Trump tax proposal: Two charts that show why it’s misguided


President Donald Trump has promised “massive tax cuts” to help
middle-income families.

a report out Friday from the Urban-Brookings Tax Policy
shows his tax framework actually raises taxes
on individuals to give tax cuts to businesses:

tax reform chartTax Policy

Over a decade, Trump’s plan would cut business taxes by $2.6
trillion (the red bars), and lose another $240 billion by
repealing estate and gift taxes (the yellow bars). Then, it
partly makes up for that by raising individual income taxes by
$470 billion (blue bars).

Of course, businesses are ultimately owned by individuals, so
those business tax cuts flow through to benefit people. Most
economists will even tell you that a portion of the corporate
income tax is borne by workers, whose wages go down when
corporate taxes go up.

And you don’t have to be rich to own a business. But
unfortunately, the business tax preferences in Trump’s
plan are designed to provide almost no benefit to lower- and
middle-income people who own small businesses.

The plan caps the tax rate on business profits at 25%. If you own
your own business, you’d only benefit from the cap if you
would otherwise be subject to a tax rate higher than 25%.
And under this plan, you’d generally have to have a family income
over $200,000 for that to be the case.

It’s therefore no surprise that Trump’s tax plan directs nearly
all its overall benefits to the wealthy. That’s in Figure 2:

tax distribution chartTax Policy

This is not a case of “well, of course rich people get the
biggest slice of the tax cut — they have the biggest incomes.”
Overall, Trump’s tax cut is big enough to raise Americans’ after
tax incomes in 2018 by 2%. But for the bottom 80% of
the income distribution, the increase in after-tax income
is only about 1% — an average savings of $530 per tax filer.

After-tax incomes of the richest 1% would rise by more
than 8% on average — a saving of $129,030 per tax filer.
That is, they get far more than their share of the tax cut.

And many people wouldn’t get a tax cut at all. The Tax Policy
Center says 12% of tax filers would see their taxes go
up in 2018 because of the plan. I walked
through one example
 of an upper-middle income family
that would pay more. By 2027, 25% would face a tax hike, as
inflation would eat away some of the benefits given to taxpayers
in the first year.

It’s pretty astounding to go around talking about the need for a
middle-class tax cut and then produce a plan that reserves nearly
all its benefits for the wealthy while raising taxes on tens
of millions of middle-income Americans. But that’s
what Republicans have come up with.



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