Trump's Plan for the Economy Does Almost Nothing For Working People, Helps Rich Get Richer
Republican presidential nominee Donald Trump gave an economic policy speech yesterday. Besides peddling his standard trade scam, Trump doubled-down on one of his favorite tax scams, and unveiled an entirely new scam.
The speech itself was wrapped in the guise of global economic “competitiveness,” a mostly meaningless term which my colleague Josh Bivens and I will expand further on in an upcoming paper. Trump misleadingly claims that U.S. firms face the highest taxes in the world, and therefore his plan slashes the corporate income tax rate from 35 to 15 percent. Since capital income is heavily concentrated at the very top of the income distribution, and the corporate income tax largely falls on the owners of capital, this is a steeply regressive tax cut.
But Trump would go one step further, creating an enormous tax loophole for the rich by applying his 15 percent corporate rate to “pass-through” entities as well. Pass-through entities are businesses whose income are not taxed at the corporate level, but rather passed through entirely to the businesses’ owners and then taxed at the owners’ individual income-tax levels. High-income households can easily avoid paying their full income tax bill by reclassifying their income as pass-through income. This loophole allows Trump to claim that he is closing the carried interest loophole, while actually lowering the rate that hedge fund managers would pay from 23.8 percent to 15 percent. Incidentally, this loophole has already been tested, which proved disastrous for Kansas Governor Sam Brownback. So disastrous in fact, that Kansas primary voters have ousted more than a dozen Brownback-aligned incumbents in response.
Trump’s newest scam is his proposed deduction for childcare expenses. As my colleagues Elise Gould and Tanyell Cooke detailed, working families are unable to afford high quality child care. And capping child care expenses at 10 percent of household income, as Democratic presidential nominee Hillary Clinton has proposed, could give these working families significant and much-needed savings. With his proposal to offer fully tax deductible childcare, Trump is trying to tap into these concerns.
However, with this proposal, just as with Trump’s corporate tax proposal, the devil is in the details. By offering a tax deduction for childcare, Trump is proposing a child care plan that will absolutely miss the working families that need help the most. Since the proposal is an income tax deduction, instead of a refundable credit, the proposal will not help any of the working families included in the 44 percent of households that pay no federal income tax (many pay plenty of federal payroll taxes). Further, the unavoidable truth of tax deductions is that their value increases as families enter higher tax brackets. This means those in the highest tax bracket will receive a larger benefit than a middle-class family, even if they have the same child care expenses. So Trump’s plan would not help the poor and lower-middle class needing affordable child care, but it would redistribute income upwards among those who would benefit from the deduction.