By Lindsey Mattila (CMC ’17)
Lowering taxes, growing the economy, and creating more jobs were three of Donald Trump’s main promises during the campaign. [i] According to his official policy platform, Trump plans on using tax policy to achieve these three goals. The Trump administration envisions reducing taxes “across-the-board,” especially for the working class and middle-income families, but also for businesses.
One of the most important aspects of Trump’s plan is simplification of the tax code. He plans to condense the current tax-income brackets from seven brackets to three. Under the plan, those who are married and make less than $75,000 will pay a 12 percent income tax. Married Americans making more than $75,000, but less than $225,000, will be taxed 25 percent. Lastly, those married and making more than $225,000 will be taxed 33 percent. Those who are single will simply be taxed half of these amounts. The plan will also increase the number of households that would pay no income tax from an estimated 77 million to 110 million households. Trump also hopes to increase simplicity in the tax code by removing tax breaks and closing loopholes.
The underlying theory of Trump’s tax plan is that lowering taxes will allow people to spend, save, and invest more. While Trump’s tax plan has the stated goal of helping the middle class, there is dispute over whether or not his tax plan is actually structured to do this.[ii] Each tax bracket will receive fairly significant tax breaks, but the wealthiest group will receive the biggest cuts in terms of dollars and percentage of their income. The top one percent of earners will take home an additional $275,000 a year under the Trump plan and the top 0.1 percent will save $1.3 million. The lowest earning households will receive modest savings of $128 per year and middle-income families will save approximately $2,700. [iii] The larger tax break for the wealthy, along with the elimination of taxes on gifts and estates, has led to concerns that the Trump plan will increase economic inequality.[iv]
Trump’s tax plan aims to increase job opportunities by reducing the corporate tax rate from 35 to 15 percent. To further encourage the growth of businesses in the U.S., the plan also calls for a one-time repatriation of corporate profits held offshore to be taxed at 10 percent. The goal of these policies is to give companies more incentive to expand, hire employees, and do so inside the United States.
While the Trump’s plan is focused on putting more money in American’s pockets and creating jobs, his proposed plan would have significant effects on the national debt. The Tax Policy Center expects that the proposed policy will decrease government revenue by over $9.5 trillion before 2026, and, if continued, will cause national debt to be 80 percent of national GDP by 2036.[v] In other words, the United States could accrue $11.2 trillion in debt over the next decade.[vi]
The Congressional Budget Office estimates that Congress will have to cut 21 percent of its spending to not add to the national debt under Trump’s proposed tax plan.[vii] This would require unprecedented levels of spending cuts, which would not only be unlikely in general, but would also be extremely unlikely due to the President-elect’s relationship with the Republican Congress. Although the Republican Party has both the Executive and the Legislative branches, the drastic changes that are necessary to accommodate his plan are unlikely to materialize. Republican control of the congress should guarantee, however, that principles of the President-elect’s plan, such as fewer income brackets and lower corporate tax, are adopted as part of a broader Republican tax reform plan.
[ii] Jim Nunns, et. al, “An Analysis of Donald Trump’s Tax Plan,” Tax Policy Center, December 22, 2016. Linda Qiu, “Could 51% of single parents see taxes increase under Donald Trump’s tax plan?”, Politifact, November 6, 2016. John Ysdtie, “Who Benefits from Donald Trump’s Tax Plan?” NPR, November 13, 2016.
[iv] John Ysdtie, “Who Benefits from Donald Trump’s Tax Plan?” NPR, November 13, 2016.
[v] Jim Nunns, et. al, “An Analysis of Donald Trump’s Tax Plan,” Tax Policy Center, December 22, 2016.
[vi] Jim Nunns, et. al, “An Analysis of Donald Trump’s Tax Plan,” Tax Policy Center, December 22, 2016.
[vii] “Promises and Price Tags: A Fiscal Guide to the 2016 Election.” Committee for a Responsible Federal Budget. June 27, 2016.