On January 23rd, 2017, the newly inaugurated president Donald Trump sat in a White House conference room with business leaders and promised massive tax cuts for the middle class and business. Fast forward three months and the White House releases a one-page document outlining "The Biggest Individual And Business Tax Cut In American History."
The New York Times created an excellent graphic illustrating what these proposals will cost or save the government deficit over the next 10 years. According to an analysis by the Committee for a Responsible Federal Budget, which also fuels that graphic, this tax plan equates to around $5 trillion in net tax cuts by 2027.
These cuts do include relief for the middle class in the form of halving the number of tax brackets and doubling standard deduction, but the biggest relief sneaks itself in right at the top of the "business reform" section:
"15% business tax rate"
This doesn't seem out of place unless you know that the current federal corporate tax rate is 35%, meaning this is a 20% tax cut for corporations. The estimated deficit splash for this cut alone is upwards of $3.7 trillion over 10 years, equal to the tax relief estimated for the middle class.
Now tax cuts generally always sound good. No matter how big or small we think the government should be, it always feels better to have Uncle Sam reaching a little less deep into our pocketbooks come tax season every spring. But also regardless of our beliefs, tax cuts don't just mean the government need for that money simply disappears; that would require a greater or equal cut on the spending side of the budget, something that probably isn't on the horizon with a $54 billion defense spending increase and at least $21 billion to build a southern border wall both being requested by the same office proposing these revenue cuts.
The deficit has hovered around $500 billion over the last 4 years and increasing it will also increase the rate at which we accumulate national debt. Currently, our national debt rests at around $20 trillion dollars or around 104% of our GDP. This proposed tax plan alone will increase the national debt by between $3 and $7 trillion dollars over the next 10 years depending on the plan's specifics.
This is where the roadblock stands for conservatives, who criticized the previous administration for the deficit it ran and generally favor smaller government. Increased government spending in a way represents a larger government, as the fed has to step in and borrow that additional tab that tax revenue once provided.
Ultimately, Trump's new tax plan is a SNAFU that will cost a lot to implement and take some changes to make more reasonable. In fact, the only way the timing of this plan could be worse is if congress was embroiled in a budget conflict that threatens to shut down the government again. But what are the odds of those happening at the same time?
