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HomePolicyTrump and Taxes: A Bush-Like Plan from “The Donald”

Trump and Taxes: A Bush-Like Plan from “The Donald”


CATO Economist Dan Mitchell Analyzes Trump and Taxes


Republican presidential candidates, businessman Donald Trump, left, and former Florida Gov. Jeb Bush talk together before the start of the CNN Republican presidential debate at the Ronald Reagan Presidential Library and Museum on Wednesday, Sept. 16, 2015, in Simi Valley, Calif. (PHOTO: AP/Chris Carlson)

It’s been a challenge to assess Donald Trump’s fiscal policies since they’ve been an eclectic and evolving mix of good and bad soundbites. Though I did like what he said about wanting to pay as little tax as possible because the government wastes so much of our money.

On the other hand, some of his comments about raising tax burdens on investors obviously rubbed me the wrong way.

But now “The Donald” has unveiled a real plan and we have plenty of details to assess. Here are some of the key provisions, as reported by the Wall Street Journal. We’ll start with the features that represent better tax policy and/or lead to lower tax burdens, such as somewhat lower statutory tax rates on households and a big reduction in the very high tax rate imposed on companies, as well as a slight reduction in the double tax on capital gains.

…no federal income tax would be levied against individuals earning less than $25,000 and married couples earning less than $50,000. The Trump campaign estimates that would reduce taxes to zero for 31 million households that currently pay at least some income tax. The highest individual income-tax rate would be 25%, compared with the current 39.6% rate. …Mr. Trump also would cut the top capital gains rate to 20%, from the current 23.8%. And he would eliminate the alternative minimum tax. …For businesses, Mr. Trump’s 15% rate is among the lowest that have been proposed so far.

But there are also features that would move tax policy in the wrong direction and/or raise revenue.

Most notably, Trump would scale back certain deductions as taxpayers earn more money. He also would increase the capital gains tax burden for partnerships that receive “carried interest.” And he would impose worldwide taxation on businesses.

To pay for the proposed tax benefits, the Trump plan would eliminate or reduce deductions and loopholes to high-income taxpayers, and would curb some deductions and other breaks for middle-class taxpayers by capping the level of individual deductions, a politically dicey proposition. Mr. Trump also would end the “carried interest” tax break, which allows many investment-fund managers to pay lower taxes on much of their compensation. …The Trump plan would raise revenues in at least a couple of significant ways. It would limit the value of individual deductions, with middle-class households keeping all or most of their deductions, higher-income taxpayers keeping around half of theirs, and the very wealthy losing a significant chunk of theirs. It also would wipe out many corporate deductions. …The plan also proposes capping the amount of interest payments that businesses can deduct now, a change phased in over a long period, and would impose a corporate tax on future foreign earnings of American multinationals.

Last but not least, there are parts of Trump’s plan that leave current policy unchanged.

Which could be characterized as “sins of omission” since many of these provisions in the tax code – such as double taxation, the tax bias against business investment, and tax preferences – should be altered.

…the candidate doesn’t propose to end taxation of individuals’ investment income… Mr. Trump would not…allow businesses to expense all their new equipment purchases, as some other Republicans do. …All taxpayers would keep their current deductions for mortgage-interest on their homes and charitable giving.

So what’s the net effect?

The answer depends on whether one hopes for perfect policy. The flat tax is the gold standard for genuine tax reform and Mr. Trump’s plan obviously falls short by that test.

But the perfect isn’t the enemy of the good. If we compare what he’s proposing to what we have now, the answer is easy. Trump’s plan is far better than the status quo.

Now that I’ve looked at the good and bad policies in Trump’s plan, I can’t resist closing with a political observation.  Notwithstanding his rivalry with Jeb Bush, it’s remarkable that Trump’s proposal is very similar to the plan already put forth by the former Florida Governor.

I’m not sure either candidate will like my interpretation, but I think it’s flattery. Both deserve plaudits for proposing to make the internal revenue code less onerous for the American economy.

P.S. Here’s what I wrote about the plans put forth by Marco Rubio and Rand Paul.

Written by

Daniel J. Mitchell is a Senior Fellow at the Cato Institute, and a top expert on tax reform and supply-side tax policy. Mitchell’s articles can be found in such publications as the Wall Street Journal, the New York Times, Investor’s Business Daily, and the Washington Times. He is the author of "The Flat Tax: Freedom, Fairness, Jobs, and Growth," and co-author of "Global Tax Revolution: The Rise of Tax Competition and the Battle to Defend It."

