Last week, the White House unveiled what it called “the largest tax reform in U.S. history.” Gary Cohn, who heads the President’s National Economic Council said, “We’re going to cut taxes for businesses to make them competitive and we’re going to cut taxes for the American people, especially low- and middle-income families.”
But analysts say to call the one page proposal a plan, may be a bit of a stretch.
Policy documents from the White House usually provide pages of detail says Scott Greenberg, a tax analyst at the conservative leaning Tax Foundation. He says it’ s more of a wish list.
“That being said, it opens a window onto what the administration’s main priorities are,” he said.
Aside from simplifying the nation’s notoriously complicated tax forms, the plan includes doubling the current standard deductions. For individual tax filers, that means zero taxes on the first $12,000 of income, and for couples filing jointly, no taxes on the first $24,000.
According to Greenberg, “We estimated that the average household making between the 40th and 60th income percentile, so households right in the middle would be about 1.3 percent richer as a direct result of the various tax cuts.”
But the Tax Foundation’s estimates show wealthier Americans would enjoy much larger gains, up to 16 percent more of their after tax income.
William Gale, a senior fellow in Economic Studies at the Brookings Institution says, “It’s basically a massive tax cut for the very highest income households.”
While Trump’s tax plan eliminates some loopholes used by wealthy Americans, the Tax Foundation says the proposal aims to level the playing field for high income earners who have traditionally shouldered the country’s tax burden.
But given the widening income gap, Gale says it makes no sense to reward wealthier Americans with more tax breaks.
“They’ve done enormously well over the last two, three, four decades, their average tax rates is actually lower now than it was in the past,” he said.
Without corresponding cuts to government programs, analysts say the Trump tax cuts are likely to “blow a hole in the deficit” (expand the deficit shortfall).
New estimates show the revenue lost to tax cuts would add between $5 to $7 trillion to the U.S. debt over 10 years. But U.S. Treasury Secretary Steven Mnuchin says tax reforms combined with sensible trade policies would, over time “help the economy grow at a sustained rate of three to four percent”, a claim many economists say is unrealistic.
“What I like about this plan is that it is bold in attempting to lower the business tax burden in the United States and to create a more competitive economic climate. In that I think perhaps the heart of the plan is in the right place,” says Greenberg.
Small business owners like Rick McVey who runs the Dilly Lily Flower Shop says the tax cuts would help his business grow.
“I think with the decrease in the tax rate, I may be able to re-invest the money to buy some capital equipment,” he said.
And Donna Seabusch, the owner of Cookie Creations in Atlanta, says tax cuts will help businesses still trying to recover from the downturn.
“The economy was so bad several years ago, it hurt everyone. And I think this is going to give people a jump start. When your taxes are lowered – from your income tax, corporate taxes – it gives more people more money to spend,” she said.
The administration says slashing the the U.S. corporate tax rate from 35 percent to 15 percent could also potentially bring back trillions of dollars from companies that have moved capital and investments offshore in search of lower tax rates. But William Gale, who is also co-director at the Tax Policy Center, says it’s a mistake to think other countries will not respond.
“If we cut our rate to 15 percent other countries are going to cut theirs, and we’ll end up in a sort of race to the bottom on the corporate rate,” he said.
Analysts who spoke with VOA believe there is little chance the president’s tax reform proposal will become law in its current form. But at a recent panel discussion hosted by the Conference Board on the president’s first 100 days, William Hoagland at the Bipartisan Policy Center added yet another political wrinkle.
Hoagland told the audience, “I think its going to be very difficult for Congress and Democrats to provide that 60 votes for tax reform unless the president of the United States releases his tax forms.”
…