the lies of their tax plans:

Republicans are taking on a brutal study of their new tax reform plan, slamming its assumptions and the conclusion that their framework would benefit wealthier Americans. The study, released by the Urban-Brookings Tax Policy Center, found that the ideas contained in Republicans'  nine-page tax reform document would disproportionately favor the wealthiest Americans, while some middle income Americans would see their taxes increase over the next 10 years.

Rep. Kevin Brady, chair of the House Ways and Means committee and one of the "Big Six" tax negotiators, said the TPC report was "misleading, unfounded, and biased." "Their analysis was a work of fiction that Stephen King would've been proud of," Brady told Fox News Radio on Tuesday. House Speaker Paul Ryan also brushed off the analysis during an appearance on Fox News. "It's very predictable coming from this group," Ryan said referring to the TPC. "I think the Wall Street Journal got this right when they said this is an anti-reform, propaganda group. It's anti-tax reform."

Trump tax reform plan: Republicans attacking Tax Policy Center study - Business Insider

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On why tax cuts are unlikely to boost economic growth by much, let alone pay for themselves:

If you want to raise economic growth - meaning an increase in real GDP - then you need to increase the amount of capital, labor, and/or productivity. Whether that is pulling new capital, labor, or innovations into the economy, or putting idle capital, labor, and innovations back to work is irrelevant. You want to increase the inputs to increase GDP. The core of economics is that people respond to incentives. In the case of inputs, the incentives to provide them are the returns they earn, like wages, dividends or interest, or profits. If you tax those returns, that lowers the returns, and people will provide less labor, capital, or innovations.

So if you lower that tax, the idea is that people will provide more labor, capital, or innovation. Nothing here is rocket science. Why does it not work the way we think? Small elasticities We think that if you lower the tax rate, and hence raise the returns to inputs, we should get more of them. But to “supercharge” growth in GDP, or to have any appreciable effect on GDP at all, you need that the elasticity of that input supply with respect to those returns is really big. For labor, there appears to be good evidence that this elasticity is in fact small. There is not some pent-up store of workers and human capital out there that is just a 35% tax bracket away from getting off their ass and going to work. This labor supply elasticity is found to be essentially zero in almost every case, with the exception of married women.

The second thing reducing the impact of tax cuts on GDP is that taxes are not levied on only the transactions that are part of GDP, they are levied on all kinds of transactions. Think of the fact that every year there are billions (and maybe trillions) of individual transactions that take place in the economy. Some of those transactions involve payment for a real input like labor or capital, which means they are part of GDP. But some of those transactions are purely financial, and so are not. But the tax code does not make this distinction; you are not taxed only on your transactions that contribute to GDP, you are taxed on all (okay, most) of your transactions where you receive some money.

Why don't tax cuts boost growth?
There is much more in the article, with plenty of sources.

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There’s an argument increasingly being made by supporters of the Trump tax plan regarding the preliminary score of the plan by the nonpartisan Tax Policy Center. Critics of the TPC analysis maintain that the analysts should have waited until the full details of the plan had been made public before trying to determine its distributional and deficit impacts.

Kevin Brady called the TPC analysis “a work of fiction that Stephen King would’ve been proud of.” Paul Ryan chimed in that TPC, a group of analysts with bipartisan backgrounds and impeccable analytic credentials,  is a “propaganda group” that’s “anti-tax reform.” Trump economic adviser Kevin Hassett accused TPC of “behav[ing] irresponsibly” and said the report used “imagined numbers.” He claimed not to “understand the purpose of the document.” (Hassett made all these claims at a TPC forum today wherein he was invited to speak.)

Here’s why these arguments make absolutely no sense: If the Trump administration and congressional supporters of the plan hadn’t said anything about its distributional or deficit impacts, then I’d agree with them. If they’d said, “we’re working on a tax plan but it’s not done so we can’t say anything about its impacts on winners, losers, or costs,” then they’d have a solid case against outside groups trying to figure out those impacts.

But that is, of course, not at all what they’ve said. They’ve shouted from the rooftops that their plan is going to help the middle class, not the wealthy. Ryan claims that “the entire purpose of [the plan] is to lower middle-class taxes.” Trump constantly lies about the plan, claiming it “will protect low-income and middle-income households, not the wealthy and well connected.”  Yet we know from the bit of his 2005 tax return that dribbled out that the AMT, which this plan repeals, cost him over $30 million that year. The NYT figures that repealing the estate tax will be worth a billion to his heirs.

