Thread: The Ted Cruz’s Establishment friendly tax plan

Fact check: Is Trump's tax plan revenue neutral?
Robert Farley, FactCheck.org10:04 a.m. EDT October 2, 2015


Donald Trump claims his tax plan is "revenue neutral," but tax experts say that just isn't so. Not by a long stretch.

Even assuming the tax cuts would promote economic growth, the pro-business Tax Foundationestimates the Trump plan would reduce revenues to the Treasury by more than $10 trillion over 10 years.

Separately, Roberton Williams of the nonpartisan Tax Policy Center said it would require "substantial budget cuts" to make up for lost revenues.

The Trump tax plan, which he unveiled in a Sept. 28 press conference, includes deep tax cuts for individuals and businesses alike. And, he said, "all of this does not add to our debt or our deficit." A position statement outlining the tax plan on Trump's campaign website says the "tax cuts are fully paid for" by reducing or eliminating some individual and corporate tax preferences, and by repatriating corporate cash held overseas.

Trump is also banking on the plan spurring economic growth to generate new revenue. In a Sept. 28 piece penned for the The Wall Street Journal, Trump again boasted, "With moderate growth, this plan will be revenue-neutral."

Given the generous tax cuts proposed in the plan, however, Alan Cole, an economist with the Tax Foundation, said he was "puzzled" by Trump's claim that the plan would be revenue neutral.

After performing an analysis of Trump's proposal, Cole wrote in a blog post, "I do not believe this to be true under any scenario remotely resembling Mr. Trump's plan." The post ran under the unequivocal headline, "Donald Trump's Tax Plan Will Not Be Revenue-Neutral Under Any Circumstances."

The Tax Foundation estimates Trump's plan would cut taxes by nearly $12 trillion over a decade on a so-called "static" basis, meaning not taking into consideration how tax cuts could spur economic growth and increase revenues. The Tax Foundation believes the plan would increase incentives to work and invest, thereby spurring the economy. But even assuming that added revenue bump, called "dynamic scoring," the Trump plan is expected to reduce tax revenues by just over $10 trillion over a decade, the Tax Foundation estimates.
And that's because the tax cuts proposed by Trump are so deep, Cole does not believe any of the offsetting revenue streams — like reducing or eliminating personal and corporate tax expenditures — would be nearly enough to offset the revenue lost by those cuts.

The Proposed Cuts

On the individual side, Trump's plan would consolidate the current seven tax brackets into four. One of the biggest revenue reducers would come from Trump's proposal to reduce the top individual income tax rate from 39.6% to 25%. Trump would also expand the number of Americans who pay no taxes.

Under the Trump plan, single filers making $25,000 or less, or married couples making $50,000 or less, would pay zero income tax (or as Trump put it, they would fill out a one-page letter to the IRS that says "I win"). Trump says that would remove nearly 75 million households – over 50% – from the income tax rolls. But many of them are already not paying federal income taxes.

According to a Tax Policy Center analysis, about 67.3 million tax filers (41.4% of all tax filers) paid no federal income tax in 2014. Eric Toder, co-director of the Tax Policy Center, said it's difficult to know how many more might be removed from federal tax obligations under Trump's plan until he provides further details about how the plan would be structured.

While the Tax Foundation analysis found that the tax cuts would lead to lower taxes for taxpayers at all levels of income, the biggest winners — in raw dollars and on a percentage basis — would be those in the top 10% of filers, particularly those in the top 1%. Still, Cole wrote in a blog post on Sept. 30 that the plan "also contains a very large middle-class tax cut."

According to the Tax Foundation analysis, after-tax income would increase by 3% for those in the 30% to 40% decile, and 8.9% in the 80% to 90% decile (on a static basis). Those in the top decile would see an increase in after-tax income of 14.6%.

On the corporate side, Trump would cut the corporate income tax rate from 35% to 15%. Similarly, pass-through businesses — independent contractors, small LLCs etc., which are currently taxed as ordinary income up to a top rate of 39.6% — would be taxed at 15%. Trump also would do away with the estate tax.

