WASHINGTON – President Donald Trump keeps telling voters that he stands to pay more under the Republican tax legislation. But the evidence suggests otherwise.
Details of the House and Senate tax bills show that an extremely wealthy elite – including the president, his family, many in his Cabinet and members of his golf resorts – would enjoy a bonanza of lavish tax cuts unavailable to the vast majority of taxpayers.
Trump’s businesses would likely face lower rates. He’d pay lower personal income rates. He could avoid the alternative minimum tax, which is designed to ensure that rich households that receive many breaks and deductions pay at least some tax. And his heirs could possibly avoid the estate tax entirely.
It’s an awkward reality for a president who pledged to rebuild the U.S. economy for the forgotten men and women in industrial cities and towns. Yet Trump portrays the tax overhaul as cracking down on millionaires and billionaires because it’s intended to limit itemized deductions for state and local taxes and mortgage interest payments, among other changes.
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“We’re also going to eliminate tax breaks and complex loopholes taken advantage of by the wealthy,” he said in a speech Wednesday in Missouri. “I think my accountants are going crazy right now. It’s all right. Hey, look, I’m president. I don’t care. I don’t care anymore. I don’t care. Some of my wealthy friends care. Me? I don’t care. This is a higher calling.”
It’s possible that Trump and other ultra-wealthy taxpayers could lose certain itemized deductions under the legislation. But those losses would almost surely be dwarfed by the benefits they would enjoy.
It’s hard to say precisely how much the president would profit from the proposed changes. The legislation remains in a state of flux, and some provisions are slated to expire. Also, the president broke decades of tradition by refusing as a candidate and president to release his personal tax returns, so there is no baseline of comparison. But Trump would clearly be defying the odds if he were to face a tax increase.
When the nonpartisan Tax Policy Center reviewed an early version of the Senate tax bill, it found that the proposed changes would steadily favour the top 0.1 per cent of earners with incomes above $5 million. Nearly 71 per cent of this group would get a tax cut in 2019 and 2025; that figure would climb to 98.1 per cent by 2027.
The average tax cut for this group in 2027 would be $223,970 – roughly four times the current median U.S. household income.
So, how exactly would Trump benefit?
Lower tax on business profits
At least temporarily, the Senate bill would slash the tax paid by companies with profits that double as the owner’s personal income. These are known as “pass-through” companies. Trump controls about 500 such entities, according to his lawyers. These companies collectively make up the Trump Organization. Instead of paying at a top rate of 39.6 per cent, Trump would likely be taxed on these profits at closer to 30 per cent.
Alternative minimum tax
Based on leaked pages of Trump’s 2005 taxes, this single catchall accounted for much of his tax burden that year. Under the Republican legislation, the alternative minimum tax would disappear, at least for several years.
In 2005, without the AMT, Trump would have paid just $7 million in federal income and self-employment tax on $153 million in income – a rate of under 5 per cent. The AMT added $31 million to Trump’s bill, leaving him with an effective tax rate of 25 per cent.
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Lower income tax rates
Instead of paying a top rate of 39.6 per cent on his personal income, Trump would be charged at 38.5 per cent in the Senate bill. This is a seemingly modest but likely bountiful tax cut if Trump continues to earn more than $100 million annually.
The House bill would permanently repeal the estate tax charged to wealthy heirs. The estate tax now applies to fortunes above $5.5 million for individuals or $11 million for couples. The Trump administration has portrayed the easing of the estate tax as necessary to protect family farms. But the estate tax hits just 0.2 per cent of taxpayers, a tiny minority that by almost any definition counts as being wealthy. Eliminating this tax would likely help the billionaire president’s own real estate, licensing and marketing interests, which are now being managed by his family.