Treasury Secretary Mnuchin has gone beyond saying the tax cut would pay for itself. He now claims, far, far beyond any available evidence, that because of the plan’s alleged growth impacts, “not only will this tax plan pay for itself, but it will pay down debt.”

Given these outlandish claims, the TPC did what we depend on nonpartisan scorekeepers to do. It plugged in the missing parameters using recent, prior Republican tax plans (which it explains in the second paragraph of its report) and found the net cost of the plan to be $2.4 trillion over 10 years.* It found that, by 2027, 80 percent of the plan’s tax cuts go to the top 1 percent. It found significant increases in the numbers of families whose tax bill goes up under this plan.**

Advocates of the plan are correct that key parameters have yet to be specified. But they can’t both argue “we don’t know what our plan will do, because it’s still incomplete,” and “our plan is going to be great and costless!”

In fact, CBPP’s Jacob Leibenluft has identified a pattern of this sort of aberrant policy behavior. During their attempted health care repeal, Republicans also failed to reveal key details even as they made false promises about who the plan would help. Then, when the truth came out, they piled on the scorekeepers (in that case, the CBO).

So, if Hassett (full disclosure: an old pal of mine) really doesn’t understand the purpose of this document, I’m happy to explain. It’s to show, based on the best available unbiased knowledge, what the impacts of this plan will be on American households and our fiscal budget. Thanks to the TPC for calling it like they see it, and I assume and hope they’ll shrug off these patently and transparently foolish partisan attacks.

Once again, rather than write a decent plan, the administration attacks the scorekeepers. And this time their attack is particularly hypocritical. | Jared Bernstein | On the Economy

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After all, it is not as if America’s large corporations were starved for cash; they are sitting on a couple of trillion dollars. And the lack of investment is not because profits, either before or after tax, are too low; after-tax corporate profits as a share of GDP have almost tripled in the last 30 years. Indeed, with incremental investment largely financed by debt, and interest payments being tax-deductible, the corporate tax lowers the cost of capital and the returns to investment commensurately. Thus, neither theory nor evidence suggests that the Republicans’ proposed corporate tax giveaway will increase investment or employment.

Déjà Voodoo by Joseph E. Stiglitz - Project Syndicate

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Doubling down on attacking anyone who has doubts about Trump's tax plans, even if that is the IMF:

The IMF on Tuesday raised its outlook for growth in the U.S. for this year and next, but left out any impact from proposed tax cuts. In June, the IMF removed any assumption of a fiscal boost, calling President Donald Trump’s goal of 3 percent annual growth unlikely. The Treasury on Wednesday disputed the IMF’s forecast, with a department official telling reporters that the reforms are a work in progress. The IMF shouldn’t be rating the odds on whether the administration can enact an overhaul to the U.S. tax code, said the senior official, who spoke to reporters on the condition of anonymity. 

The official also disputed the fund’s conclusion in a separate report that less progressive tax rates could generate inequality and slow growth. If the U.S. cuts tax rates, job growth will boost real median income, the official said. Mick Mulvaney, the White House’s budget director, also criticized the fund, saying it’s among skeptics that are “heavily invested” in the tax plan not working. “There are folks that are invested in seeing this fail because if it works then what is their argument for re-regulating?” Mulvaney said in an interview with the Financial Times published Wednesday.

Trump Officials Blast IMF for Discounting Impact of Tax Cuts - Bloomberg

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This is interesting for various reasons:

A top Republican senator is fact-checking President Donald Trump on the scope of the GOP’s forthcoming tax reform package.  Trump won’t be putting his name to the “largest” tax cut in United States history, Sen. Chuck Grassley (R-IA) tweeted Thursday, correcting the president’s now well-established political tag line on tax reform.

Trump has repeatedly promised the “biggest tax cut ever” at rallies and on Twitter, without going into much detail on what that would entail. Most recently the president tweeted, “Republicans want the biggest tax cut in history.” But Grassley had a reality check for the president:

In other words, Grassley is pointing out that the tax cuts under former President George W. Bush, when adjusted for inflation, were much larger than anything Congress is currently debating.

In 2001, when Grassley chaired the Senate’s Finance Committee — which oversees tax reform legislation — Bush signed into law a $1.35 trillion tax cut. In 2016, that would be approximately a $1.85 trillion tax cut, Grassley noted. Currently, Senate Republicans are suggesting massive tax cuts, but smaller than those passed under the Bush administration. The Senate’s budget proposal — which has yet to be voted on — allows for $1.5 trillion in tax cuts, a number that could shrink in the weeks ahead as Republicans try to reconcile what is looking like a major blow to the deficit.

