On Wednesday, the Trump Administration released a few bare-bones details of its revamped tax plan. From the little that the Administration was willing to reveal, it seems that its new plan is following the broad outlines of its original incarnation—the one Trump previously released on the campaign trail. And, as has been widely reported, that plan cuts taxes massively for those in the top 1 percent, delivering half the benefits to them and increasing their after-tax income by nearly 14 percent.
However, the Trump Administration continues to claim that, at the end of the day, its tax plan won’t deliver a tax cut to those at the top. Speaking on Fox News last week, Treasury Secretary Mnuchin repeated this. He said: “So, although the rate is coming down on the top end of 35 percent, there will be many, many deductions gone. As a matter of fact, we are taking all deductions out other than mortgage interest and charitable donations. So, effectively, the effective tax rate will not be a reduction for the rich.”
As I have written previously, it is impossible for this to be true if the Trump Administration actually reduces tax rates by the amounts they have proposed. There simply aren’t enough eliminated deductions to offset the tax cut.
The Trump Administration has now said that its top bracket rate reduction is somewhat smaller than they had previously proposed on the campaign trail (and which was used in my prior calculations): The top rate will now be cut to 35 percent rather than 33 percent. And, a specific base broadener has been put on the table: They are proposing to eliminate the deduction for state and local taxes. They also claim to be eliminating certain other deductions, though it is unclear which ones—they are only saying that the deductions for mortgage interest, charity, and retirement would be protected.
So, what does all this amount to? Well, even putting aside the massive tax cuts that Trump is proposing through the business tax system, which would disproportionately benefit the top (that is putting a lot to the side and most of the cost of their plan), the top 1 percent would still see a significant reduction in their tax rates on average.
Repealing the high-income taxes in the Affordable Care Act, eliminating the estate tax, and cutting the top tax rate to 35 percent would boost the after-tax income of the top 1 percent by around 5.5 percent on average. Eliminating the deduction for state and local taxes and other itemized deductions would cut this back by a little over 2 percent. This isn’t even taking into account the massive tax cuts on the business side of the ledger.
So, is it at all possible that the Administration could make up the difference by eliminating other deductions? Unfortunately, no. There are some smaller “above-the-line” deductions (outside of those for retirement saving and Health Savings Accounts), such as the deduction for alimony payments, but they would not come close to closing the gap—and it is unclear if Trump is even targeting them.
None of this should be news to Treasury Secretary Mnuchin, though. His staff at Treasury have these very numbers at their fingertips. The question, then, is when— if ever—the Trump Administration will come to terms with basic budgetary arithmetic so that their proposals actually match their rhetoric.