On Wednesday, at a White House press briefing, National Economic Council Chair Gary Cohn and Treasury Secretary Steve Mnuchin unveiled the broad outlines of President Donald Trump’s tax reform plan. The details were summarized in a single sheet of paper:
Donald Trump’s tax plan, in fewer than 500 words
Dylan Matthews was a senior correspondent and head writer for Vox’s Future Perfect section. He is particularly interested in global health and pandemic prevention, anti-poverty efforts, economic policy and theory, and conflicts about the right way to do philanthropy.
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Overall, it’s a huge cut to corporate taxes and individual rates for high earners, with some significant cuts to deductions that are nowhere near enough to pay for it all.
The plan is almost identical to the final plan Trump released on the campaign trail, a plan which would have cost $7.2 trillion and concentrated its benefits on the richest Americans, per the Tax Policy Center. This plan is still tilted at the rich and hugely expensive, but there are four big differences:
- The brackets are different. Trump is now proposing individual tax rates of 10, 25, and 35 percent; his plan formerly echoed that of House Speaker Paul Ryan and had rates of 12, 25, and 33 percent.
- Trump is still increasing the standard deduction, but not quite as much. His campaign plan offered $30,000 for married couples, and now he only wants a $24,000 deduction for couples.
- Trump now wants to abolish every itemized deduction except for the mortgage interest and charitable deductions. Notably, this includes getting rid of deductions for state and local taxes. During the campaign, Trump only proposed a cap on deductions, not eliminating most of them.
- Trump is now fully exempting income that companies earn overseas from tax, adopting a “territorial” approach to corporate taxation.
The first three items will likely raise revenue relative to Trump’s prior plan, while item four will cost money. But it is hard to imagine the plan not costing trillions of dollars, at least. It still includes several highly expensive and regressive elements from the campaign plan, such as:
- Cutting the corporate tax rate by more than half, from 35 to 15 percent. Corporate taxes are almost exclusively paid by wealthy capital owners.
- Cutting the top individual rate from 39.6 percent to 35 percent.
- Letting “pass-through” companies, which are overwhelmingly owned by rich individuals like Donald Trump, pay the lower 15 percent corporate rate rather than the top individual rate of 35 percent.
- Eliminating Obamacare’s 3.8 percent surtax on investment income for rich people.
- Abolishing the Alternative Minimum Tax, which increases taxes for certain affluent or upper-middle-class households.
- Abolishing the estate and gift tax, the most progressive component of the federal tax code, only paid by extremely rich estates.
The plan doesn’t specify whether Trump still wants to eliminate “head of household” filing status and eliminate personal exemptions, two changes in his campaign plan which would result in many middle-class families seeing tax increases. He addressed this problem a bit by lowering the bottom rate to 10 percent from 12 percent in the campaign plan, but it’s still likely that a Trump proposal that includes these elements will result in a tax increase for millions of middle-class people, and the lower standard deduction doesn’t help:
