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    29 Sep 2015

    On taxes? Not so populist Analysis: Trump's plan would benefit the rich, and cost $2-3 trillion

    On Monday, Donald Trump released his tax plan—for the most part, a classic supply-side approach that would simplify the number of tax brackets and cut the corporate rate to 15 percent. Like other Republican tax plans, Trump vows to bring in additional revenue by putting a cap on the amount wealthy people can deduct on their tax returns.

    But Trump makes one promise that sets his plan apart: It will be deficit-neutral. In other words, it would pay for itself, and all those tax cuts wouldn’t make the federal deficit worse.

    I did some back-of-the-envelope math on Trump’s plan to see if that’s true. The short answer: There’s no way the plan is deficit neutral.

    Even with the most optimistic assumptions, Trump’s plan will still significantly reduce the total amount of money the government takes in. That might appeal to a lot of conservatives, but it will also definitely increase the federal deficit.

    Here’s how the plan shakes out—with the caveat that this is a very rough estimate. (Keep an eye on the Tax Policy Center and Tax Foundation, whose wonks will no doubt try to provide a more authoritative score.)

    The first big bite comes from his change in the tax rates. Trump’s plan would reduce the current seven tax brackets to four, with a 0 percent rate applying to all those making less than $25,000 ($50,000 for married couples). Those making between $25,000 and $50,000 ($50,000 and $100,000 for married couples) would pay at a 10 percent rate, and those making between $50,000 and $150,000 would pay at a 20 percent rate. Americans making more than $150,000 would pay at a 25 percent rate.

    So most Americans will be paying less tax, including 73 million Americans who, Trump says, will pay nothing. Determining the exact total revenue hit from this plan is challenging, but there’s no question the loss would be large. Consider: Sens. Mike Lee and Marco Rubio’s tax plan would have just two brackets, at 15 percent for people with incomes below $75,000 and 35 percent for those above that threshold—and those changes would cost more than $300 billion over 10 years. Trump’s plan doesn’t get close to their top rate. And he’d have fewer people paying the top rate than Rubio-Lee would. So it’s fair to say the revenue loss from his new filing brackets would significantly exceed $300 billion.

    Trump would also eliminate the Alternative Minimum Tax (cost: $400 billion), the estate tax (cost: $269 billion), and Obamacare’s 3.8 percent surcharge tax on capital gains and dividends (cost: $123 billion).

    Finally, on corporate taxes, he’d lower the rate from 35 percent to 15 percent. This alone would cost $2.5 trillion.

    So how does he close that gap? Trump has four ideas. First, he would curtail tax deductions for the “very rich.” This includes eliminating the carried interest loophole that benefits hedge-fund managers, and limiting itemized deductions (though the mortgage interest deduction and the deduction for charitable contributions are exempted). Without further details, it’s hard to know how much money this would raise. But the carried-interest loophole, though it’s received outsized political attention, is fiscally minor. Closing it would bring in only about $15 billion over 10 years. And the change to itemized deductions is effectively just capping the deduction for state and local taxes. If Trump eliminated that tax break for the top quintile—a generous assumption—it would raise around $650 billion over 10 years. He’d also give the rich less ability to claim the personal exemption and close other unnamed loopholes.

    Second, Trump would tax the more than $2 trillion of corporate income stashed abroad at a 10 percent mandatory rate, raising more than $200 billion. He’d also end the deferral of taxes on corporate income earned abroad, which costs the government over $800 billion over 10 years. Since Trump is lowering the corporate rate to 15 percent, the revenue effects from eliminating deferral would be far less than $800 billion.

    (There are other difficult-to-estimate policies I’ve ignored here, such as allowing small businesses to pay taxes at the 15 percent rate, which would cost money, and phasing in a cap on the deductibility of business interest expense and closing unnamed corporate tax loopholes, both of which would bring in money. Without more information, it’s impossible to know how much.)

    Add it all up and you have—approximately—$4-5 trillion in tax cuts with less than $2 trillion in new revenue. The total cost? $2-3 trillion. That’s an enormous gap.

    Even if you use “dynamic scoring”—taking into account that lower taxes are likely to boost economic growth and thus bring in additional revenue—it’s impossible to see how this plan would break even.

    Read More:http://www.politico.com/agenda/story/2015/09/on-taxes-not-so-populist-000258
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