On Wednesday, March 29th, Mansha gave a presentation summarizing Donald Trump’s proposed tax plan and policies and resulting effects that they would have on the economy.  Sources included an NPR article, “Who benefits from Donald Trump’s Tax Plan?”, written shortly after the 2016 Presidential Election, and a research report from the independent Urban-Brookings Tax Policy Center analyzing the plan, published at the end of 2015.

In the NPR article, there were two perspectives introduced: Steve Calk, Trump economic advisor arguing that the new plan has tax cuts across all brackets, and Lily Batchelder, NYU law professor, who takes an opposite stance. From a practical standpoint, both stances can’t be true, but in reality, taxes, brackets, and exceptions are much more complicated than just a flat percentage.

Before looking at the actual policies, it is interesting to note that Trump’s supporters voted to raise taxes for the wealthy and give massive tax cuts to the middle class, normally Democratic Party positions. As Trump is affiliated with the Republican Party that has traditionally advocated for the wealthy and big businesses, there has been a large ideological shift across partisan lines with this last election. But does Trump’s proposed plan really do what his supporters asked for?

And broadly speaking, is it feasible?

Main Changes:

• Reduced number of tax brackets.
• Lower income taxes.
• Higher minimum tax deductions.
• Tax code simplified for the everyday American.
• Taxing foreign subsidiaries of American businesses at a higher rate.
• Remove estate and gift taxes.

Under current tax law, marginal tax rates are: 10% for $0-9,275, 15% for $9,275-37,650, 25% for $37,650-91,150, 28% for 91,150-190,150, 33% for $190,150-413,350, 35% for $413,350-415,050, and 40% for single individuals who make $415,050 and more. Maximum deduction of $6,300. The income levels are slightly higher by rate for head of households, and approximately doubled for married couples filing jointly.

Under Trump’s proposed brackets, marginal tax rates for single individuals are 12% for $0-37,500, 25% for $37,500-112,500, and 33% for $112,500. The maximum deduction is $15,000. The head of household category is eliminated and the income levels for those married filing jointly are approximately double.

Facts: Tax rates are not lower than before across all brackets. Those who make less than $9,275 will have a higher tax rate, as will those who make between $112,500 to $190,150, and head of households will not be able to take exemptions for dependents. Additionally, the wealthy, and very wealthy are getting an extreme tax cut, not having their taxes raised as Trump’s supporters advocated.

One reason for tax brackets and different marginal rates by bracket (higher for high income, lower for lower income) is to reduce the tax burden on lower or middle income individuals. If a single person is supporting a family of three or four in New York and makes $150,000 gross annually, after paying personal income taxes, will have $114,375 left under Trump’s plan, and then must pay state and city taxes, and then insurance, and then rent or mortgage expenses, so not too much is left to spend on daily necessities and cost of living. (Also can no longer take $4,000 exemptions per dependent in household.) That person under Trump’s plan is considered under the same rate at someone who makes $400,000 or $4,000,000. The problem with too few tax brackets is that there is a great wealth disparity within each bracket. Plain and simple, lower income individuals have a greater tax burden than wealthier individuals do, no matter the tax rate, because there is a minimum income required to live. Granted, cost of living may range from state to state, city to city, but a working adult cannot sustain him or herself independently without a certain amount of money after paying taxes.

Additionally, cutting tax rates for the wealthy places a strain on the government’s budget. If the US government has to borrow more and increase interest rates to offset the cost of borrowing, people will be less likely to take out loans and invest money, resulting in a negative effect that could offset the positive effect of lower income taxes on the economy. Steve Calk is strongly in favor of the new policy, saying income after tax will be much greater all around, lower income, unemployed, or underemployed people will get real jobs and benefits with this incentive, and since the corporate tax rate will shrink from 35% to 15%, businesses will boom. However, economists estimate a $65 trillion in government revenue loss. If interest rates do not rise, national debt could increase by 80% of GDP by 2036. Lily Batchelder focuses on the disproportionate tax rate reduction for the wealthy (esp. the top 1%) as opposed to the middle class family. Couple that with no more federal estate tax (only applies to 0.2% of taxpayers), and this plan seems to only benefit the very wealthy, with minimal benefits or even increased taxes for everyone else.

In class discussion, some comments and additional topics touched upon included how much this plan and its presumed effects are based on speculation, especially as Trump’s healthcare proposal fell through, the effect of taxes on foreign subsidiaries will have on reshoring and the US economy, and . Supporters of Trump’s proposals are holding two main assumptions, when people end up with more pocket money, they’re going to spend it more wisely, and that government interest rates won’t be forced up. Also, lower corporate taxes and discouraged foreign imports will increase competition and encourage the job economy.

Reshoring is the idea that US companies bring back jobs that had been outsourced to foreign soil back to the US. Trump plans to induce large corporations to reshore their factories and employees locally, increasing the number of both skilled and unskilled jobs available.  American produced goods though, are generally more expensive and generally are less affordable for the everyday American, making living costs shoot up. However, companies might bring back their engineering processes, which might spark tech seminars and innovative events with local high schools.

Overall, Trump’s proposed tax changes have many different implications, and if enacted, could affect the US and global economy and “forgotten man” in many possible ways.