Latest comment

  • Its
    my intention to vote for Trump for the simple reason that I think he will be
    the best of all the candidates in this race in terms of improving the US economy and our
    business with the world. His impressive record in business certainly does point
    to shrewdness, persistence, inventive judgment as well as being able to work
    really hard at some huge project and understanding what his patrons want? I
    think Trump will wind up gaining a lot of intersecting support, including from factions
    of people who don’t expect to support him, such as women. It offers a superior
    financially viable picture will for businesses and industry benefiting every
    American citizen and legal immigrant.

    the doomsayers can beg, cry and use their negativity, but with Mr. Trump could
    mean a new day for America. The analysts, pessimists,
    Liberal Progressives, Anchors, can stick their attitudes where the sun don’t
    shine, as the man is beginning to unveil his agenda in details. Divulging a new
    tax system in a interview with Scott Pelley on ’60 Minutes’ the Republican presidential candidate Donald
    Trump as he lays out key policy details and reveals a major part of his tax
    proposal. To me, my family and circle of friends and co-workers see somebody
    with a grand plan, to free Americans from awful tax system that awards
    “deadbeats” and people who use other peoples money to exist. A key
    interest to the millions who score high for Trump, is the illegal immigration
    plague. A cost that would anybody choke on their own bile. $$Billions of dollars
    and what do Americans get out of it–Nothing. What do the GOP Establishment, as
    Jeb Bush–Cheap labor. What do the Democrats get, foreign nationals who cannot
    speak English and will vote, maybe intentionally ILLEGALLY or NOT?

    With Donald Trump the WALL on our Southern Border and strengthening
    our Immigration laws. MANDATORY E-VERIFY or a new version that can check an
    individuals immigration instantly on a digital tablets, supplied to police
    departments and ICE authorities. NO more ‘Optional’ from the regulations we
    have currently, but obligatory, carrying harsh punishments for Employers who
    believe thy can snub the system. To repeat my previous commentary those who are here illegally, will begin to
    realize that employers could face consequences such as jail time. Suspension of
    business licenses is a good start and nasty fines, but reading that a company
    owner has been incarcerated, will deter illegal aliens and opening the door for
    citizens and genuine immigrants. Unauthorized people will have no choice, but
    to return home.

    The total of United States border patrol arrests soared in the
    month of August.

    Associated Press reported that almost 10,000 immigrant children and
    families were arrested at the Mexico border as they tried
    crossing illegally during the month of August. Data released by the U.S.
    Border Patrol on Monday shows this is an increase of 52 percent from the amount
    of arrests made in August 2014.

    The White House press
    secretary Josh Earnest called the increase in border patrol arrests during
    August a “concern” for the administration. In 2014, after a wave of
    Central American children and their mothers came across the border
    illegally, the Obama administration took measures to try house them until their
    asylum cases could be heard, spending hundreds of millions of dollars.
    Detention centers were opened, as a deterrent to cross into the country
    illegally, for those waiting to have a deportation hearing.

    David Inserra, a homeland
    security policy analyst at The Heritage Foundation. “While this is a huge blow
    to the enforcement of the law, already most illegal aliens aren’t detained.
    Instead, they are allowed to enter the U.S. with instructions to report to a
    local ICE [U.S. Immigration and Customs Enforcement] office or immigration
    court, which many do not do.” adding, “While the administration has taken steps
    to tell would be illegal immigrants that they will be returned to their home
    country, actions speak louder than words,” Inserra said. “It has become obvious
    to those contemplating illegally entering the U.S. that once here, you are unlikely to
    be deported.”

    Earlier this
    year it was reported that Mexico is deporting more illegal immigrants
    from Central
    than the United States does.

    conclusion, bringing in Refugees from Syria opened my eyes to the fact that the
    infiltration of ISIS Butchers could arrive here among the fleeing people
    causing mayhem. A friend in England remarked to me, that America has lots of
    guns, but in Europe most weapons are prohibited by law? It makes more sense to
    me that we should help with humanitarian efforts, by given money and life
    saving supplies to the Turkish and Egyptian Red Cross or alternative life-line
    organizations to keep the people in a country they know?

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