From the beginning of his presidential campaign, Donald Trump has positioned himself as the posing populist. The man his friends and family tout as the "blue-collar billionaire," the real estate tycoon turned reality TV star, proclaimed himself the "voice" of "the forgotten men and women of our country." In September, the supposed ally of average Americans boasted that his tax plan—then estimated to deliver a $3.7 million average annual tax cut to the top 0.1 percent of income earners at an estimated 10-year cost to Uncle Sam of $9.5 to $12 trillion—would provide a windfall to workers while hitting him hard:
"It reduces or eliminates most of the deductions and loopholes available to special interests and to the very rich. In other words, it's going to cost me a fortune -- which is actually true -- while preserving charitable giving and mortgage interest deductions, very importantly." [Emphasis mine.]
Of course, Trump's claim wasn't true then. And even after he unveiled a somewhat more modest version of his tax proposal this week, it's not true now, either. As it turns out, from lower rates on earned income and investments to eliminating the estate tax and slashing rates on "pass-through" businesses, almost every facet of Donald Trump's tax code overhaul would redirect millions of dollars from the United States Treasury to his own bank account. As Washington Post fact checker Glenn Kessler concluded in his "Four Pinocchio" review:
No matter how we slice it, we do not see how Trump can justify his claim that his tax plan would cost him "a fortune." On the contrary, it appears it would significantly reduce his taxes -- and the taxes of his heirs.
For starters, consider Trump's proposal to move from seven federal income tax brackets to just three—at 12 percent, 25 percent, and 33 percent.
While lower than his version 1.0 proposal of 10, 15, and 25 percent, The Donald's new brackets would still mean a staggering windfall for those, presumably including him, currently paying the top marginal rate of 39.6 percent. Now, Americans don't know his annual income because Donald Trump has flouted 40 years of precedent by refusing to release his tax returns. But his campaign finance disclosures claim he has a net worth of $10 billion and earned $557 million between January 2015 and May 2016. While his income sources are no doubt diverse, President Trump would surely reap millions from candidate Trump's income tax rate reductions alone.
But the really big dollars for The Donald would result from his proposals to slice tax rates for corporate and small business income. As he put it in his address to the Economic Club of Detroit on Monday:
The United States also has the highest business tax rate among the major industrialized nations of the world, at 35 percent. It's almost 40 percent when you add in taxes at the state level. In other words, we punish companies for making products in America - but let them ship products into the U.S. tax-free if they move overseas.
This is backwards. All of our policies should be geared towards keeping jobs and wealth inside the United States. Under my plan, no American company will pay more than 15% of their business income in taxes. Small businesses will benefit the most from this plan.
Trump's claims are doubly deceptive. For starters, the effective corporate tax rate is not 35 percent, but instead closer to 20 percent. The rate varies widely by industry; in 2014 Citizens for Tax Justice found that one-third of the most successful corporations in America paid less than 10 percent.
Even more important for Donald Trump's pocketbook is his call to gut the tax rate for so-called "pass-through businesses" to just 15 percent. As the Center on Budget and Policy Priorities (CBPP) explained, "Pass-through income is claimed by business entities that aren't subject to the corporate income tax, which currently has a top statutory rate of 35 percent (though most corporations pay an effective tax rate considerably lower than 35 percent). Pass-through income is business income that "passes through" the business and is instead reported on the individual tax returns of the business owners and taxed at the owners' tax rates." But as CBPP documented, "'pass-throughs' are not synonymous with 'small businesses' and "pass-through income is highly concentrated at the top:"
Mr. Trump, who has proposed a 15 percent corporate tax rate, proposes a pass-through rate of 15 percent as well. The Trump pass-through proposal would be an expensive tax cut that would flow primarily to the wealthiest Americans. That's because more than two-thirds of pass-through business income flows to the highest-income 1 percent of tax filers.
Many businesses, such as law firms, and groups of wealthy investors choose to be taxed as pass-through entities instead of as corporations and often do so to lower the overall taxes they owe. In recent decades, many businesses and their owners have reaped sizable tax savings by doing so. A special 15 percent tax rate on pass-through income such as the Trump tax plan proposes would offer them another large tax cut.
