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Trump’s Tax Plan: The Good, the Bad, and the Not-that-Bad
Here are the highlights of Donald Trump’s tax plan, announced today, interspersed with a few comments from me:
If you are single and earn less than $25,000, or married and jointly earn less than $50,000, you will not owe any income tax. That removes nearly 75 million households – over 50% – from the income tax rolls.
This is not a good idea. People who pay zero income taxes have little incentive to care about either how the government spends its money, or how much it spends. They have no incentive to vote for candidates who promise tax reductions, but they do to vote for candidates who promise spending increases.
All other Americans will get a simpler tax code with four brackets – 0%, 10%, 20% and 25% – instead of the current seven. This new tax code eliminates the marriage penalty and the Alternative Minimum Tax (AMT) while providing the lowest tax rate since before World War II.
Simple is good. Few brackets are good. Even fewer would be better still. Why not 10% and 25% and leave it at that? Eliminating the AMT and the marriage penalty are terrific ideas, though hardly new ones.
No business of any size, from a Fortune 500 to a mom and pop shop to a freelancer living job to job, will pay more than 15% of their business income in taxes. This lower rate makes corporate inversions unnecessary by making America’s tax rate one of the best in the world.
Business income tax rates should be low, but should they be lower than tax rates paid by employees? Why not similar rates regardless of how the income is earned?
No family will have to pay the death tax. You earned and saved that money for your family, not the government. You paid taxes on it when you earned it.
That’s all good.
Reducing or eliminating most deductions and loopholes available to the very rich.
Why not reduce or eliminate them for everyone? Why encourage rent-seeking by gaming the tax system? For example, why should senior citizens (I am one) spend so much of their resources lobbying for better tax treatment for themselves at the cost of harsher treatment for the young?
A one-time deemed repatriation of corporate cash held overseas at a significantly discounted 10% tax rate, followed by an end to the deferral of taxes on corporate income earned abroad.
This is difficult to evaluate. Why should income earned abroad and kept abroad be taxed by the United States at all? Do other countries do that? Is it just that it’s something to tax so we will tax it? What are the consequences for our trade relationships?
Reducing or eliminating corporate loopholes that cater to special interests, as well as deductions made unnecessary or redundant by the new lower tax rate on corporations and business income. We will also phase in a reasonable cap on the deductibility of business interest expenses.
The first part is quite sensible. But reducing the deductibility of interest expense should lead to less money being borrowed, and therefore less debt in corporate financial structures. If that is a good thing, then this is a good policy suggestion. But if it is a good idea, then why not go the other way and tax the paying of dividends the same as the paying of interest, which is to say, make them deductible? That way, decisions on capital structures will be based entirely on economic factors, not tax avoidance.
Published in Domestic Policy, General, Politics
No, I’m expecting that as citizens we share the responsibilities of citizenship. The amount and method of satisfying that responsibility is up for debate, but the responsibility exists no matter where one lives.
As far as whether the ability to re-enter the US is worth worldwide taxation, that isn’t a factor for me. I was only suggesting it for your consideration since you couldn’t conceive of a benefit to US citizenship for those living abroad. I already said that for me it’s a matter of the responsibility of citizens to contribute just like the rest of the citizens. If I were in that situation, though, I would think of it as a huge benefit.
Speaking of which, in my own land of rainbows and unicorns, I like the idea of pegging some element of the tax rate to the government deficit. Say the govt wants to run a deficit of 10%; people pay more tax. Say the govt eliminates the deficit; people pay less tax.
Ok, but I don’t have to support any of this to maintain that I’m not bothered by the desire to renounce citizenship, which is the point I was responding to.
From each according to his ability…
That’s not at all what I said.
Do citizens have a responsibility to pay taxes or not? Or is it that you think different citizens should pay differently?
I think residents have an obligation to pay because they are recipients of the benefits of taxation. Citizens abroad are not the recipients of those benefits and thus should not have to pay taxes.
A good example is Social Security – income earned abroad does not go into the calculations for social security payments, but you still get taxed to pay for it (I am dismissing the ridiculous illusion that payroll taxes are funding Social Security).
It can be very complicated depending on jurisdiction, type of income, etc. but, in general, companies do not face double taxation on foreign income. They receive a credit for taxes paid to the foreign jurisdiction (this calculation itself can be quite complex) and then owe incremental tax to the US government upon repatriation, the amount of which is the tax owed at a 35% tax rate on that foreign income less the actual tax paid to said foreign jurisdiction. This is an oversimplification (there are exclusions, an AMT rate, etc.) but you get the drift.
Not quite following this. If a US company earns income in a foreign jurisdiction that does not tax corporate income, that company “should” pay tax in the US? Why?
Puerto Rico could not be reached for comment.
I’m not saying they should pay US taxes, rather that it doesn’t bother me much if they do, since it’s not double taxation.
I would make the analogy of a commuter who lives in New Jersey and works in Pennsylvania. If he pays income tax in Pennsylvania it’s unfair to make him pay again in New Jersey. But if he doesn’t have to pay the former I’m okay with him paying the latter.
I should add that I don’t think corporations should pay any taxes.
That the principle isn’t applied consistently is not a refutation of the principle.
Trump’s tax plan in a word: MOOT.
It does not matter one iota. Might be a good plan. Might be a bad plan. Either way, the problem is, it is not real. Coming from Trump, the “Game Player,” it’s smoke and mirrors.
Although I’d also say that of any plan to come from any campaign. None of it is real; none of it will ever see the light of day as a duly enacted law; all of it will be tempered and compromised by opposing views and by new and more complete information.
Broad vision and principles are more important. I really can’t speak to Trump’s sincerity on any of this – that’s the problem with Trump’s mode of being (or one of the problems).
And this is where I find Trump’s broad vision on taxes to be dangerous – it is not a good, let alone conservative, policy goal to remove even more people from the tax rolls.
One more point: A person with a zero tax rate cannot be incentivized with the promise of tax cuts.
check out Epstein on the Libertarian Sept 23. Very interesting discussion of taxes, especially an approach to a consumption tax I’ve never heard before. By George I think he’s got it.