When the Trump administration released its tax plan in April, it was light on the specifics. If I were a teacher, I would give the vague outline an “I” for incomplete. But what is clear is that the president’s tax plan will provide huge tax breaks for the wealthy and businesses, fuzzy promises for the rest of us, and will do nothing to help our nation grow.
The tax plan, by cutting the federal business tax rate from 35% to 15%, will be a huge tax break for businesses. Currently, most businesses don’t pay the top statutory rate due to other tax breaks, and the effective corporate tax rates are in line with other high-income developed companies. Additionally, by making this rate available to all types of businesses and not just corporate entities, wealthy individuals can recharacterize their incomes to take advantage of the lower business rate. This will also do nothing for most small businesses, since many of them already pay taxes at a lower individual effective rate.
The Trump tax plan is a huge tax break for the wealthiest taxpayers. Along with cutting top marginal tax rates, the plan completely eliminates the alternative minimum tax, allowing wealthy taxpayers to avoid paying taxes by taking advantage of tax breaks. Additionally, the estate tax, which is only paid on the portion of an estate that exceeds $5.5 million per person, would be repealed. Only the heirs of the wealthiest 2 out of every 1,000 estates currently pay the estate tax, and very few small businesses and farms have to pay the estate tax. These changes would allow the wealthiest taxpayers to drastically reduce their taxes.
The details as it relates to the rest of us are hazy. The plan calls for reducing the number of tax brackets and reducing the top marginal rate to 35%, but does not provide the income ranges for those brackets. The standard deduction would be doubled, and all tax breaks except for the mortgage interest deduction and the deduction for charitable giving would be eliminated. And the plan promises to provide tax relief for families with child care expenses but does not explain how. Given the lack of specifics, it’s unclear whether taxpayers with low to middle incomes would actually benefit under the plan.
This tax plan does nothing to help the economy. Costing between $3 and $7 trillion over the next decade, according to recent estimates, it will increase our deficit and require steep budget cuts that will likely disproportionately impact our most vulnerable residents—working families, seniors and children. And any revenue lost won’t be made up through economic growth. Research has repeatedly shown that providing tax breaks to wealthy individuals and businesses don’t provide the job boost that is promised.
Instead of cutting taxes, we need a federal tax plan that can help our nation and our economy grow. Tax reform should raise revenue so that we can increase investments in things that help our economy—education, roads and access to healthcare—while also continuing to provide a social safety net for those who fall on hard times. The plan should deliver tax relief to our working families and those who need it most, such as expanding the federal Earned Income Tax Credit for working adults that aren’t raising children in their homes. A tax plan that works for all American taxpayers, helps grow the economy and allows us to pay for our most basic needs is one that will work for our nation.
— Rachel Richards