By Jackie Calmes
New York Times
WASHINGTON >> The stark choice that Hillary Clinton and Donald Trump pose for voters goes as well for their revised tax plans: Trump would simplify the tax code but cut taxes mainly for the rich and add trillions of dollars to the federal debt, while Clinton would do the opposite, an independent analysis released Tuesday concluded.
The review by the Tax Policy Center, a joint research arm of the Brookings Institution and the Urban Institute, is the first to examine the plans since Trump significantly rewrote his proposal after criticisms of its costs and inequities and Clinton on Monday proposed to double the existing tax break for parents with young children.
“They really couldn’t be more different,” Len Burman, director of the center and a professor at Syracuse University, said in a conference call with reporters.
It is unclear that either plan would pass in Congress. If Republicans keep control of the House, even if they lose the Senate, they would probably block Clinton’s proposed tax increases. And while Trump’s plan is similar to one that House Republicans have outlined, many Republicans would probably object to its cost given the size and projected growth of the federal debt as an aging population drives spending higher.
Trump’s tax cuts would be the deepest ever, reducing revenue $6.2 trillion in the first decade and mostly benefiting corporations and the highest-income Americans, the center said. Some middle-income families, however, would receive a tax increase.
With interest, the cost would be $7.2 trillion over 10 years, nearly doubling the growth in the federal debt that is otherwise projected. The cost would build in subsequent decades, though Trump denounces the size of the debt at nearly every campaign appearance.
His campaign disputed the cost estimates, saying that the Tax Policy Center did not account for the economic benefits of his tax cuts and other policies on trade, energy and federal regulations. The center’s economists said they would have another analysis of both candidates’ plans within days that accounts for economic changes, but said it was unlikely to alter their conclusions much.
Clinton would substantially raise taxes on high-income taxpayers, mostly on the top 1 percent; slightly reduce taxes on average for middle- and low-income households; and overhaul corporate taxes. Her plan would increase federal revenue $1.4 trillion over the first decade. Rather than lower the federal debt, however, Clinton would use the money to pay for education and other initiatives.
While Trump, with exceptions, would simplify the tax code, Clinton would make it more complex for taxpayers other than small businesses, the center said. For example, the wealthiest households would face a 4 percent surcharge on adjusted gross income exceeding $5 million, a minimum tax rate of 30 percent, a 28 percent cap on deductions and other tax breaks and a higher capital gains tax on assets held less than six years.
President Barack Obama has repeatedly proposed the minimum tax rate, known as the Buffett Rule for the supportive billionaire Warren E. Buffett, and the cap on deductions, both to no avail in Congress.
While Trump, in keeping with his populist message, frequently points to his proposal to end the so-called carried interest tax break for hedge fund operators and other investment managers, the center’s analysis reaffirmed that his tax plan actually gave them “a much better deal” than the existing tax break, Burman said.
Under current law, much of their income is taxed as capital gains, at a preferential rate of 23.8 percent instead of higher income-tax rates. Though Trump would repeal that break, his plan would allow money managers to pay a new 15 percent business rate and “retain a substantial tax advantage on their income compared with wage earners,” according to the center.
The Trump plan would give the richest 0.1 percent of taxpayers — those with incomes of more than $3.7 million this year — an average tax cut of $1.1 million, for a 14 percent increase on average in their after-tax income. The middle one-fifth of Americans by income would receive a tax cut increasing after-tax income less than 2 percent, on average, while the poorest fifth would get a break of less than 1 percent.
But many large families and single parents — a separate study put the number at about eight million families — would face tax increases under Trump’s proposals. That reflects his proposals to repeal personal exemptions and the head-of-household filing status.
Trump would reduce the top marginal tax rate for individuals, now 39.6 percent, to 33 percent, and the corporate rate to 15 percent from 35 percent.
The Trump campaign has sent contradictory signals about the candidate’s plan for owners of so-called pass-through businesses — sole proprietorships, partnerships and S corporations. Campaign officials have told the National Federation of Independent Business that such businesses could pay a flat 15 percent business rate instead of the generally much higher individual rates they currently pay but told accountants calculating the cost of the plan that they would get no such choice.
Absent clarification from the campaign, the center assumed that choice would be available and concluded the change could lead to significant tax avoidance — of income taxes and payroll taxes that finance Social Security and Medicare — as high-wage employees reclassify themselves as pass-through businesses for tax advantage.
Unlike Clinton, Trump would also repeal taxes on the wealthy that help finance the Affordable Care Act, and eliminate estate and gift taxes. He would tax some capital gains at death and cap some itemized deductions, to hold down his plan’s costs.
Trump, in his plan, does not address the tax breaks so beneficial to real estate developers that may have allowed him to avoid federal income taxes for as much as 18 years. Roberton C. Williams, an economist at the tax center, said about one-tenth of 1 percent of high-income taxpayers avoided any federal income taxes.
But the number may be larger: Burman noted that Trump would not have qualified as rich in the years in question because of the big real estate losses he was claiming.