breaking news

Here is how the government shutdown is affecting Georgia

Trump tax plan would shift trillions from U.S. coffers to rich’s pockets


President Donald Trump’s proposal to slash individual and business taxes and erase a surtax that funds the Affordable Care Act would amount to a multi-trillion-dollar shift from federal coffers to America’s richest families and their heirs, setting up a politically fraught battle over how best to use the government’s already strained resources. 

 The outline that Trump offered Wednesday — less a tax overhaul plan than a list of costly cuts with no price tags attached, rushed out by a president staring down his 100-day mark in office — calls for tax reductions for individuals of every income level as well as businesses large and small. But the vast majority of benefits would accrue to the highest earners and largest holders of wealth, according to economists and analysts, accounting for a lopsided portion of the proposal’s costs. 

 “The only Americans who are very clear winners under the new system are the wealthiest,” said Edward D. Kleinbard, a law professor at the University of Southern California and former chief of staff of Congress’ Joint Committee on Taxation, which estimates the revenue effects of tax proposals. 

 Plan eases burden on wealthier Americans 

Repealing the estate tax, for example, would affect just 5,300 or so fortunes a year. For 2017, couples can shield up to $11 million of their estates from any taxation, leaving only the largest inheritances subject to taxation. Repealing the estate tax alone would cost an estimated $174.2 billion over a decade, the nonpartisan Tax Policy Center said. 

 Lowering the rate on capital gains, noncorporate business taxes and those in the highest bracket, as well as repealing the alternative minimum tax, would also ease the burden on wealthier Americans. So would the repeal of the Affordable Care Act’s 3.8 percent surtax on the investment income of high earners, put in place to subsidize health coverage for low-income Americans. 

 “These are all afflictions of the affluent,” Kleinbard said. 

 There is no way to know how the mathematics of the proposal would work, since the White House offered no cost estimates, no detail about which incomes would be taxed at what levels and no information about tax deductions or other breaks that might be eliminated to make up for the lost revenue. 

 Spicer makes miscue on details 

 On Thursday, Sean Spicer, the White House press secretary, suggested that tax benefits for retirement savings would be rolled back to mitigate the cost of the tax cuts, the kind of tough decision that makes a rewrite of the tax code so politically difficult. But within minutes, White House officials said Spicer had misspoken. 

 Officials instead said specifics would come later, as negotiations unfolded with members of Congress to draft legislation. 

 The administration’s silence on many crucial details of the proposal was by design, to leave room for what promise to be intense negotiations with lawmakers in Congress, said Rohit Kumar, the leader of PwC’s Washington National Tax Services and a former senior Republican Senate aide. 

 Yet without specifics, he added, “you can’t make anything but a wild guess on what the distributional effects of the proposal would be.” 

 “What the administration put out yesterday is all of the good news,” Kumar said. “They’ve withheld on the bad news.” 

 Concern for ordinary working people 

 But estimates of the effects for some of the cuts that were outlined Wednesday, such as the estate tax and alternative minimum tax repeals, can be made, and they run directly counter to the populist themes that animated Trump’s campaign. He has often stated his concern for ordinary working men and women who he contends were forgotten under previous administrations but have risen to the top of the priority list under his leadership. 

 Many economists who analyzed a similar plan Trump proposed during his presidential campaign found that it would have disproportionately helped the richest. William G. Gale, an economist at the Brookings Institution in Washington, estimated that just over 50 percent of the benefits of that proposal would have gone to the top 1 percent of taxpayers. 

 The new proposal “loses probably something in the neighborhood of $5 trillion in revenue over 10 years with regressive tax cuts that exacerbate the inequalities that already exist in our economy,” said Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities who was a top economist in the Obama administration. 

 Trump’s economic team argues that there is no disconnect; the tax reductions they are seeking, they argue, will ultimately help all Americans, including the poorest, by spurring growth that will translate into more jobs and better wages. 

‘No absolute tax cut for the upper class’ 

Still, it seems almost inevitable that the blueprint, should it eventually yield legislation, would violate the vow Steven Mnuchin, his Treasury secretary, made that the administration would provide “no absolute tax cut for the upper class.” 

 That axiom, uttered by Mnuchin in November and quickly dubbed the “Mnuchin rule” by skeptical Democrats, was based on his insistence that any tax reductions at the top would be matched by the elimination of deductions and loopholes. 

