Experts weigh in on impact of Trump's tax plan

Experts say economic growth likely won't be enough to offset the tax cuts.

ByABC News
April 26, 2017, 5:38 PM

— -- Experts are already taking issue with president Trump's newly-released tax plan -- in particular the White House's claim that economic growth would offset huge losses in government revenue from the proposed corporate tax cuts.

The plan calls for the corporate tax rate to be slashed from 35 percent to 15 percent. And the new plan would consolidate the seven tax brackets for individuals and reduce them to only three brackets: a 10-percent bracket, a 25-percent bracket and a 35-percent bracket.

Right now, the highest individual federal income tax rate is just shy of 40 percent. Trump's plan also doubles the standard deduction, meaning that a married couple would pay no taxes on the first $24,000 they earn.

The plan, summarized on just one page to reporters at the White House, lacks many of the details needed to make projections about its long-term effects.

Alex Raskolniknov, a tax professor at Columbia Law School, was alarmed by the lack of precision in the plan. "If this were any other president, this would have been a huge embarrassment of a "plan,'" he wrote to ABC News. "He's had more detail in his tax plan when he was running for president. What was all the hype about this time? ... It's hard to take this seriously ... except it comes from the President of the United States."

And every expert who spoke to ABC News said that the plan would result in a large drop in federal government revenue and a spike in the federal budget deficit.

“This is all candy and no vegetables,” said Marc Goldwein, Committee for a Responsible Federal Budget. Goldwein said he thinks a 25-percent to 28-percent corporate tax rate would strike a good balance between economic competitiveness and fiscal responsibility.

Economists have estimated that Trump’s tax plan could cost between $2 and $7 trillion over the next decade. An analysis by the Tax Foundation, a nonpartisan think tank in Washington, D.C., concludes that a 15 percent corporate tax rate would reduce federal revenue by about $2 trillion over a decade, while the Urban-Brookings Tax Policy Center puts that estimate at $6 trillion. The bi-partisan Committee for a Responsible Federal Budget offers a range of costs from between 3 and 7 trillion dollars in lost revenue over the next decade.

“This is probably not to be taken seriously. It’s too huge a revenue loss. It is so fiscally reckless that it appears to be willful sabotage of the U.S. economy,” said Daniel Shaviro, a tax professor at NYU School of Law.

Economist Doug Holtz-Eakin, who lead the Congressional Budget Office under former President George W. Bush, agreed that the economic growth won't be enough to offset the massive loss of revenue.

“Passing genuine tax reform would include structural changes. As long as those are not included, it is not reform. This bill as presented would add to the deficit. Growth alone cannot account for the loss of revenue from tax cuts. This means it cannot pass the reconciliation process and will not be able to become law,” said Holtz-Eakin.

“There was no thoughtfulness to this. It’s just cutting tax rates and wishful thinking about economic growth," said Steven Rosenthal from the Tax Policy Center. “All they can came up with was one page of platitudes.”

Treasury Secretary Steve Mnuchin argued that economic growth will pay for most of the massive tax cuts. "This will pay for itself with growth and with reduction of different deductions and closing loopholes," he said at the White House briefing today.

Some experts agree that the U.S. corporate tax rate needs to be lowered to make the American businesses climate more competitive. While the highest American corporate tax rate is 35 percent, the average effective corporate rate in the U.S. is 29 percent, the third highest in the G-20, said Goldwein.

While lower taxes can lead to higher growth, there’s also a “fiscal drag,” said Shaviro. “There’s crowd-out, because there’s so much public debt and that takes money from private investment and bids up interest rates.”

The experts also cautioned that lowering the tax rate for "pass-through entities" -- like sole proprietorships, partnerships, hedge funds and real estate concerns -- could cause troubling distortions and further inflate the deficit. The Trump administration has proposed dropping the tax rate for these businesses from up to 39.6 percent to just 15 percent.

“You could have partners in law firms and surgeons paying less than their secretaries,” said Shaviro. “Very wealthy people can set up phony structuring to make themselves ‘self-employed,’” he added. “It’s like a fine for being an employee -- the government is saying ‘we hate employees, so we’re punishing you for not working for yourself.’”

Editor’s note: An earlier version of this story incorrectly identified the university where Daniel Shaviro works. He is a professor at the NYU School of Law.

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