After many months of waiting, President Trump and congressional leaders have finally released their tax framework – and, while many details are still missing, enough has been outlined that shows the plan is full of budget gimmicks and major benefits to the wealthiest households.
First, this tax plan is not fiscally responsible, as it would dramatically increase U.S. debt through its $1.5 trillion revenue-losing tax cut. Including interest costs, the plan is projected to cost $2.7 trillion and increase debt to 101 percent of Gross Domestic Product (GDP) by 2027, exceeding the size of the economy. “These numbers are all well above the 91 percent of GDP debt that is expected under current law by 2027,” according to the Committee for a Responsible Federal Budget.
As if that were not enough, this tax plan is not really meant to help “ordinary Americans.” The released framework will give massive tax cuts to the wealthiest households, as roughly half of the plan’s tax cuts would go to the top 1 percent of households, with an average annual tax cut per household of roughly $150,000.
In case you’re wondering how this is possible, it’s because the tax changes include:
- a massive tax loophole that mostly benefits millionaires, including hedge funds, real estate developers, and law firms, by creating a special, lower tax rate for “pass through” income;
- cuts to the top income tax rate for the wealthiest taxpayers. People earning $1 million or more would see a $24,000 tax cut from this provision alone;
- elimination of the estate tax, which only affects the wealthiest 0.2 percent of estates — couples with $10 million or more;
- cuts to the corporate tax rate, largely benefiting corporate shareholders and senior executives; and
- elimination of the Alternative Minimum Tax (AMT), which is designed to ensure that high-income people pay a minimum level of tax.
The plan is far more vague about changes that affect working and middle-income people, as the plan states “the committees will work on additional measures to meaningfully reduce the tax burden on the middle-class.” The few details that are available show increases in the standard deduction and changes to the Child Tax Credit (CTC) that could help middle-class people, but at the same time increases the tax load further for low-income taxpayers by raising the tax rate on their income. Rather than being central to the thinking behind the tax changes, it appears that working and middle-income families are an afterthought. That is not an approach that will serve us all.
As we have written about in recent days, the plan seems to be very similar to the North Carolina failed tax experiment. It will not only fail to boost the economy, it will require cuts to many of the programs and services that support thriving communities.
A more balanced approach is needed in America.
Luis A. Toledo is a Public Policy Analyst for the Budget & Tax Center, a project of the North Carolina Justice Center.