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This morning Donald Trump announced his plan to reform the tax code. The plan cuts rates across the board, similar to the Jeb Bush plan. The plan to pay for this is to cut out loopholes and cap deductions similar to what was done in the 80's. Those earning less than 25,000 will pay no tax at all. For 31 million Americans, they would pay no tax. For the top bracket they would see a tax cut from 39.6% to 25%. The corporate tax rate would be decreased from 35% to 15%.
Trump's plan for the rest of the tax brackets starts with the lowest bracket of 10 percent and would apply to income from the $50,000 - $100,000 range for a married couple. The next bracket is set at 20 percent and would apply to married couples earning more than $100,000. The plan aims to eliminate the alternative minimum tax and would slash the highest capital gains rate to 20 percent from the current 23.8 percent. Contrary to what he seems to think, this plan would be a massive tax cut for the richest individuals in our country.
Contrary to popular belief the U.S. has one of the most progressive tax codes in the world. more than 40% of Americans pay no federal income tax at all under the current plan so this would not really be any change for them, but it sounds great on the stump. Instead of such high marginal rates, most other countries use a form of a consumption tax, otherwise known as a VAT. A VAT is basically a sales tax on all new goods.
It would also cut the rate at which overseas profits are returned to the U.S. to 10%. This has been a popular idea that House Republicans have been in favor of for years, and may even include in the Highway Trust Fund talks.
While Trump claims that his plan won't increase the deficit, one might wonder if the increase to hedge funds along with the cuts in overseas taxes, loopholes and deductions will be enough to equal his spending ideas. Trump's immigration plan alone would cost hundreds of billions of dollars and have a negative impact on the economy of over $1.7 trillion.
Last night when he outlined the basics of a healthcare plan he outlined a massive medicaid expansion. It is already anticipated that Medicaid will cost our country $100 billion per year by 2020. If he's not cutting entitlements, then where are his spending cuts coming? He's not planning on cutting military spending, so where is he supposed to make up the difference?
Why is it important to cut the deficit? If these cuts and reductions are not enough, it will only add to our massive $18.4 trillion debt. For reference that's equal to 154,000 per tax payer.
From what we have seen, the Trump tax plan coupled with his spending plans would mean massive deficits. Even with all deductions removed and all loopholes closed (which is not what Trump is suggesting) we would likely widen our deficit with this plan. In fact most experts are saying it would be almost impossible to be revenue neutral with this plan.
While there would certainly be increased benefits to individuals with this plan and growth to the economy, most estimates believe it would cost us hundreds of billions in lost revenue yearly. It is impossible to have continuous growth, and at some point we would see another recession, and more than likely it will be during the next 4 years statistically speaking . When that hits you can guarantee revenues would plunge and deficits would grow massively.
Nothing in the Donald Trump plan is new. His tax cuts and loophole reductions are almost identical to those proposed by Bush, his overseas profits plan has been around for years. In such a highly touted tax plan that was supposed to be tough on taxes, this plan is one of the weakest attempts that Donald Trump has put out there to reform anything.