As the Washington Post reported, "Trump would tax pass-through income at a rate of 15 percent, compared to the 40 percent personal income tax rate a wealthy business owner would pay today." And as the Post's Jim Tankersley explained, one of those wealthy business owners is Donald Trump himself:
A little-noticed provision in Donald Trump's tax reform plan has the potential to deliver a large tax cut to companies in the Republican presidential nominee's vast business empire, experts say.
Trump's plan would dramatically reduce taxes on what is known in tax circles as "pass-through" entities, which do not pay corporate income taxes, but whose owners are taxed at individual rates on their share of profits. Those entities are the most common structure for small businesses and increasingly popular for larger ones as well. They are also a cornerstone of the Trump Organization. On his 2015 presidential financial disclosure report, Trump listed holdings of more than 200 limited liability corporations, which is a form of pass-through.
For his part, Trump economic adviser Stephen Moore protested that the candidate's proposed payday "wasn't something we took into consideration when we made this plan." But Trump's own tax attorneys surely grasped the benefit he was offering himself. As they reported in his March 2016 financial disclosure:
"You hold interests as the sole or principal owner in approximately 500 separate entities. These entities are referred to and do business as The Trump Organization. ... Because you operate these businesses almost exclusively through sole proprietorships and/or closely held partnerships, your personal federal income tax returns are inordinately large and complex for an individual."
It's no wonder Roberton Williams, a senior fellow at the nonpartisan Tax Policy Center, said "It's a really nice deal" for Trump and pass-through owners like him. As for Uncle Sam: not so much. Last year, a team of economists led by Michael Cooper of the Treasury Department found that pass-through entities now account for half of the business income in the United States, up from one-quarter in 1980. A study by the Center for American Progress concluded that the rise of pass-throughs cost the federal government nearly $800 billion in tax revenue between 2003 and 2012. Trump's self-serving plan would make that trend much, much worse. (For a real-world example from the meth labs of democracy, just look at Kansas. There, the elimination of the tax on pass-through businesses and family farms didn't deliver the economic growth Sam Brownback, Stephen Moore, and Arthur Laffer promised, but a dramatic and dangerous decline in state revenue.)
Even Donald Trump's proposal to end the so-called "carried interest exemption" that hedge fund managers and private equity titans (like Mitt Romney) use to pay the lower capital gains tax rate rather than the higher income tax rate is undercut by his pass-through proposals. Currently, the top rate for capital gains and dividends is 23.8 percent. But because most of the richest American households—and most financial services firms—are structured as sole partnerships and S-corporations, under President Trump they would qualify for the new 15 percent pass-through rate. (As for the capital gains rate, Forbes puzzled, it's not clear what Trump plans to do now.)
Now in Donald Trump's defense, his own tax bill to Uncle Sam could go up, or at least not go down as much if he were to do away with many of the tax breaks, deductions, and loopholes that combined cost the federal government roughly $1.4 trillion a year. Last fall, he promised that his plan "reduces or eliminates most of the deductions and loopholes available to special interests and to the very rich." On Monday, Trump repeated that pledge, proclaiming he would "eliminate the Carried Interest Deduction and other special interest loopholes that have been so good for Wall Street investors, and people like me, but unfair to American workers."
Unfortunately, to date Donald Trump has yet to identify a single tax break he would end. This is the same scam Paul Ryan has run since 2010, declaring that the GOP will "lower rates" and "broaden the base." How? By getting "rid of the special interest loopholes, special deductions, lower everybody's tax rates, bring in at least as much revenue to the government but grow the economy and create jobs, and get spending under control so we can pay off this debt." But without saying which loopholes he'd close, Ryan's budget is left with a $6 trillion hole over the next decade. So far, Trump (like Ryan) has been too chicken to explain which of the popular provisions he'd end to limit the flood of red ink his budget would necessarily hemorrhage.
