President Trump releases tax plan resembling Bush era tax cuts

President Trump releases tax plan resembling Bush era tax cuts

Luke Dalessandro, Politics Editor

President Trump proposed a partial tax package last month, endeavoring stark reductions in the highest individual income tax brackets, and slashing of the corporate tax rate to less than half of where it stands. In a statement to reporters post the release of the list, Treasury Secretary Steve Mnuchin, with the director of Trump’s National Economic Council Gary D. Cohn, did not proffer any semblance of accoutrements such as the potential fro phase in periods, or lack thereof, commendation or endorsements of potential benefits, and charts or graphs representing the costs of any provisions. Amidst introduction of a set of individual provisions, Cohn proclaimed, “We have a once in a generation opportunity to do something really big. President Trump has made tax reform a priority, and we have a Republican Congress that wants to get it done.”

Cohn’s proclamation of a once in a generation opportunity aligns with the historical implementation of tax reform packages in the U.S. A graduated income tax system in the U.S. came to fruition post the adoption and ratification of the 16th Amendment of the Constitution in 1913. Henceforth, the first tax reform package in the U.S was passed with the Internal Revenue Code of 1939, and what was ultimately the first wide sweeping tax reform package in the U.S in 1954, to the end of simplifying the increasing complexity and nuances of tax reform over a generation. Similarly, while the Internal Revenue Code of 1954 largely remained the staple structure of the graduated income tax system, tax law did become increasingly complex, and with the possibility of discouraging investment, this complexity encouraged another tax reform package with the Tax Reform Act of 1986 passed under former President Ronald Reagan. Summarily, the increasing emphasis on introduction and passage of tax reform is inspired heavily by the assertion that the increasing complexity of tax law requires simplification as to avoid extensive loopholes to accurate taxation and to not discourage investment due to potentially duplicitous or conflictive tax regulation. 31 years since the most recent passage of tax reform in the U.S., incumbent President Trump appears poised to prioritize such early in his incumbency. The desideratum importance of tax reform to the end of simplification within tax law aligns with the increasing number of pages in the CCH Standard Federal Tax Reporter, which exceeded 70,000 pages in 2010, whereas the number did not exceed 30,000 in 1986. While this maintains, whether President Trump’s tax proposal meets the standards to evince tax reform remains questionable based on the content of the proposed list.

The aforementioned graph evincing the increasing complexity of tax law and regulation presents the consistently increasing number of pages in the CCH Standard Federal Tax Reporter, increasing at a mostly exponential rate since 1990.

However, Trump’s proposal does envision intended lessening of diversification in individual income tax brackets, repealing of the alternative minimum tax, substantial reductions in the capital gains tax, and a prodigious cut to the current corporate tax rate, among a profusion of other proposals predominantly aligned with lowering taxes for wealthier Americans and industry at the cost of reducing government income and potential increasing of the federal deficit.

Adapting individual income tax brackets and percentages, a vital element of President Trumps tax proposal, is concurrently the element which has proven most in line with modification of the tax code as opposed to reform and realignment of tax policy. Under the plan, the number of individual income tax brackets would be reduced from the seven currently in place to 3, at 10 percent, 25 percent, and 35 percent. Comparatively, the top rate would be lowered from a nominal rate of 39.6% to 35%, a tax cut of nearly 5 percent at those with an income landing in the top tax bracket. In spite of this, the White House did not release the income range to necessitate each of the three tax brackets. While the highest rate would decrease upon implementation of President Trumps proposed tax rates, 35% still evinces an increase from the top rate of 33% Trump previously touted aiming for. While Mnuchin and Cohn did not specify whether the plan would be revenue neutral, a necessary detail to attain permanent policy, according to an analysis conducted by The Committee for a Responsible Federal Budget, the proposed changes to the tax code could, as a result of the aforementioned potential of decreased tax revenue, increase the federal budget deficit by an estimated $3 trillion to $7 trillion over the next decade. Simplification of tax brackets alone has the potential to increase the deficit by $1.5 trillion over the next decade.

In addressing the Alternative Minimum Tax, one contentious area of tax policy in which Trump attempted to, in his proposals, work closer to tax reform, the President proposed repealing the AMT in its entirety. Mnuchin, referring to the AMT as a “complicated” taxation buffer, attempted to defend the decision to include repeal of the ATM as a necessary policy goal in striving towards tax reform. The Alternative Minimum Tax is a tax system which operates parallel to base income taxation, with the goal of expanding tax revenue by disallowing many deductions which have the potential of, in excess, becoming profuse. The AMT, historically, was passed with the intent of preventing taxpayers paying far outside the income tax bracket in which they fall into based on a proportion of their income, via utilization of extensive deductions to often pay perpetually pay very little or nothing on income tax. The aforementioned trend was underscored and noticed by Congress in 1969, in which 155 Americans with high incomes were legally using a profusion of deductions as well as tax breaks to pay no federal income tax. Congress passed the AMT in 1970, with the intent of stopping such an effort. While the tax was not passed as being indexed to inflation, Congress has since approved such a change, with the AMT and AMT exemption amounts presently being indexed to rise with inflation. According to the formerly cited CRFB estimate, repeal of the AMT could result in an increase of $0.4 trillion to the federal budget deficit through the next decade. While Mnuchin cited the AMT being overtly and unnecessarily complex as the predominant reason for including the repeal, President Trump has been negatively affected by the AMT historically. According to the alleged tax returns of President Trump from 2005, on an income of $150 million for the year he paid the IRS $38 million in taxes for the year. However, $31 million was ostensibly paid through the alternative minimum tax.

While the proposed repeal of the alternative minimum tax as well as the proposed new income tax brackets have proven contentious since the release of the plan, the proposed cut of the corporate tax rate has proven to perhaps be the most bold in the plan. Within the plan, President Trump proposed cutting the corporate tax rate from the current nominal rate of 35% to 15%, a downsize of over half of its current rate. The administration defended the proposed cut by proclaiming that such a rate would bring the U.S at a moderately equal corporate tax rate to other modern nations. While among industrialized nations, the U.S does maintain the highest corporate tax rate at 35%, such a claim factors in only the nominal rate. Tax deductions, among them deductions on health insurance, pensions, and investment returns, facilitates the a reduction in taxable profits. As a result, corporations which pay under the corporate tax rate pay the effective rate as opposed to the nominal rate, with the effective rate being adjusted for tax deductions. According to the analysis by the CRFB, if such a cut to the corporate tax rate was to be implemented, it could potentially raise the federal budget deficit by $3.7 trillion over the succeeding decade. While whether the proposed changes by President Trump do indeed qualify as tax reform remains questionable, the administration did indeed offer a multitude of proposals with the potential to have substantial effects on the federal budget. Concurrently included in the plan were a doubling of the inclusion for the standard deduction based on income, which based on the CRFB estimate could raise the federal deficit by $1.5 trillion over the next decade. Also proposed is the repealing of the estate tax, a tax levied on estates worth over $5.5 million are passed from a deceased person to their heirs, which is estimated to perhaps raise the deficit by $0.2 trillion over 10 years. However, along with the corporate tax downsizing, is a one time tax on overseas profits made by U.S based companies, a deficit neutral proposal. Regardless of the Trump administrations seemingly conspicuous beginning of an attempt to strive towards the first wide sweeping tax reform legislation passed since 1986, a finalized bill is evidently not what the administration attempted to release. This is further evinced by multiple positions which still seems undecided by President Trump, among them the consideration to potentially increase tax credits for child care.