Trump’s Tax Plan: 3 Things to Look For

While President Trump plays down the significance of the looming 100 Day milestone, he is simultaneously ramping up efforts to appear productive. Case in point is an expected announcement slated for this Wednesday on tax reform. (Important note: Tax reform has been the buzzword coming from the Trump White House, but there is a big difference between true tax reform and tax cuts.)

Here are three things to watch for in Wednesday’s announcement:

Dynamic Scoring: Many of the tax plans floated by the field of Republican candidates throughout the Republican primary engaged in aggressive dynamic scoring that positively projected the impact a tax cut would have on the overall economy. The Republicans’ premise is simple: if people pay less in taxes they spend more money which grows the economy which in turn increases revenues for the Treasury. The premise is simple, but the actual historical correlation between tax cuts and increased revenue does not inspire confidence. By using overly optimistic projections (dynamic scoring) about the purported impact of a tax cut or tax reform measure, the proposal looks like it will be budget neutral when in fact it will likely just reduce revenue. According to Douglas Holtz-Eakin, the former director of the Congressional Budget Office,”[A tax cut] won’t pay for itself. You’re not going to cut taxes by a dollar and get a dollar back in revenue from the growth.”

Closing Loopholes: While the US does have a high corporate tax rate, the loopholes that many corporations have fashioned to avoid paying taxes are the real story. Will Trump’s Wednesday announcement on taxes provide any indication of how much he is willing to take on the powerful lobbyists who have secured favorable tax rates for their clients? For example, the real estate industry, which clearly is well understood by President Trump, enjoys interest deductions and capital gains benefits that minimize their exposure to taxes. One particular loophole to pay attention to, according to a recent article in the New York Times, is the “tax deduction for interest payments by businesses, a provision that Mr. Trump has used to great advantage in what little has been seen of his past tax returns.” Is the president willing to close loopholes he and his fellow real estate developers have taken full advantage of in the past?

Who Benefits? While candidate Trump campaigned on a platform that included a middle class tax cut, the Wall Street executives who now populate key positions in his treasury department- along with the other billionaires in his cabinet – may not have as strong a desire to help middle class Americans. We need to look closely for suggested tax policies that skew toward helping the wealthiest American pay less in taxes.

The following expressions and phrases in the tax announcement Wednesday should trigger alarm because historically they have been used to sell tax cuts for the wealthy:

  • “This tax cut will pay for itself”
  • “We’re using realistic dynamic scoring”
  • “This is a budget neutral tax cut”
  • “Cutting taxes will stimulate the economy”