As it turns out, Donald Trump would only make that situation worse. In Detroit on Monday, The Donald made a play for working families by calling for the 100 percent deductibility of child care expenses. Predictably, the benefits of his new tax break would overwhelmingly flow to the richest families. For starters, a family earning $50,000 a year and spending $10,000 a year on child care would save $1,200 (12 percent of $10,000) on their tax bill. The millionaire family would save $3,300 (33 percent of $10,000). Making matters worse, lower-income households who pay no income taxes (currently almost half of all Americans) would get no additional benefit from the tax deduction. Besides, only about 30 percent of all tax returns are itemized, the vast majority from wealthier households.
So, the biggest new element of Donald Trump's revised tax plan unveiled this week would help his own children and their families, and few of the others that really need it. But that benefit is chump change to compared to the biggest lottery winnings President Trump would hand to Tiffany, Ivanka, Eric, and Donald Junior. As one recent analysis concluded, Donald Trump's plan to eliminate the federal estate tax would redirect up to $7 billion from Uncle Sam to his own kids.
The 40 percent estate tax is levied on fortunes worth more than roughly $5.5 million per person ($11 for a couple). Paid by just 2 in 1,000 estates, the tax impacts almost no small businesses and family farms. But as the nonpartisan Congressional Budget Office (CBO) warned last year, its repeal would drain $269 billion from the federal government over 10 years. As The Hill reported, among the handful of beneficiaries of its elimination would be Donald Trump's heirs:
Donald Trump's family would get a $7.1 billion tax cut under the Republican presidential nominee's proposal to eliminate the federal estate tax, a centrist think tank estimated...
Instead of giving Trump's heirs a windfall, Congress could spend that $7.1 billion on expanding Pell Grants for three years, funding efforts to find a cure for cancer for seven years, finance career and technical education and skills for a generation and support electric-grid investments for more than 10 years, Third Way said.
The think tank came up with the $7.1 billion figure by estimating that Trump's estate would be valued at $17.7 billion in 2030, the year actuarial tables estimate that Trump's family would inherit the money.
In all likelihood, the heirs of President Trump would pocket much less. As the Center on Budget and Policy Priorities (CBPP) explained, thanks to a bevy of generous deductions and loopholes, the effective estate rate is just 16.6 percent. (That's why study after study shows the estate tax repeal will harm charitable giving, as wealthy Americans lose that incentive to reduce their tax bills.)
But there's one more reason Ivanka, Eric, Tiffany, and Donald Jr. would walk away with much less after The Donald is no more. That's because the self-proclaimed $10 billion man is almost surely worth much, much less. As ThinkProgress pointed out earlier this month:
Financial media outlets have estimated what they think the mogul is worth, but none have ever come close to backing Trump's claim of $10 billion. When Bloomberg ran a tally this week of all of his major assets, including stock holdings and the value of properties like golf courses and luxury towers, it came up with $3 billion. Forbes, after interviews with 80 sources and a piece by piece look at Trump's empire, concluded $4.5 billion.
The Bloomberg analysis, however, relies at least in part on statements Trump himself made in financial disclosure forms, while Forbes has always had to rely on information given by the Trump Organization -- and Forbes has admitted that Trump consistently pushes for a higher valuation. Fortune also caught him conflating revenue and income in his campaign filing reports and thereby significantly inflating how much income he says he has.
Of course, Trump could end the confusion by, among other things, releasing his tax returns just like every other major party presidential candidate since 1976. That would help voters get a better handle on his income and to what degree, if any, his charitable giving would offset his final tax bill. Instead, all we know is that President Trump would give himself and his children a massive tax cut now, and a huge windfall later.
Last year, the nonpartisan Tax Policy Center estimated Donald Trump's tax plan (table above) would blow a $9.5 trillion hole in federal revenue between 2017 and 2026. While his revised August 8, 2016 scheme would lower than price tag somewhat (due to his higher 12/25/33 income tax rates), the overall impact is little changed. The rich would reap the lion's share of the tax cuts. Trump's plan is going to cost Uncle Sam a fortune.
But Donald Trump? Not so much.