"Putting all that together, you are going to see a multitrillion dollar reduction in revenues," Cole said, "considerably larger than the plans of any other Republican candidates to date."
By comparison, for example, an analysis of Jeb Bush's tax plan by the Tax Foundation concluded Bush would cut taxes by $3.6 trillion over the next decade on a static basis, but would reduce tax revenue by $1.6 trillion when factoring in the economic growth that the pro-business group assumes the plan would generate. Said Cole, "Trump's plan is similar to Bush's, but with larger rate cuts in every area."

The Offsets

According to the Trump campaign website, the Trump tax cuts are "fully paid for" through three main revenue generators: "reducing or eliminating most deductions and loopholes available to the very rich"; a "one-time deemed repatriation of corporate cash held overseas at a significantly discounted 10% tax rate, followed by an end to the deferral of taxes on corporate income earned abroad"; and "[r]educing or eliminating corporate loopholes that cater to special interests, as well as deductions made unnecessary or redundant by the new lower tax rate on corporations and business income."

In addition, Trump's plan said it would "phase in a reasonable cap on the deductibility of business interest expenses."

Notably, however, Trump said he would preserve charitable giving and mortgage interest deductions — two of the largest income tax deductions — which account for about 10% of all tax expenditures.

The mortgage interest deduction is expected to reduce revenues to the Treasury by nearly $70 billion in 2015, and by more than $1 trillion over the next 10 years, while revenues lost to charitable contribution deductions amount to about $54 billion in 2015, or about $745 billion over the next 10 years, according to the White House Office of Management and Budget. In all, tax expenditures cost the government $1.2 trillion in 2014.

Trump also plans to keep the earned income tax credit, which is expected to cause a revenue hit of $63 billion this year, and the child tax credit, which reduces revenue by about $46 billion.

But even if all of the exclusions, deductions and tax preferences were cut, Cole said, "it's not possible to get there [to revenue neutral]."

One offset that will not raise much new revenue is one that Trump repeatedly has touted on the campaign trail: taxing "carried interest" earned by hedge fund managers' portfolio profits as ordinary income rather than capital gains.

Capital gains are taxed at a lower maximum rate than most ordinary income, which carries a top tax rate of 39.6%. "The hedge fund guys are getting away with murder," Trump said on CBS' Face the Nation on Aug. 23.

When Obama proposed taxing carried interest as ordinary income as part of his 2016 budget proposal, the Joint Committee on Taxation estimated it would bring in an additional $15.6 billion over the next 10 years. But Trump is proposing a top rate of 25%. So under Trump's plan, carried interest would be taxed at a top rate of 25%, rather than the current 23.8%. That's not much of an increase.

In fact, most hedge fund managers may actually see an overall tax cut. Vox analyzed Bush's tax plan, which similarly proposed to tax carried interest as ordinary income, but at a top rate of 28%. Vox concluded that most hedge fund managers would see an overall tax decrease because other parts of their income derived from a percentage of the value of their portfolios — currently taxed as ordinary income up to a top rate of 39.6% — would only be taxed at a top rate of 28%. That part of their income would be taxed at an even lower top rate — 25% — under Trump's plan.

In other words, the so-called carried interest loophole that Trump has talked so much about repealing is not going to offset revenue losses much at all.

And because Trump would cut the pass-through business income rate by more than half, to 15%, it is that much harder for economic growth to make up for lost revenue, Cole said.
Williams, the Sol Price fellow at the Tax Policy Center, agrees the Trump plan could not be revenue neutral, as touted.

"On the face of it, it is a tax plan that is going to lose money [revenue to the Treasury]," he said."The bottom line is that if you are going to do it by eliminating tax preferences, there aren't enough preferences to make up for it."

