Yesterday President Trump’s new tax plan was unveiled by Secretary of Treasury Steve Mnuchin and Director of the National Economic Council Gary Cohn who offered an outline of the tax cuts and tax reform proposals during a White House press briefing.
President Trump had previously claimed that his new tax plan would be the largest tax cuts since the Reagan tax cuts in the 1980’s and are intended to grow the economy, create more jobs, provide tax relief to American families, and simplify the tax code.
The individual tax reforms the Trump administration unveiled yesterday includes doubling the standard deduction while protecting mortgage interest deductions, charitable gift tax deductions, and reducing tax brackets from 7 to 3 with brackets of 10 percent, 25 percent, and 35 percent.
Repealing the Alternative Minimum Tax, the death tax, and the 3.8 percent Obamacare tax on businesses and investment income are also part of Trump’s tax reform measures in addition to offering tax relief for families with child and dependent care expenses.
The business reforms includes lowering the corporate tax rate from 35 percent to 15 percent, offering a one time tax of an unspecified amount for the trillions in repatriated dollars that are held overseas, offering a territorial tax system, and eliminate tax breaks for special interests.
The revised corporate rate of 15 percent will also be applicable for small and medium-size businesses in addition to large and corporate size.
Secretary Mnuchin called Trump’s tax cuts the “biggest tax cuts in history” and said during the press conference that their objective is to make U.S. businesses “the most competitive in the world” and get GDP growth back to 3 percent or higher.
The ambitious economic goals President Trump has established with his new tax plan sounds appealing but questions remain about whether the math and logistics of offering deep tax cuts would actually work without raising revenues and solely clinging to the view that stimulative economic growth created from the Trump tax cuts in the economy would offset the shortfall in federal revenues and not add to the national debt.
The Tax Policy Center, affiliated through the Brookings Tax Policy Center, has recently analyzed Trump’s revised tax plan and discovered that Trump’s tax proposals would cut taxes at all income levels but the largest benefits, as measured in dollar and percentage terms, would go to the highest-income households while federal revenues would plummet and the federal debt would skyrocket.
“Federal revenues would fall by $6.2 trillion over the first decade before accounting for added interest costs” the Tax Policy Center concluded.
“Including interest costs, the federal debt would rise by $7.2 trillion over the first decade and by $20.9 trillion by 2036” the Tax Policy Center added.
When Secretary Mnuchin was questioned during yesterday’s press conference if it turns out that Trump’s tax plan won’t be paid for by growth and keep federal deficits in check, he responded in rosy terms and claimed the Trump tax plan is somehow going to lower the debt-to-GDP, grow the economy, and “create massive amounts of revenues, trillions of dollars in additional revenues.”
One of the floated proposals for raising revenues, the border adjustment tax, has already been shot down and is no longer being seriously considered by the Trump administration.
President Trump is now left trying to convince federal deficit hawks in his own party and skeptical Democrats that his new tax model, which is oriented around “trickle down economics,” is credible and is what America needs to grow the economy and to create more jobs.
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