With the major exception of building a wall on America's southern border, getting Mexico to pay for it, and deporting everyone, billionaire Donald Trump has gotten pretty far without actually, y'know, proposing much. That changed today, as Trump unveiled designs he had been hinting at for changing the tax code. This is especially exciting because Trump has been promising to make the wealthy pay a fairer share. When describing it on the campaign trail, he's said "In other words, it’s going to cost me a fortune." Is that what his plan shows? The answer is a resounding "ehhhhhh...."
Unsurprisingly for someone running as a Republican, his plan is mostly cuts. Big cuts. Huge cuts. Classy cuts. There is one hike in there, and it'll be affecting a specific (and not very huge) group of very rich people: private equity firms and hedge fund managers. Here's the outline of his plan:
Eliminate all federal income tax for individuals making $25,000 a year or less, and married couples making $50,000 a year or less.
Lower the corporate tax rate from 35% to 15% and offer a special 15% tax rate to business owners (down from about 30%).
End the tax on inherited money.
Lower the tax rate on the top income bracket (over $250,000 a year) from 39.6% to 25%, and the top rate on long-term investments and dividends to 20% from 23.8%.
Here's the interesting part: Trump would close the "carried interest loophole," which hedge fund managers and private equity firm partners use to classify massive paydays as long-term capital gains instead of regular income for doing your job. This doesn't really solve any gaps in the budget, but it may end what has been seen as one case of super-duper wealthy people gaming the system to pay less than their fair share... right? Again, "ehhhhhh....." As the New York Times points out as well, if those hedge fund managers are classifying pay as investments, the top rate is still 23.8%. Not even Trump can say going from 23.8% to 25% is a huge hit. Plus, part of their income is taxed as salary, and that now has a lowered maximum tax rate of 25%. Will it cost Trump a fortune, as he has claimed. "Ehhhhh...."
Not really. Trump has a lot of investments, but he is not getting multi-multi-million-dollar "performance bonuses" for managing other people's money, which under this loophole is treated as a long-term capital gain. Trump, who brags that he fights tooth and nail to pay "as little as possible," probably has many tools at his disposal besides the carried interest loophole. So, unless Trump can show which loopholes he uses that he's closing, all we know is he's lowered his tax rate from 39.6% to 25%.
Now for whether any of this makes sense, from the perspective of someone who writes a lot about amusing animal videos:
Eliminating the federal income tax for people making under $25,000 ($50,000 for couples) would probably somewhat help the economy. People in those income brackets generally spend most of their income on things they need, so any decrease in taxes is usually an increase in consumer spending. I'm not super qualified to say how it will impact the deficit. Since those folks don't account for a huge share of the tax haul, it could be a wash because of the consumer spending boost. Again, not an expert.
As far as lowering the corporate tax goes, everyone (except the Chamber of Commerce) agrees that America's current corporate tax, the highest in the developed world, is a fiction. No large American corporation pays 35%, although smaller ones without lobbyists do. In fact, GE (as in General Electric) regularly pays nothing in taxes on billions in revenue by cleverly stashing profits in Ireland and other countries. If Trump could close loopholes and actually get companies to pay a 25% tax rate, he would instantly become a great President. He won't, but there's nothing wrong with this idea.
Lowering the top tax bracket is very similar. Paying the full 39.6% is rare, unless you make all your money in pure salary, but wealthy people like to invest their extra money (instead of spending it), and as you go up the ladder, a higher proportion of income is lower-taxed investments. We all remember the 2012 election, when it was revealed that the very wealthy Mitt Romney paid an effective 13% tax rate. Warren Buffett has also made a big deal out of the fact that he pays a lower tax rate than secretaries who work for him. Getting them to pay 25% would be YUGE. How do you do that? By closing loopholes.
Oh, but ending the estate tax will definitely end up creating an aristocracy. Again, not an expert.