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Tuesday, September 29, 2015

Trump plan slashes taxes for middle class, businesses

Trump plan slashes taxes for middle class, businesses
By Bernie Becker - 09-28-15 11:45 AM EDT

For weeks, Donald Trump has talked up a tax plan that he insisted would be greeted with jeers on Wall Street.

But the plan unveiled by the GOP presidential front-runner Monday won praise from GOP establishment circles in Washington, and it even shares some big-picture ideas with the tax proposal released by one of the Republican candidates Trump most likes to insult: Jeb Bush.

Both Bush’s and Trump’s plans contain a couple of planks more in line with the populist thinking of the moment, such as proposals to end an incentive for money managers known as “carried interest.” Both also seek to slash tax rates for businesses and individuals, and they maintain that their plans would give the economy a jolt. 

Howard Gleckman of the Urban-Brookings Tax Policy Center called Trump’s plan a “classic” Republican proposal dating back to Ronald Reagan. “It’s very conventional,” Gleckman said. “Only bigger.”

Anti-tax groups in Washington, including Grover Norquist’s Americans for Tax Reform, were quick to praise Trump’s plan. Liberal groups and economists just as swiftly derided it as merely the most recent GOP effort over the last few decadesto offer vast tax cuts to the rich.

And even the Club for Growth, the conservative group which has sparred with Trump for weeks, didn’t question Trump’s policy as much as the candidate who released it.

“His tax plan begs the question: Does this mean you were completely wrong about all your liberal policies on taxes, trade, healthcare, bailouts, and eminent domain?” said David McIntosh, the Club’s president.

Trump himself focused largely on the more populist items in a plan that would slash the top rate paid by corporations by more than half and make the tax rate zero for millions of people with the lowest incomes.

At a news conference at the Trump Tower in New York, he said his plan would “provide major tax relief” for the middle class and help Americans who are looking for work because jobs are moving abroad. 

“It’s going to cost me a fortune,” Trump said, later adding: “We have an amazing code. It will be simple, it will be easy, it will be fair.”

But Trump, who has railed against trade deals and Wall Street tycoons, also has no shortage of proposals long favored by traditional conservative economists. Trump said he developed the plan in consultation with leading tax experts but declined to name them. 

He would cut the top individual tax rate from 39.6 percent to 25 percent and scrap both the estate tax and the alternative minimum tax. All businesses would face a top rate of 15 percent, a steep drop from the current 
corporate rate of 35 percent or the top individual rate paid by some business owners.

The seven income tax brackets would be collapsed into brackets of zero, 10 percent, 20 percent and 25 percent, while the top tax rate on capital gains would see a slight dip, from 23.8 percent to 20 percent.

Trump made it clear that he thinks major Wall Street players will do just fine under his plan because of economic growth that he says will average between 3 percent and 6 percent a year.

“I actually believe they’ll do better, because I think the economy will grow,” Trump said. “It’ll grow rapidly, and we’ll have something very special.”

Trump’s tax plan is his third major policy proposal, after releasing plans on the Second Amendment and on immigration reform, which was roundly panned for being unrealistic. 

The billionaire businessman is leading Republican polls for 2016, with GOP voters gravitating to outsiders. Two other GOP candidates who have never held public office, retired neurosurgeon Ben Carson and businesswoman Carly Fiorina, have combined with Trump to take more than half of the support in some recent polls.

Trump says his tax plan wouldn’t add to the deficit and that he plans to pay for the cuts in part by eliminating incentives largely used by the wealthy, including an exemption on life insurance interest. He wouldn’t cut the deduction for mortgage interest or charitable giving, two of the most expensive — and popular — incentives in the code.

But both Gleckman and Kyle Pomerleau of the free-market Tax Foundation were skeptical that Trump’s plan wouldn’t add to the deficit. Bush’s proposal does not cut individual or corporate rates as deeply as Trump’s, and the Tax Foundation predicted that the former Florida governor’s plan would cost between $1.6 trillion and $3.7 trillion over a decade.

Sen. Marco Rubio (R-Fla.) has released a plan that doesn’t cut individual income tax rates as much but has more incentives for families and eliminates taxes on capital gains. Sen. Rand Paul (R-Ky.) has rolled out a flat tax plan. Both would also add to the deficit.

“It’s hard to believe that this would be revenue-neutral,” Pomerleau said of Trump’s proposal, adding the top 1 percent of wage earners would likely be the biggest beneficiaries. 

Trump’s plan wouldn’t hit all taxpayers who use carried interest, and some of those affected might even get a better deal because of Trump’s rate cuts. And as Gleckman put it, ending carried interest is like finding “lost nickels in the sofa cushions.”

Under Trump’s framework, single filers earning up to $25,000 and married couples earning up to $50,000 per year would pay no income tax.

Those taxpayers would, according to the Trump campaign, get a new IRS form saying simply: “I win.”

Trump would also levy a one-time 10 percent tax on the corporate earnings held abroad — currently estimated at more than $2 trillion — whether the profits are brought back to the U.S. or not. 

The GOP front-runner does break from traditional Republican thinking in some ways. He would not move toward a system that shields offshore corporate income from U.S. taxation, though the business community is likely to be attracted to the 15 percent tax rate for businesses. 

Bush has called for allowing businesses to immediately write off investments, another favorite of economists on the right.

Pomerleau, for instance, said that Trump would have trouble spurring economic growth because he wasn’t more generous on business expensing.

“He is missing portions of the sort of pro-growth tax policy that have been part of previous GOP tax proposals,” Pomerleau said.

 
This story was updated at 7:58 p.m.

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