Take this example, Williams said: If someone makes $1.5 million in income, they are taxed at 39.6% on that last million. Cutting the rate to 25% means about $150,000 less in revenue to the Treasury. That person would have to earn $600,000 more per year to make up that lost revenue.

"There's a lot of money disappearing," Williams said. "There isn't that much in tax breaks that he could take away." Since Trump has said he would leave mortgage interest and charitable contributions alone, "we're pretty much down to state and local tax deductions," Williams said. There's not enough there, he said, to boost your taxable income enough to offset the losses in tax revenue.

As a result, Williams said, it would require "substantial budget cuts" to make up for lost revenues.

Budget Cuts

Trump said during his press conference and in the Wall Street Journal op-ed that he would cut spending. But Trump was short on details about how he would make such cuts, promising "disciplined budget management and elimination of waste, fraud and abuse" to achieve a balanced budget with the new tax plan.

Trump claimed there's so much waste in the federal budget, he could make the necessary cuts without actually "losing anything" by way of services.

Trump referred specifically to "a 19-cent washer and it cost $900-and-some-odd thousand to send it from here to there." It's true that a South Carolina parts supplier fraudulently collected $998,798 from the Pentagon for sending two 19-cent washers to an Army base in Texas. The company and one of its owners were convicted of conspiracy to commit wire fraud and conspiracy to launder money.

Trump also cited the example of "hammers that cost $800 that you can buy in a store for a tiny amount of money" — a reference to a scandal over Pentagon spending on hammers in the early 1980s — and "a million dollars" spent on a soccer field at Guantanamo Bay (it was actually $744,000).

"We will run this country properly," Trump said in his news conference. "There is so much money to be saved. We are reducing taxes, but at the same time if I win, if I become president, we will be able to cut so much money and have a better country. We won't be losing anything other than we will be balancing budgets and getting them where they should be."

As we have said, tax experts say Trump's plan isn't revenue neutral, so the promise to balance the budget would require even more spending cuts than under the current tax system. The Congressional Budget Office projects a $426 billion budget deficit in 2015.

Of course, there is fraud, waste and errors in any large organization, especially one as large as the federal government. According to the Government Accountability Office, the federal government in fiscal year 2014 made $124.7 billion in improper payments, up from $105.8 billion in fiscal 2013. But even if such errors were eliminated that would not be enough to balance the budget, let alone make up for lost tax revenues.

We take no position on the merits of Trump's tax plan. But Trump has failed to provide evidence that he can keep his promise to cut taxes at the level he has proposed and raise enough new revenue elsewhere to make his plan revenue neutral.

http://www.usatoday.com/story/news/p...tral/73198976/

If you don't mind, I'll rely on what Trump has said about the matter publicly when he was asked about it. Personally, I think he'll help promote the FairTax for passage at some point during his Presidency, because he's smart enough to know why it's the only long-term plan to fix the fiscal problem with our government while preserving liberty and prosperity for our citizens and their employers. And now that he's leading, and the Establishment is following him, the Establishment that has blocked the FairTax all these years will soon be brought to its knees and their blockades of tyranny busted through.

Originally Posted by Judy

If you don't mind, I'll rely on what Trump has said about the matter publicly when he was asked about it. Personally, I think he'll help promote the FairTax for passage at some point during his Presidency, because he's smart enough to know why it's the only long-term plan to fix the fiscal problem with our government while preserving liberty and prosperity for our citizens and their employers. And now that he's leading, and the Establishment is following him, the Establishment that has blocked the FairTax all these years will soon be brought to its knees and their blockades of tyranny busted through.

The establishment will only follow him if they think he will serve their best interest. Not exactly a feather in Trump's hat if someone were to ask me. It just happens to be the so-called establishment that some of us are fighting against.

Originally Posted by Judy

States can raise the money anyway they want but if they don't, under your plan the US government can.

Judy,

For the second time, and with all due respect, what I support is our Constitution's original tax plan as it was intended to operate by our founders.


Why do you find it necessary to refer to our Constitution's original tax plan as my plan?


