Trump’s tax plan a trail of broken promises

The tax plan outlined by the Trump administration was an opening bid, but a slipshod and deceptive one that won’t much resemble anything that might be enacted.

Top officials pitched the plan, missing important specifics, as aimed at helping the middle class and creating lots more jobs, accomplished by slashing corporate taxes. It would simplify the code, collapsing seven brackets into three, and doubling the standard deduction mainly helping middle-income taxpayers. It would add trillions – as much as $7 trillion – to the deficit.

But it’s a bonanza for the well-to-do, including President Trump and his family. For the wealthiest, the top rates would be cut sharply; the tax on high-end investment income used to help fund health care would be eliminated, and it would kill the alternative minimum tax — which hit Trump, according to the only one of his tax returns that was leaked — and the estate tax, paid by only a handful of the very rich.

Comparing this roll-out to the tax-reform bill enacted more than 30 years ago is instructive.

The Reagan administration spent a year drawing up a tax-reform plan in 1984, and then two of the most skillful Washington operatives, James Baker and Richard Darman, spent months consulting with lawmakers and affected interests before unveiling the specific plan.

By contrast, Trump, responding to cable-TV reports about his lack of accomplishments so far, ordered up a quick tax blueprint. There was only pro forma consultation with Congress and interest groups, and the effort will be directed by Treasury Secretary Steven Mnuchin and White House economic adviser Gary Cohn, who have no experience in guiding complicated legislation through Congress.

The bottom line: Tax cuts may be enacted this year, as the plan is to do it without Democrats, but the corporate rate won’t be lowered all the way to 15 percent, given the specter of massive deficits.

The administration claims it will pick up a lot of revenue from a proposal to slap a 10 percent tax on un-repatriated foreign-source income. But that would only raise a one-time total of $250 billion, and Trump has talked about using that for an infrastructure plan. If instead the administration proposes to use the $250 billion as an offset to the tax cuts, it’s a drop in the bucket.

The plan reneges on numerous Trump campaign pledges: that his tax plan wouldn’t increase the deficit, that it would primarily benefit the middle class, and that the rich wouldn’t get much of a tax break. Further, while boosting the standard deduction, the White House wouldn’t say whether it might eliminate the personal exemption; if so, some large middle-class families might not get any tax cut.

A key provision in the plan would allow “pass through” entities – small businesses, partnerships, some wealthier individuals – to qualify for a top business tax rate of 15 percent instead of 39.6 percent. (Under the proposal for individuals, that 39.6 percent rate would be cut to 35 percent.)

Mnuchin’s claim that these tax cuts will spur extraordinary economic growth and pay for themselves is a fantasy, belied by experience.

When the only real tax reform was enacted in 1986, it was revenue-neutral and bipartisan. This will be neither.

This story was originally published May 2, 2017 at 5:03 AM with the headline "Trump’s tax plan a trail of broken promises."