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Five Myths About the Trump Tax Plan

The Trump tax plan, which 55% of Americans oppose, will personally benefit Trump to the tune of $11 million a year. This blog post addresses five major myths that proponents of the plan have used to justify its passage.

Myth #1: Trump’s tax plan will benefit middle-class Americans.

Fact: Trump’s tax plan raises taxes on middle-class Americans and mostly benefits wealthy Americans. 

  • According to a report from the Congressional Budget Office, Trump’s tax plan will increase the tax burden for families making less than $75,000 (see Chart 1).
  • The U.S. Census reports that median household income in the U.S. is $57,617, which means that most middle-class Americans will see their taxes increase, not decrease. In fact, within a decade, 53% of Americans will see their taxes go up as a result of Trump’s plan.
  • These figures do not account for the estimated 13 million poor and middle-class Americans who will lose their health insurance as a result of this tax plan.
  • So who is helped by this tax plan? According to the Tax Policy Center, 83% of the tax reductions in Trump’s plan go to wealthiest 1% of Americans.

Chart 1: Tax Change by Income Level

Chart 1.png

Myth #2: Trump’s tax plan reduces the highest corporate tax rate in the world (35%).

Fact: U.S. corporations don’t actually pay 35%, and now they will pay even less.

  • The U.S. has the third highest tax rate in the world, but this is on paper only.
  • The Trump tax plan reduces corporate income tax from 35% to 21%, but because of loopholes, the 35% tax rate has always been a myth. According to a study from the Institute on Taxation and Economic Policy, corporations pay an average effective tax rate of 21.2%, and 6.9% of corporations pay no income tax at all.
  • Since the Trump plan doesn’t remove corporate loopholes, the effective corporate income tax rate will be much lower than 21%.

 

Myth #3: The Trump tax cuts will pay for themselves.

Fact: The Trump tax cuts will add over a trillion dollars to the national debt.

  • The national debt is the amount of money the U.S. government owes to public investors, foreign governments, and other investors. The current debt is over $20 trillion.
  • According to the Joint Committee on Taxation, Trump’s plan will add an estimated $1.5 trillion to the debt over ten years (see Chart 2).

Chart 2: Impact of the Tax Plan on the Debt

Chart 2

Myth #4: Tax breaks for corporations and the wealthy will benefit everyone.

Fact: Trickle-down economics harm middle-class Americans and the economy.

  • This claim is premised on trickle-down economic theory, or the idea that corporations and wealthy Americans will use the extra money they get from tax cuts in ways that benefit middle-class Americans (e.g., hiring more employees, paying better wages). The problem is, trickle-down tax cuts do not create jobs (see Chart 3) or better wages.
  • Trickle-down economic theory has been debunked in practice. For example, Ronald Reagan’s 1981 tax cuts tripled the deficit and widened the gap between rich and poor. More recently, Republicans in Kansas ran a “real live experiment” of trickle-down economics in which they cut taxes for top earners. Within two years, tax revenues plummeted, the state slashed basic government services, and the “experiment” was reversed by lawmakers.
  • Beyond not working, trick-down economics hurts the economy by reducing the purchasing power of middle-class Americans—a major driver of a healthy economy. According to the OECD, the U.S. has the largest gap between rich and poor of any advanced industrialized nation, and the Trump tax plan widens the gap.

Chart 3: The Impact of Trick-Down Tax Cuts on Job Growth

Chart 3.png

Myth #5: Trump’s tax plan puts an end to red states subsidizing blue states.

Fact: Blue states already subsidize red states, and now they will subsidize them even more.

  • The Trump tax plan has a nakedly partisan provision that eliminates the state and local income tax deduction that is mostly used by taxpayers in high-income, high-tax states such as New York, California, New Jersey, and Pennsylvania.
  • Right-wing media has framed this as putting an end to red states subsidizing blue states, but the opposite is true. Blue states subsidize red states by paying more in federal income taxes. For example, New Jersey receives only 48 cents back for every dollar it sends to the federal government, while Alabama receives $2.46 for every dollar sent.
  • On a scale from 1 being the most dependent to 50 being the least dependent on federal money, red states have an average ranking of 18.3 compared to 33.2 for blue states.

*****

Prominent Republicans have admitted that the Trump tax plan is the first strike in a one-two punch sequence. The first punch cuts revenues that will quickly cause the deficit to skyrocket. This gives Republicans a reasonable excuse to land the second punch of cutting entitlement programs. Social Security and Medicare are but a few programs set for the chopping block.

Democracy suffers when the largest tax reform in three decades that is opposed by a majority of Americans is signed by a president voted in by only 19.5% of the electorate, who has approval from just 35% of Americans (the lowest of any president in their first year) and 41% want to impeach. This is a fundamental violation of government of the people, by the people, and for the people.

 

 

 

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