A Tax Policy Center analysis says that tax cuts in the White House’s tax reform scheme released in April could cut federal revenues by as much as $7.8 trillion over 10 years with benefits going almost exclusively to the richest 5 percent of Americans.
The Trump administration released an outline of their plan to revise the tax code on April 26, and the Tax Policy Center (TPC) has estimated the potential impact of the administration’s proposed tax changes.
TPC first analyzed the impact of the tax cut provisions, and then combined those tax cuts with potential revenue raisers.
Using traditional budget scoring, TPC finds that the tax cuts outlined by the White House in April would reduce federal revenue by $7.8 trillion over the next decade.
Trump’s proposals could hike taxes for nearly a quarter of the middle class (by doing away with personal exemptions and other common deductions), so possible tax increases may lower the revenue loss to $3.5 trillion but in either case, the administration’s proposed changes would provide the bulk of the benefits to the highest-income households.
The TPC analysis contradicts the claim that the tax cut will “pay for itself.” In the short term, reducing taxes would stimulate the economy, the authors predict. Over the long term, however, Trump’s proposals would force the federal government to borrow more to make up the difference, and the tax cut would become a burden on the economy overall because of the additional federal debt.
TPC finds the Republican plan would give the average family earning under $25,000 per year a $40 tax cut, or a 0.3 percent boost in after-tax income. The top one out of a thousand earning above $3.4 million a year, would get an average tax cut of $937,700, or a 13.3 percent boost in after-tax income.
The outline of a plan National Economic Council Chair Gary Cohn and Treasury Secretary Steve Mnuchin introduced on Wednesday, April 26, at a White House press briefing, pledged to:
- Collapse the seven income tax brackets into three: 10, 25, and 35 percent
- Double the standard deduction, e.g., from $12,000 to $24,000 for couples
- Repeal the alternative minimum tax, the estate tax, and the 3.8 percent Obamacare tax on investment income for the rich
- Add a new deduction for child care expenses
- Cut the corporate rate to 15 percent
- Treat “pass-through income” as corporate income taxed at 15 percent, rather than individual rates
Exempt foreign income from corporate tax
- Impose a one-time “repatriation” tax on assets US companies hold overseas
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