By now, you’ve probably heard about Donald Trump‘s tax plan, which will (as with all things Trump) make America great again. In this video clip from CNN, he briefly discusses the plan he dropped on Monday. The proposed cuts are astounding and run nearly across the board. Trump promises to cut taxes for the middle class and activate a simpler tax code. There are tax cuts for everyone, and it’s all too good to be true — such as this little nugget called the “I win” provision from Trump’s website:
“If you are single and earn less than $25,000, or married and jointly earn less than $50,000, you will not owe any income tax. That removes nearly 75 million households — over 50 percent — from the income-tax rolls. They get a new one page form to send the IRS saying, ‘I win,’ those who would otherwise owe income taxes will save an average of nearly $1,000 each.”
Trump doesn’t even care that he’s cribbing Charlie Sheen’s “winning” verbiage, but he’s saying the right things to earn votes. He also cancels the death tax, sets out simpler tax brackets and promises that no business will have to pay more than 15 percent of their business income to the tax man.
In addition, Trump appears to backtrack on his previous promises to “take on the hedge-˜fund guys,” but the New York Times‘ analysis yields this revelation:
Even the hedge fund managers Mr. Trump has railed against on the stump would get a tax cut under his plan. The usual fee structure for a hedge fund is called “2-and-20”: a flat management fee (often 2 percent) on all assets, plus a performance fee (often 20 percent) on profits above a set threshold. Currently, the management fee is taxed at ordinary rates up to 39.6 percent, while the performance fee enjoys a preferential rate of 23.8 percent. Under Mr. Trump’s plan, all this income would be taxed at a maximum of 25 percent. The performance fee would be subject to a small tax increase, but that effect would be dwarfed by the large tax cut on ordinary management fees.
Another large, though less-noticed, tax cut in Mr. Trump’s plan is a reduction in the maximum tax rate on “pass-through income” to 15 percent; currently, this income is taxed at the same rates as wage income, up to 39.6 percent.
All of this is classic politician behavior. Trump is already leading in the polls, and few people can vote against a tax cut. What Trump does not consider is that — if elected President of the United States — he will have little to no effect on Congress’ spending habits. Trump promises that his tax cuts will grow the economy (as will bringing jobs back to the U.S.), but government spending will continue.
Critics, including The Economist, swiftly labeled Trumponomics as “a fantasy.” After digging into the numbers, they compare his plan to that of Jeb Bush:
What would this largesse cost? Mr Bush’s number crunchers reckoned his plan, which is modest in comparison, would reduce annual receipts by $376 billion, or about 7.5%, by 2025, before accounting for its effect on the economy. Allow – optimistically – for a boost to growth of half a percentage point per year, and the cost falls by two thirds. Mr Trump provides no such detailed estimates but claims, incredibly, that his plan pays for itself. In his press conference, Mr Trump suggested that under his stewardship, the economy might achieve annual growth of five or six percent. That would certainly pay for huge tax cuts, but is a fantasy.
The Economist finishes by lambasting Trump’s promise to eliminate certain tax deductions and other nominal adjustments, all of which are vague. Then they call his entire plan “twaddle.”
Here’s a second CNN video clip, in which Trump talks about his presidential temperament.