Every four years, presidential candidates from almost every party release their own version of a new tax policy. The tax policy put forward by whoever wins is rarely the tax policy that is implemented, but apparently, every candidate is required to change the law on taxes (obviously, they’re not forced to do this, but no candidate has every seemed happy with the tax code in place while they run). It is pretty standard now for liberal candidates to propose notable tax rate increases on the “one percent of the wealthiest Americans,” and little to no change on taxes of lower-to-middle class Americans, while conservative candidates tend to propose tax cuts for middle-class Americans (and often for wealthy Americans as well), and will almost always propose some form of simplifying the tax code. This is sentiment is seen clearly in the tax policy of Donald Trump.
I should first quickly explain tax brackets. Most Americans, especially those who have paid taxes, grasp how the system works, but there may be some who don’t fully understand the tax code. The first bracket of American taxes is currently, for those filing singly, $0 to $9,275 at a rate of 10%. The second bracket is from $9,275 to $37,650 at 15%. If you make $8,000 a year, you are only taxed at 10%, but if you make $30,000, you are not taxed at 15%; rather, the first $9,275 you make is taxed at 10%, and the remaining (in this case) $20,725 is taxed at 15%. This principle applies to the remainder of the current tax code. The system of paying across brackets, instead of entirely within one’s own bracket, means a tax payer gives less to the government overall than they might think. Now that contemporary tax policy is clear, let’s move on to the new tax policy of specific candidates.
The Donald Trump 'plan' (as it is named on his website), involves throwing out the current plan of seven tax brackets and replacing it with a modest three. The first bracket imposes a 12% tax rate on any individual making $0 to $37,500 annually, and on any joint-filers making $0 to $75,000 annually. This will raise the federal tax rate of any individual-filer living at or below the poverty line, which as of 2015 set at $11,770, by 2%.
The Trump plan will cap federal income tax rates at 33%, which will mean a significant tax reduction of 2-6.6% on federal income taxes of high-income individuals like himself and members of his family. Meanwhile, he will cut the corporate tax rate by 20%, bringing it down to a low 15%. Economists suggest this could cost the federal government almost $10 trillion during its first ten years, then another $15 trillion over the ten years following.
The Donald Trump plan favors those top-earning Americans more than current tax policy already does. When it becomes clear his plan is not raising enough federal revenue, the unavoidable increases in tax rates will place the economic burden on the backs of lower- and middle-class Americans. Seven tax brackets, while more complex than three, give less of a fiscal advantage to higher-income earners. Donald Trump’s three brackets will cripple the amount flowing into the already strained budget.
Tax cuts are nice in theory. It is almost always better to leave more money in the pocket of consumers, who can go and spend across various markets. However, as many congresspeople and senators are quick to point out, there is a spending deficit which has a current cost of over $18 trillion. The reality is that spending will have to be reduced across the board; social programs will need to take cuts, as will military. But if the deficit is to be resolved in a reasonable manner, it will be necessary to raise taxes. The resolution of the deficit lies in a compromise of reducing spending and increasing tax revenue.
Trump has boasted about his tax plan being less complicated and easy to understand. What the candidate seemingly fails to comprehend is that a simplified tax system is not inherently a better tax system.
