Growth And Research Skills

The Donald has allegedly released a one page document that outlines his tax proposal.  We say allegedly because lots of folks are evaluating the document but nobody says where it is.  It isn’t on the White House site (at least as of now).  We can’t find it linked on any of the WSJ, NYT, or WAPost articles.

Sidebar: We did find this from Laura Saunders:

Say a business owner has net income of $1 million a year from a partnership, plus substantial other income. Currently the top tax rate on the $1 million is 39.6%, or $396,000, whether the income is wages paid by the partnership or business income.

Laura and her editors should know that 39.6% is the marginal rate that kicks in, depending on your filing status, after $400,000 in taxable income.  She is confusing the average tax rate with the marginal tax rate.  Thus, her analysis of the potential savings to business owners is way off.  Her evaluation of the ease of transferring salary to business income is also way off.  It is a challenge but the IRS is willing to litigate historically.  There is no reason to think that they would change their behavior when more is at stake.  Despite Laura getting the arithmetic wrong, it would be a benefit to the owners organizations like accounting firms.  End Sidebar.

There do seem, however, to be some agreement on the points of the plan:

  • Reducing corporate tax rates substantially [Yea!, Yea!, Yea!]
  • Reducing pass thru rates (as in the sidebar) substantially [Yea!]
  • Going to a territorial tax plan [Yea!, Yea!]
  • Reducing individual rates [How much?  We would not go far.]
  • Eliminating some deductions and increasing standard deduction [Yea!]
  • Eliminate the Alternative Minimum Tax [Yea!, Yea!]
  • Eliminate the Death Tax [Yea!, Yea!]
  • It does not include the Border Adjustment Tax (BAT) [Yea!, Yea!]
  • The plan will pay for itself [Boooo!]

It looks like a rational plan.  We believe in the growth fairy but are concerned about the impact on the deficit.  The plan needs to be evaluated on dynamic scoring but the deficit reduction cannot be a vague plan in the out years.  The Donald has wisely left out lots of details to give room for  negotiation.  The downside is that it leaves open the deficit solution of bringing in the BAT.  Let’s consider the plan in regular order.

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