WASHINGTON ― President Donald Trump’s top economic advisers on Wednesday proposed trillions of dollars in tax cuts for millionaires under a plan billed as the biggest tax reform in over 30 years.
In a one-page statement of “principles” for tax reform provided to reporters, the administration offered few specifics. They did insist on three major perks for the wealthy, however ― reducing the tax rate on stocks, bonds and real estate investments; eliminating inheritance taxes for millionaire heirs and heiresses; and bringing down the tax rate on the largest corporations to less than half of what it is now.
The inheritance tax ― disparaged by conservatives as a “death tax” ― only applies to millionaires. Magnates must will at least $5.49 million to their heirs ($11 million for couples) to qualify for the tax. Heirs and heiresses pay an average rate of 16.6 percent on these inheritances, according to the Center on Budget and Policy Priorities, generating about $275 billion for the government over 10 years.
Trump would also repeal the 3.8 percent tax on stocks, bonds and real estate investments that Obamacare imposed on individuals making at least $200,000 a year. A full 90 percent of this tax break would accrue to households making at least $700,000 a year, which would receive an average tax cut of $25,000 a year, according to the nonpartisan Tax Policy Center.
Corporate tax cuts also disproportionately favor the wealthy, because corporate profits flow to the owners of corporate stocks, who tend to be rich. More than 92.8 percent of households making at least $250,000 a year own at least $10,000 in stock, according to research from New York University economist Edward N. Wolff, compared with just 19.1 percent of households that earn $25,000 to $49,999. Households in the top 1 percent receive an average of 36 percent of their income from capital gains (stocks, bonds and other financial investments), according to the Congressional Budget Office, while those in the lowest 20 percent receive an average of about 5 percent of their income this way.
Slashing the corporate tax rate from 35 percent to 15 percent would cost the federal government $2.4 trillion, according to the Tax Policy Center.
The Trump team also said they want to “simplify” the number of tax brackets from seven to three, reducing the top rate from 39.6 percent to 35 percent. Trump’s team did not specify what income levels would apply to the new brackets, but fewer tax brackets typically result in lower taxes on upper-income individuals. They further said they would protect deductions for mortgage interest, a perk that disproportionately benefits the wealthy, delivering larger benefits to people who buy bigger houses. And Trump said he would double the standard deduction, which would exclude more household income from taxation.
The 15 percent corporate tax rate would also apply to so-called “pass-through” corporations. Some pass-through corporations are small businesses. Others, however, are hedge funds, law firms, or vehicles for wealthy people to collect specialty income like book royalties.
The plan would also eliminate the Alternative Minimum Tax, a move which would generally benefit the well-off.
Other details of the tax plan will be hashed out in negotiations with Congress. The administration did not offer a legislative timeline for its tax agenda, which will almost certainly meet with staunch opposition from Democrats on Capitol Hill.
Trump’s advisers claimed that economic growth of 3 percent would pay for the trillions of dollars in proposed tax cuts. It would not.
CORRECTION: A previous version of this article misstated the estate tax exemption for 2017. It is $5.49 million, not $5.45 million.