Donald Trump’s campaign tax plan would amount to a historic deficit-financed tax cut and increase the national debt by 80 percent over the next decade, according to an analysis from the nonpartisan Tax Policy Center.
It would also fail to achieve two of the goals the billionaire set out for it, namely raising taxes on hedge fund managers and himself.
The think tank found that Trump’s aggressive tax-cut plan would reduce the average family’s taxes by $5,100. But the cost of that relief to the government would be $11.2 trillion in lost revenues and additional interest costs for the federal government over the next 10 years, nearly doubling the federal debt, which is already projected to grow unsustainably.
That huge increase in government debt makes it unclear whether Trump’s plan would boost economic growth, according to the analysis.
Trump envisions that lower tax rates across the board that would, by themselves, accelerate growth. He wants to lower the top individual tax rate from 39.6 to 25 percent, cut the corporate tax rate from 35 percent to 15 percent, slash investment taxes and eliminate the estate tax.
But the added debt that comes along with the lost revenue could swamp those effects, the group warned, as higher interest rates on federal debt would “crowd out” private sector investment.
To prevent a historic run-up in debt, the plan would necessitate the politically implausible steps of cutting nearly all defense spending or else dramatically scaling back government spending on entitlement programs, such as Social Security and healthcare programs. “If he can’t touch entitlements, I think it’s safe to say that there’s no way that he could offset the tax cuts with spending cuts,” said Len Burman, the director of the Tax Policy Center.
Most of the benefits of those tax cuts would flow to high-income individuals like Trump, who made his fortune in real estate, reality television, and a host of other enterprises. “People in his income group get huge tax cuts” under his plan, said Burman, although he also noted that it was impossible to say definitively because Trump hasn’t released his tax returns.
Under Trump’s plan, the top 1 percent of income earners would get an average tax cut of over $275,000, and the top 0.1 percent would see their taxes go down by $1.3 million, almost 20 percent of after-tax income. The bottom bracket would get $128 in relief.
Because of the way he would structure corporate taxes, Trump’s plan would be a “huge windfall for private equity and hedge funds,” Burman said. Trump had promised to raise taxes on “hedge fund guys” by eliminating the feature of the tax code under which “carried interest” income is taxed at the same rate as capital gains, rather than at the same rate as labor income. Also under Trump’s plan, partnerships would be taxed at the same rate as the corporate income tax of 15 percent, well below the 25 percent tax on labor income.
The Tax Policy Center has previously released an analysis of former Florida Gov. Jeb Bush’s tax plan, and plans to do the same for other presidential candidates, including Florida Sen. Marco Rubio, Texas Sen. Ted Cruz, former Secretary of State Hillary Clinton, and Vermont Sen. Bernie Sanders.
Their comments on taxes can have significant implications for races. In 2012, President Obama used their conclusion that Mitt Romney would have trouble making the math of his tax reform plan work to allege that the Republican would raise taxes on the middle class.
Analysts at the think tank said that the Trump campaign did not respond to their requests for clarifying information about his tax plan.
This post was updated to correct Len Burman’s title at the Tax Policy Center.
