Today is the day Donald Trump reveals his plan to revamp the American tax code. The Wall Street Journal reports that the cornerstone of his plan will be to reduce the corporate tax rate from 35% to 15%. Dylan Mathews writes:
This will be sold as a boost for small businesses, and it is, but it is mostly a huge giveaway to the rich — including the president himself.More than two-thirds of income at pass-through companies (so named because their structure makes them exempt from the corporate income tax, and their profits are instead taxed upon distribution to shareholders) goes to the top 1 percent.The plan creates a massive loophole with which ordinary people can evade taxes. Instead of just working for Vox.com, I could form DylanCorp LLC, contract with Vox to provide writing services, and pay a 15 percent rate on DylanCorp’s earnings rather than my current 25 percent rate. For rich people paying a top rate of 39.6 percent (or the top individual rate of 33 percent that Trump proposed during the campaign), the incentive to do this will be even larger. A new study finds that when Kansas exempted pass-through income, the result wasn't more investment or growth but a surge in this kind of tax avoidance. This is not good policy.
But it gets really interesting when you stop and consider that the Trump Organization is a pass through company:
It’s also a really, really huge giveaway to Donald Trump, the Trump Organization, and the entire Trump family. The Trump Organization isn’t a “C corporation.” It doesn’t pay corporate income tax. Instead, it’s structured as a collection of pass-through enterprises, so the vast majority of income accruing to Trump and his family is taxed through this system. Trump almost certainly pays the 39.6 percent rate on his earnings, so he’s cutting his own top tax rate by more than half. It’s the most transparently self-interested policy he’s proposed since taking office, and it will likely save him tens of millions of dollars.
Of course, we don't know exactly how much money he will save, because we haven't seen his tax returns:
Here’s the thing, though. We don’t know exactly how big a giveaway to Trump this is, because we don’t know what’s on his tax returns. We have no idea. We have a few details from his 2005 return, which suggests that he gets tens if not hundreds of millions of dollars in pass-through income annually. That return also implied that without the alternative minimum tax, which Trump wants to repeal, he would have paid less than 3.5 percent of his income in federal income taxes. Cutting the pass-through rate while repealing the AMT would probably reduce his tax burden to roughly half that level. Instead of paying $38 million, he could've paid less than $3 million.
Trump claims he is the voice of the little man. But every day he is president, he laughs his way to the bank.
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