Donald Trump’s proposed tax plan would blow up the national debt over the next decade, while Hillary Clinton would bring it down but fails to return debt to historically much lower levels.
Those are the conclusions by the nonpartisan Tax Policy Center, in a detailed analysis Tuesday of tax plans from both the major candidates.
Trump would collapse brackets down to three rates, 12, 25 and 33 percent and would lower the corporate tax rate down to 15 percent, and he’d extend that rate to small businesses and partnerships that pass through their business income to owners and managers who declare it on their personal taxes.
These tax cuts for working Americans and business would result in $6.2 trillion in lost revenue over the first decade of implementation and $8.9 trillion over the following 10 years. About 75 percent of the lost revenue would come from the steep cuts in the taxation of businesses and of the wealthiest Americans.
The revenue losses would trigger higher interest rates, making it more costly for the federal government to borrow to meet past obligations and any shortfall that arises from the drop in revenue. When adding those interest costs, the federal debt would grow by $7.2 trillion in 2026 and $20.9 trillion by 2036. Trump has said he won’t reduce military spending, and won’t touch entitlement programs like Medicare and Social Security_ three of the biggest drivers of all federal spending.
The plan would cut taxes at every income level, but high-income taxpayers would receive the biggest cuts, both in dollar terms and as a percentage of income. Tax Policy Center analysis of Donald Trump’s tax proposals.
Importantly, the center did not factor in benefits and losses to the broader economy from the sweeping tax cuts and loophole closers, and did not do so for Clinton’s plan either.
The project’s head, Syracuse University Professor Len Burman, expressed confidence that the Joint Committee on Taxation, the tax analysis arm of Congress, would agree that Trump’s plan lowers economic growth over the course of a decade.
“The JCT would almost surely score the Trump plan as reducing GDP . . . it would push up interest rates,” Burman told reporters. “That’s the traditional analysis unless you assume . . . we could borrow infinite amounts of money from the rest of the world without having any effect on interest rates.”
Traditional economic models show higher interest rates lead businesses to invest less and weaken productivity, which in turn leads to flat or negative wage growth. It would also push up the cost of taking out a mortgage or car loan.
“This is the traditional analysis, and we think it is right,” said Burman.
Clinton’s tax plan works in the opposite direction. It would reduce the deficit by raising $1.4 trillion in new revenue through 2026, and another $2.7 trillion in the decade after that. It would trigger savings in interest costs, and as a result the center concludes the deficit would fall $1.6 trillion over the next 10 years.
But a whole range of new spending promised by Clinton on the campaign trail would likely make the savings a wash and result in the current status quo, which has debt levels as a percentage of the economy at twice their historical rates. It presumes, said Burman, adding that current debt levels largely continue over the next decade.
“At least she doesn’t make things worse,” said Burman, noting that Clinton would add new layers of complexity to an already complicated tax code.
Clinton’s deficit reduction comes from higher taxes on the wealthiest, and her plan would reduce the after-income tax of the top 1 percent of earners by 7 percent, the center estimates. Low and middle-income workers would see modest gains in after-tax income of 1 percent or less.