On Wednesday, President Trump promised to “un-rig” America’s tax system. It’s an appealing idea, but there’s a big problem: Tax proposals Trump has actually offered so far would benefit the wealthy far more than the middle class, might not grow the economy much—and would likely put a multi-trillion-dollar hole in the deficit.
“We believe that ordinary Americans know better than Washington how to spend their own money and we want to help them take home as much of their money as possible and then spend it,” he said in Springfield, Mo., during an address meant to kick off his push for tax reform.
Trump offered few policy specifics during the speech, but tax proposals previously floated by the Trump Administration would dramatically skew benefits to the wealthiest Americans, according to a recent and widely cited analysis by the Tax Policy Center, Washington think tank.
While Republicans, who control both houses of Congress, tend to share Trump’s desire to lower taxes, those problems could complicate his effort to turn campaign promises into law. That’s especially true since any long-term tax cuts might require acquiescence by Democrats in the Senate and Trump has recently sparred with Republican allies.
The Main Street Push
While Trump repeatedly invoked “Main Street” on Wednesday, that doesn’t match up with tax plans actually put forward by his administration.
Trump has called for some changes that could help the middle class, like consolidating income tax brackets from seven to three and raising the standard deduction. But he’s paired those proposals with others that mainly benefit the wealthiest Americans, such as lower taxes on business and investment income and eliminating the estate tax. The result is a plan that’s dramatically skewed towards the top.
Trump’s tax plan would hand middle-class households, those making $50,000 and $86,000, an average tax cut of $1,900, or about 3% of their income, the Tax Policy Center found. By contrast, the top 1% of earners, who take home $732,000, would seen average tax cut of $270,000, or about 18% of their income.
The New Jobs Push
Trump’s goal isn’t just to make the make the tax code fairer. He has also emphasized re-invigorating business in order to create jobs. Today’s speech by the president matches more closely with his actual tax proposals. But he may be dramatically over-selling the benefits, reviews of his plans suggest.
His big push is for cutting the U.S. corporate tax rate, which he called “the highest in the world.” That’s an exaggeration. Trump repeatedly referred to the U.S. top nominal 35% rate, which is among the world’s highest. But relatively few companies pay the top rate. Estimates based on rates American corporations actually pay, put the U.S. squarely in the middle of the pack.
Experts on both sides of the aisle believe reforming the complex U.S. corporate tax system would boost GDP growth, if not as much as President Trump claims. (Indeed, both President Obama and House Speaker Paul Ryan, have offered proposals to do just that, although they failed to pass Congress.)
Trump suggested his tax plan could boost GDP growth to 3% from the current 1.9% government forecast — a figure that’s important because it might allow any cuts to avoid widening the deficit. In other words, it would become a true job creating engine.
But analysts of different political stripes who have reviewed Trump’s tax plans suggest the 3% growth target is unrealistic and that Trump’s plan would balloon the deficit, anywhere from $2.6 trillion to more than $13 trillion. The extra debt risks pushing off interests rates, choking off growth that might have been spurred by the tax cut.
In other words, Trump’s tax plan might kill more jobs than it creates.