Trump: tax cuts will be “biggest ever.” Top Republican senator: nope, Bush’s were bigger. - Vox

And here is the crux: do you remember the economic boom caused by those much bigger Bush tax cuts? Neither do we.

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White House press secretary Sarah Huckabee Sanders on Tuesday found herself in the position, yet again, of defending President Donald Trump's false claims about the U.S. tax rate. Trump frequently says that the U.S. is the "highest taxed nation in the world," and did so again Tuesday morning at a meeting with former Secretary of State Henry Kissinger. In reality, the U.S. ranks 13th among developed nations, and well behind countries such as Norway, Luxembourg and Sweden, according to the Organization for Economic Cooperation and Development. But this doesn't stop Trump from repeating the falsehood.

One America News Network's Trey Yingst asked Sanders at Tuesday's White House press briefing why the president keeps repeating something that isn't true. "The president repeated again today that we're the highest taxed nation in the world. It's not true. Why does the president keep saying that?" Yingst asked. "We are the highest taxed, corporate taxed, [nation] in the developed economy. That's a fact," Sanders replied. "But that's not what he said." "That's what he's talking about, we are the highest corporate taxed country in the developed economies across the globe," Sanders said. "Sarah, that's accurate. But the president keeps repeating this claim that we're the highest taxed nation in the world."

Trump tax rate claims prompt bizarre exchange with White House press

Not even the latter is true, as it happens, and hiere it shows the actual corporate tax rates companies are paying. The average is well below that 35%, the US is neither the highest taxed country in the world, nor has it the highest corporate tax as that system is full of holes (there are lots of companies which even pay negative taxes, see the list in the article below). 

Trump has heralded the corporate rate cut as a move that would greatly benefit Corporate America, although many U.S. companies currently pay far less than the top 35% rate. However, it is widely viewed as the main reason many multinationals tend to keep a lot of cash overseas, as they are reluctant to repatriate it as long as it would be subject to such a high rate.

We have compiled lists of companies to review what’s at stake as Congress battles over the proposal for the next several months. Any company’s tax situation can change radically from quarter to quarter or year to year, because of such items as major asset write-downs, gains on sales, realization of deferred tax assets, legal settlements, accounting adjustments or other events. So we decided to use quarterly data provided by FactSet to calculate median effective income-tax rates for the past four quarters.

These tax rates include any state and local income taxes the companies might pay. But regardless of whether a company is paying a boatload of non-federal income taxes, having a high combined effective tax rate means the stakes are high for the companies and their shareholders.
If Trump can make a deal with members of both houses of Congress to slash the corporate income-tax rate, analysts will immediately raise earnings estimates for high-tax companies, which can be reasonably expected to light a fire under the stocks.

Here are the actual tax rates the biggest companies in America pay - MarketWatch

See the article for the table with the actual tax rates companies pay (including all other taxes, like local and state ones).

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And then there is of course this nonsense..

President Donald Trump said Wednesday that average U.S. households could save $4,000 on their taxes if Congress approves his plan to overhaul the federal tax code, the first such estimate the White House has attached to its proposal. Speaking in Harrisburg, Pa., Trump said those savings would result from his call to lower tax rates on individuals and on companies that have parked some profits overseas. He attributed that estimate to the Council of Economic Advisers, a White House agency that is expected to release a fuller estimate of Trump’s tax plan by next week.

Trump claims his tax plan would save average Americans $4,000 - MarketWatch

Well, that didn't last long..

Months after the White House proposed ending a tax break for people in high-tax states, President Donald Trump grew angry when he learned that the change would hurt some middle-income taxpayers, according to two people familiar with his thinking. Trump’s concerns led him to say this week that “we’ll be adjusting” the tax-overhaul framework, the people said -- but it’s not clear how he and congressional leaders would make up for the revenue that would be lost without ballooning the deficit or torpedoing support for the plan. And Trump’s top economic adviser said Thursday morning that the president is not rethinking his position on repealing the state and local tax deduction...

Trump’s White House first proposed ending the SALT deduction in April, in a one-page outline of the president’s tax goals. Its repeal is estimated to generate about $1.3 trillion over 10 years, making it an important way to help pay for the business and individual tax-rate cuts Trump and congressional leaders propose.

It’s not clear why the president didn’t know the implications of the SALT deduction for middle-class taxpayers when the plan was released.

Trump Is Angry About a Proposal in His Own Tax Plan, Sources Say - Bloomberg

Of course it is clear why the president didn't know. He can't be bothered with actual policy, what matters is how it looks. 

And see here for those implications on middle class income of abolishing the SALT deduction.