Good potential for doctors and lawyers 

“It is hard to know what the overall effects would be, but a plan that is intended to reduce taxes on business income and investment income is going to provide substantial benefits to wealthier individuals, and the bulk of the benefits in this plan would go to them,” said Ed Lorenzen, a senior adviser for the nonpartisan Committee for a Responsible Federal Budget, a fiscal policy education group. “It would probably work out to be a significant shift in the distribution of the tax code.” 

 One major reason is Trump’s idea to allow the income of owner-operated companies, including his real estate concern, hedge funds and large partnerships, to be taxed at a 15 percent rate — the same rate corporations would pay under his plan — rather than at the individual income tax rate, which now tops out at 39.6 percent and would be set at 35 percent by Trump. 

 That would potentially allow doctors, lawyers and others who are part of such firms to structure their compensation as business rather than personal income and effectively enjoy a substantial tax cut. The Tax Policy Center estimated last year that the proposal would cost $1.5 trillion over a decade. 

The alternative minimum tax 

 Higher earners also appear likely to reap the greatest benefit from repealing the alternative minimum tax, which is set at a marginal rate of 28 percent and falls most heavily on those who earn between $250,000 and $1 million. In 2013, President Barack Obama and Congress reached agreement on a “fix” that shielded middle-class families from the tax. So any repeal now would benefit wealthier taxpayers. 

Only a fifth of taxpayers who earn above $1 million were affected by the provision, a parallel tax system that limits the deductions and other tax breaks available to them, in part because interest and investment income are exempt. 

A glimpse of Trump’s 2005 tax returns revealed that the alternative minimum tax cost him roughly $31 million by setting a floor that even a stack of individual loopholes could not reduce. Repealing it would cost $412.8 billion over a decade, the Tax Policy Center has estimated. 

Lower- and middle-income families 

At the same time, lower- and middle-income families could be in a worse position. The White House proposes to reduce the number of tax brackets from seven to three: 10, 25 and 35 percent. But no one yet knows where the income cutoff lines are being drawn. People who end up being pushed into a lower bracket would be better off, but those kicked into a higher bracket would not be. 

 Families with after-tax income between roughly $19,000 and $76,000, for example, are now in the 15 percent marginal tax bracket, which is slated for elimination. 

 “That’s where the middle of America is,” Kleinbard said. While some may drop into the new 10 percent bracket, others could be nudged up into the 25 percent range. 

‘Personal exemptions go away’ 

Increasing the standard deduction to about $24,000 for couples might also appear to help most families, but that is not necessarily the case, Kleinbard pointed out. Larger families, which now benefit from being able to add a deduction for every additional member of their household, could lose out. 

 “At the bottom end, the typical family will be worse off if personal exemptions go away,” he said.


Reader Comments ...


Next Up in Nation & World

PolitiFact roundup
PolitiFact roundup

PolitiFact recently checked out claims including boasts by Atlanta’s new mayor about the city’s financial condition and by New York’s mayor about that city’s high school graduation rate; and a criticism by Democrats regarding the effect of the new tax cut. Here are summaries of our findings. Full versions can be found at www...
Drake makes surprise appearance at Memphis nightclub
Drake makes surprise appearance at Memphis nightclub

He may have started from the bottom, but rapper Drake is making headlines after doing one dance that started in the Bluff City. According to party promoter Curtis Givens, the Grammy winner called him wanting to have a private party at In LOVE Memphis, a popular nightclub. Givens said it was a last minute call, but he and his business partner were up...
Woman dies after falling from balcony of Carnival cruise ship
Woman dies after falling from balcony of Carnival cruise ship

A woman died Friday after falling from the balcony of a room on the Jacksonville-based Carnival Elation cruise ship. The woman fell from the balcony to several decks below, Carnival said in a statement. Carnival Elation departed Jacksonville on Thursday for a four-day cruise to the Bahamas. Carnival sent the following statement to Action News Jax:"...
Tom Petty died of accidental drug overdose, family says 
Tom Petty died of accidental drug overdose, family says 

Tom Petty died from an accidental drug overdose after taking a variety of medications, the family for the legendary rock star said Friday.  Petty, who suffered emphysema, knee problems and more recently a fractured hip, was prescribed various pain medications including Fentanyl patches, his family said.  “On the day he died he was informed...
‘Ramp of Mystery’ in middle of nowhere was drone test site
‘Ramp of Mystery’ in middle of nowhere was drone test site

If you search on Google Maps for “Ramp of Mystery,” a curious Southeast Austin landmark appears. It’s a concrete structure that leads to nowhere, sitting in an overgrown field. It’s a steep ramp with too much of an incline to walk up easily. To the side, an aging and precarious set of wooden steps goes up to the top...
More Stories