President Trump’s attention-grabbing tax reform outline prompted the usual suspects to assume their usual positions Wednesday. Republicans argued that the plan would stimulate economic growth and make life simpler for taxpayers. Democrats attacked it as a windfall for wealthy interests and a budget buster.
In reality, the proposal has some good features, but they are far outweighed by the bad.
On the positive side, Trump is calling for a corporate tax rate of just 15%, down from 35%, which is one of the highest in the world. While many companies can avail themselves of myriad tax dodges, these often involve doing things that make little economic sense, such as parking huge amounts of cash overseas. So pruning back the corporate rate would benefit investors and American competitiveness alike.
Another worthy endeavor is Trump’s plan to simplify individual returns, which represents the biggest such effort in three decades. All itemized deductions other than mortgage interest and charitable contributions would be eliminated, and the standard deduction would be doubled, sparing many taxpayers the need to itemize.
Unfortunately, the Trump plan also has enormous drawbacks. To the extent that anything can be concluded from a proposal so lacking in detail, it is that this is a dessert-first, no spinach, offering. Other than repealing most deductions, Trump specifies little about how to pay for the lower corporate and individual tax rates, so the great bulk of the cuts would presumably be financed through borrowing.
That makes this less a tax cut than a tax shift — from today’s taxpayers to their children and grandchildren. Including interest, the plan would add roughly $6.2 trillion to the national debt by 2027, according to non-partisan Committee for a Responsible Federal Budget, on top of the already unconscionable $20 trillion in red ink.
Assertions by administration officials that the tax cuts will pay for themselves by spurring faster economic growth represent a return to the free-lunch, magical-thinking, supply-side economics practiced at the outset of other Republican administrations.
The other big problem with the Trump plan is that it would be a boon to the very wealthy, including the Trump family. The estate tax would be eliminated, as would be the alternative minimum tax. Owners of “pass-through” businesses, such as partnerships and S corporations, would pay just 15%.
Of course, it’s impossible to say exactly how Trump would be affected because he has refused to release his tax returns and, Treasury Secretary Steven Mnuchin reiterated Wednesday, has “no intention” of doing so.
The specter of presidential self-dealing and the lack of bipartisan outreach — targeting the deduction for state and local taxes guarantees fierce opposition from high-tax blue states — suggest that this plan should not, and probably will not, go very far.
USA TODAY’s editorial opinions are decided by its Editorial Board, separate from the news staff. Most editorials are coupled with an opposing view — a unique USA TODAY feature.
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