JWK

I'm supporting Trump because he's not going to the Oval Office to "fight". He's going to DC to fix our country. And I"m sure he'll have plenty of amazing interludes with these stupid incompetent people, but he knows how to prevail and win the deal he wants and needs to fix our country. He's not interested in showing up to "vote" on a bill they know already passed or already failed, whatever the case may be. He's not interested in these incomprehensible games or ploys of "poison pills". Like most business people, he's interested in results, the end game, the solution.

On the top four issues of Immigration, Trade, National Security and the Economy ... when you think about it, he really doesn't need the Establishment to do his part of the job on any of those matters.

So, I'm very happy with his agenda, style, competency, will, skills, experience and attitude.

Originally Posted by johnwk

Judy,

For the second time, and with all due respect, what I support is our Constitution's original tax plan as it was intended to operate by our founders.


Why do you find it necessary to refer to our Constitution's original tax plan as my plan?


JWK

I was referring to what you posted about the Fair Share Plan, as your plan meaning a plan you support. Who wrote the Fair Share Plan and whose plan is it?

Yes, I understand that you like the direct tax plan to bill the states for shortages in revenue. That was never intended to be the normal year to year plan. That was to avoid indebtedness and shortfalls at a time when the States were protected against such when States elected Senators. Now the people elect Senators and the States are no longer directly represented in Congress as they were when that plan was put into effect. This is why we have $19 Trillion of debt.

But yes, you're right. When creditors call that debt in, under the present system, the Congress has the authority to assess the states who would then have to raise the $19 trillion based on a per capita apportionment and come up with the money. Direct tax was only for emergencies, wars and natural disasters, times of extreme crisis because it's a communist mechanism and never was to be used as a day to day form of taxation to pay the bills of normal government operations.

Originally Posted by MW

The establishment will only follow him if they think he will serve their best interest. Not exactly a feather in Trump's hat if someone were to ask me. It just happens to be the so-called establishment that some of us are fighting against.

Exactly! And from what I am seeing every one of the candidates, including Mike Huckabee, is promoting and Establishment Friendly tax plan, and they ignore the brilliance, wisdom and merits of our Constitution's original tax plan, and especially its rule of apportionment which the friends of big government and socialists fear with a passion.

And what was our founder's thinking with regard to the rule of apportionment:

Pinckney addressing the S.C. ratification convention with regard to the rule of apportionment :

“With regard to the general government imposing internal taxes upon us, he contended that it was absolutely necessary they should have such a power: requisitions had been in vain tried every year since the ratification of the old Confederation, and not a single state had paid the quota required of her. The general government could not abuse this power, and favor one state and oppress another, as each state was to be taxed only in proportion to its representation.” 4 Elliot‘s, S.C., 305-6

And see:
“The proportion of taxes are fixed by the number of inhabitants, and not regulated by the extent of the territory, or fertility of soil”3 Elliot’s, 243,“Each state will know, from its population, its proportion of any general tax” 3 Elliot’s, 244 ___ Mr. George Nicholas, during the ratification debates of our Constitution.

Mr. Madison goes on to remark about Congress’s “general power of taxation” that, "they will be limited to fix the proportion of each State, and they must raise it in the most convenient and satisfactory manner to the public."3 Elliot, 255

And if there is any confusion about the rule of apportionment intentionally designed to insure that the people of each state are to be taxed proportionately equal to their representation in Congress, Mr. PENDLETON says:

“The apportionment of representation and taxation by the same scale is just; it removes the objection, that, while Virginia paid one sixth part of the expenses of the Union, she had no more weight in public counsels than Delaware, which paid but a very small portion”3 Elliot’s 41

JWK


Our tyrants in Washington force the productive to pay taxes on incomes so they can spread their wealth and buy votes, but the Washington Establishment does not force their beloved 45 % who pay no income taxes to work for the taxes they get

Originally Posted by Judy

I was referring to what you posted about the Fair Share Plan, as your plan meaning a plan you support. Who wrote the Fair Share Plan and whose plan is it?

