Trump’s new plan would provide more modest cuts in individual tax rates. It sets up three rates -- 12 percent, 25 percent and 33 percent, which would replace the current seven rates, which top out at 39.6 percent. (He’d originally proposed lower rates of 10 percent, 20 percent and 25 percent.) Combined with policies that would roll back business regulation and stimulate growth in the domestic energy industry, Trump’s plans would create enough economic growth to cut the 10-year revenue cost to $2 trillion or less, Moore said.
Child-Care Deduction
One new provision in Trump’s plan -- a proposal that parents be allowed “to fully deduct the average cost of child-care spending from their taxes” -- may provide much more benefit to taxpayers in the upper-middle class. Details of the plan are sketchy so far, but workers whose incomes are so low that they owe no taxes might not be able to take advantage of the deduction, while those with higher incomes could.
“Trump has moved away from his original plan of benefits to the middle class,” said Martin Sullivan, the chief economist at Tax Analysts, a widely-read trade publication.
By enlisting the aid of Moore and Kudlow -- both former advisers to President Ronald Reagan -- Trump has increasingly embraced so-called supply-side economics, a standard of the the 1980s that holds that high tax rates discourage economic growth. The theory’s validity is hotly debated by economists.
Trump “has drunk the supply-side Kool-Aid,” said Sullivan.
Pass-Through Plan
While Trump’s revised plan does indeed provide a shallower rate cut for top earners -- proposing to tax their income at 33 percent instead of 25 percent -- the plan contains another provision that may soften the blow: a new business tax rate of just 15 percent.
That rate would apply to all business income, including income that individuals earn from partnerships, limited liability companies and other “pass-throughs.” A pass-through business entity pays no taxes itself, but sends earnings onto its individual members, who pay income taxes depending on their tax bracket -- at rates as high as 39.6 percent. Under Trump’s plan, they’d pay just 15 percent.
More than two-thirds of all such pass-through income flows to the top 1 percent of tax filers, according to the Center for Budget and Policy Priorities. In a research note published after Trump’s speech Monday, the group said the Trump’s business-tax proposal might prompt wealthy taxpayers to “reclassify a greater share of their income as pass-through income in order to take advantage of this much lower rate.”