Donald Trump is expected to release his tax plan at some point today, but he let 60 Minutes in on a little sneak peak. There’s good news and bad news on the plan. Here’s the good news first.
Donald Trump: I know. I know. I will say this, there will be a large segment of our country that will have a zero rate, a zero rate. And that’s something I haven’t told anybody.
Scott Pelley: You’re talking about–
Donald Trump: We’re talking about people in the low-income brackets that are supposed to be paying taxes, many of them don’t anyway.
Scott Pelley: You’re talking about making part of the population exempt from income tax?
Donald Trump: That is correct.
Scott Pelley: You’re talking about cutting corporate income taxes?
Donald Trump: That is correct.
So, so far so good because it lowers some tax rates to zero and cuts the corporate tax rate. But then Trump goes into complete Bernie Sanders land by saying he wants to raise taxes on the rich (emphasis mine)!
Scott Pelley: Who are you going to raise taxes on?
Donald Trump: If you look at actually raise, some very wealthy are going to be raised. Some people that are getting unfair deductions are going to be raised. But overall it’s going to be a tremendous incentive to grow the economy and we’re going to take in the same or more money. And I think we’re going to have something that’s going to be spectacular.
Scott Pelley: But Republicans don’t raise taxes.
Donald Trump: Well, we’re not raising taxes.
It’s so amusing how he says, “we’re not raising taxes” after saying he was going to raise taxes on some of the very wealthy. But it’ll be interesting to see just how high the tax rates for the wealthy will be and how Trump plans to off-set the lost revenue on the middle class. It’s not a bad thing to lower taxes on any class, however any tax cuts have to be off-set by spending cuts. It’s the nature of the beast, which both Republican and Democrats fail to realize over and over and over again. By focusing on hitting upper income wage earners, it could end up hurting more than it helps. Folks like Bernie Sanders like to cite the fact there was a 91% tax rate on the rich in 1954. But Amity Shlaes wrote in Bloomberg in 2013 how that wasn’t quite true.
Official rates matter, but so do effective rates, the percent of income that people actually pay in tax. The Internal Revenue Service reckoned that the effective rate of tax in 1954 for top earners was actually 70 percent.
Or lower. Marc Linder, a law professor at the University of Iowa, has shown that a more comprehensive interpretation of income that includes capital gains suggests the real effective tax rate for millionaires was 49 percent in 1953. The effective rate dropped throughout the decade, reaching 31 percent by 1960. That 31 percent is just slightly higher than the 29 percent level a Congressional Budget Office report figures the average effective tax for the top quintile will be in 2014. And that number for 2014 doesn’t include taxes in Obama’s health-care law.
A second fantasy about the 1950s is that government soaked the rich. Joseph Thorndike and Martin Sullivan in Tax Notes magazine took a look at the tax distribution of the decade. They found that those earning more than $100,000 paid less than 5 percent of the taxes collected in the U.S., a far smaller share than the wealthiest shoulder today.
Here’s the other concern regarding Trump’s tax plan: the rich are already being soaked pretty hard as it is. Take a look at the 2015 tax rates set by the IRS.
To put it in real numbers, single people who make a million dollars in a year, actually make $662K, while married couples filing jointly who make a million a year, actually make $673K. Married couples filing separately make $652K. That’s only calculating federal tax and has nothing to do with the states which have income tax as well. The only other candidate, at this moment, who is proposing a tax hike is Bernie Sanders. Here’s his plan.
Trump’s plan may be less than Sanders, but that still doesn’t mean it’s a good idea. He still has to explain how much his plan to take care of the “lower 25%” on health care will cost (emphasis mine).
Donald Trump: There’s many different ways, by the way. Everybody’s got to be covered. This is an un-Republican thing for me to say because a lot of times they say, “No, no, the lower 25 percent that can’t afford private. But–”
Scott Pelley: Universal health care.
Donald Trump: I am going to take care of everybody. I don’t care if it costs me votes or not. Everybody’s going to be taken care of much better than they’re taken care of now.
Scott Pelley: The uninsured person is going to be taken care of. How? How?
Donald Trump: They’re going to be taken care of. I would make a deal with existing hospitals to take care of people. And, you know what, if this is probably–
Scott Pelley: Make a deal? Who pays for it?
Donald Trump: –the government’s gonna pay for it. But we’re going to save so much money on the other side. But for the most it’s going to be a private plan and people are going to be able to go out and negotiate great plans with lots of different competition with lots of competitors with great companies and they can have their doctors, they can have plans, they can have everything.
For those keeping score at home, that’s single-payer health care, the thing Nancy Pelosi pushed last year. I’m a little curious how “the base” would react if say Ted Cruz or Ben Carson proposed the tax hike and single-payer. If it were Jeb Bush, “the base” would probably be running for the pitchforks and torches quicker than you can say “No more Bushes!” It just doesn’t seem logical for them to say, “Damn the GOP Establishment for wanting this!” but thinking it’s just fine and dandy for Trump to want it. The flat tax plans proposed by Ben Carson (10%), or Rand Paul (14.5%) are more palatable, even if I personally think they’re still too high. The Fair Tax idea of a 23% sales tax is still too high for my own personal preference, but I’m not against discussing a lower rate if it means no more income tax. There are just too many questions on how Trump’s “preview” of his tax proposal will actually help the U.S. more than it will hurt. He could surprise me in a good way, but I’m not betting on it.