Judy,

Section 4, which you previously quoted and have a problem with, is our founder's idea and is found in several of our Constitution's ratification documents. For example see the Ratification of theConstitution by the State of New Hampshire; June 21, 1788

Fourthly That Congress do not lay direct Taxes but when the money arising from Impost, Excise and their other resources are insufficient for the Publick Exigencies; nor then, untill Congress shall have first made a Requisition upon the States, to Assess, Levy, & pay their respective proportions, of such requisitions agreeably to the Census fixed in the said Constitution in such way & manner as the Legislature of the State shall think best and in such Case if any State shall neglect, then Congress may Assess & Levy such States proportion together with the Interest thereon at the rate of six per Cent per Annum from the Time of payment prescribed in such requisition-


Why do you have such a problem with our Constitution's original tax plan which paved the way for America to become the economic marvel of the world? Why do you have such a problem with our founder's original tax plan which also encouraged Congress to follow sound fiscal policies and spend within the limits of imposts, duties and excise taxes to avoid the dreaded apportioned tax?

And why is it that not one of our candidates will discuss the merits of our Constitution's original tax plan when talking tax reform, nor will any of our radio/tv talk show hosts ever discus our Constitution's original tax plan and this includes Rush Limbaugh, Sean Hannity, Glenn Beck, Laura Ingraham, Schnitt, Mark Levin, DennisPrager, Bill O'rielly, Mike Gallagher, Doc Thompson, Lee Rodgers, Neal Boortz,Mike Huckabee, Tammy Bruce, Monica Crowley, Herman Cain. Eric Bolling, Kimberly Guilfoyle, Greg Gutfeld, Dana Perino, Juan Williams, Megyn Kelly, Neil Cavuto, John Stossel etc.,


JWK

Then why didn't the Founders ever use it? I think you're mixing up the general tax with the direct tax. Only direct tax is apportioned and that is only to be used in emergencies and national times of crisis, because it is the definition of authoritarian communism. Under the original Constitution, the States were protected against such because they elected Senators through their state legislatures. When the Constitution was changed to allow the people directly to elect Senators, the States were no longer protected against such a tyranny.

Americans will never support nor should they ever support such a communist form of taxation. The federal government spending trillions a year, then assessing states for it as direct tax through apportionment when the states have no say at all regarding government expenditures after the amendment that changed Senators from being elected by state legislatures to Senators being elected by the people? I've often wondered why they made that change and how things would be had it not been changed. I imagine it was politics rather than something meaningful. I'm not suggesting it should be changed back, I've just never studied why it was done to begin with.

Do you happen to know?

Originally Posted by Judy

Then why didn't the Founders ever use it?

If you are talking about the direct tax, it was used a number of times!

The act of July 14, 1798, c. 75, 1 Stat. 53. This act imposed a tax upon real estate and a capitation tax upon slaves.

The act of Aug. 2, 1813, c. 37, 3 id. 53. By this act the tax was imposed upon real estate and slaves, according to their respective values in money.

The act of Jan. 19, 1815, c. 21, id. 164. This act imposed the tax upon the same descriptions of property, and in like manner as the preceding act.

The act of Feb. 27, 1815, c. 60, id. 216, applied to the District of Columbia the provisions of the act of Jan. 19, 1815. [102 U.S. 586,599] The act of March 5, 1816, c. 24,id. 255, repealed the two preceding acts, and re-enacted their provisions to enforce the collection of the smaller amount of tax thereby prescribed.

The act of Aug. 5, 1861, c. 45, 12 id. 294, required the tax to be levied wholly on real estate.

The act of June 7, 1862, c. 98, id. 422, and the act of Feb.6, 1863, c. 21, id. 640, both relate only to the collection, in insurrectionary districts, of the direct tax imposed by the act of Aug. 5, 1861.

Why do you refer to our founder's plan as communistic?

JWK