President Trump said Wednesday that his new tax plan wouldn’t benefit the wealthy much – or help him. "My plan is for the working people, and I think very, very strongly, there's very little benefit for people of wealth," he told reporters. In his speech to an Indiana crowd, he said: “I’m doing the right thing, and it’s not good for me. Believe me.”
But the details released so far make it hard to believe the president. “Individual rate cuts, repeal of the Alternative Minimum Tax and the estate tax, and preservation of tax preferences for charitable giving, mortgage interest, and retirement savings all primarily benefit those with high-incomes,” the Tax Policy Center’s Howard Gleckman writes. “Tax cuts for corporations and, especially, pass-through businesses, would mostly benefit the highest-income households.”
The plan proposes to lower the top tax rate from 39.6 percent to 35 percent, while still leaving the door open to an additional top rate that would apply to the highest-income taxpayers. But since the plan doesn’t specify at what income level the top bracket would kick in or what the additional rate would be, it’s not possible to calculate how big a tax cut the rich would get here.
Other elements of the plan are clearly wins for the wealthy. The proposed elimination of the Alternative Minimum Tax and the estate tax could be a big boon for Trump and his family. “Previous analyses found repealing the AMT would have saved Trump $31 million in 2005, the year for which a partial Trump tax return is available,” USA Today points out.
And the special rate the tax plan introduces for “pass-through” businesses would mostly help the wealthy, including Trump, as well. The top 1 percent of earners receive more than two-thirds of pass-through income, and almost 80 percent of the benefit from a 25 percent pass-through rate would go to taxpayers with incomes above $1 million. The Trump Organization stands to benefit, “bigly,” as the “vast majority” of its income is taxed via pass-through enterprises, according to Vox. By contrast, most owners of pass-through businesses — about 85 percent — wouldn’t benefit from the new rate since they already pay a tax rate of 25 percent or less.
The pass-through rate could also open up a loophole that would help the wealthy pay less. “By taxing pass-throughs at the lower rate, the new plan creates tremendous incentive for any upper-income person to find a way to structure that income as pass-through-business income rather than wages,” writes Neil Irwin of The New York Times.
The Trump framework lays out an expectation that Congress will enact some measures to prevent such gaming of the system, but it’s not clear what those might be. “It’s not as if the problem is a new one,” Irwin says, “or that some perfect solution is sitting on the shelf ready to go.”