BY GRANT BONHAM
President Trump’s most recent tax proposal is short but has a few caveats that are worth unpacking. The outline distributed to the media includes a page of tax policy objectives with no binding content and few specifications. One hundred days into his presidency, Donald Trump is still acting like a candidate, giving little specific policy and pretending to be well acquainted with the proposals he is putting forward. This tax policy is no different, as it aims to simplify tax brackets, the rate your income level is taxed at, but doesn’t say what those brackets are. The outline claims to eliminate deductions for the rich, but it fails to mention what deductions those are. At the same time, the proposal will, if passed, decrease the corporate tax rate to 15 percent, which will massively benefit the wealthy before it benefits anyone else. This massive tax overhaul will do little for the average American, and it will move most deductions and tax breaks to the wealthiest individuals in the country.
Most tax plans follow party lines, with Republicans offering tax breaks and many Democrats vying for heavier taxes on the rich. Though this is consistent with Trump’s tax proposal, there is another element that politicizes the proposal even more. Hidden amongst the chaos of the plan is the elimination of two prominent tax deductions: the property tax deduction and the state and local income tax deductions. These will hit residents of blue states hardest and alienate Republicans from these states in the House and Senate. Those who live in a low tax-and-spend state such as Tennessee and Alaska, both of which voted for Trump, the elimination of these deductions means little, as these states place a smaller burden on individuals. States with high income taxes, however, which are mostly Democratic and voted for Hillary in 2016, will be unfairly punished by this plan. Overall, the 18 states that went blue on November 8 will wind up covering about two-thirds of the revenue increase, while the 31 states that turned red will pay the remaining third. In California, 65 percent of the state’s general fund comes from state income tax, and anything that puts that funding in jeopardy hurts the state. But, because of the vagueness of Trump’s tax brackets, it is difficult to delineate who will be paying more or less.
An individual making around $80,000 per year in California will stay in the same 25 percent tax bracket as before. But because they can no longer deduct their state taxes from their federal tax return, they will pay taxes on an additional $4,460 per year to the state of California. Considering an individual living in San Francisco, where incomes are higher to cover the higher cost of living, and add that they own their home. If this person, who is making $150,000 per year, is now in the 35 percent tax bracket as opposed to their previous 28 percent, they will pay $10,500 more in just the federal income tax increase. Combine that with their increase in taxes on $10,938 of their now non-deductible state income tax and that individual will pay much more under a tax plan that supposedly benefits the middle class.
In addition to the increase in individual income tax, the president’s insistence on reducing deductibles will also negatively impact homeowners in California. By eliminating the property tax deduction, individuals, especially in blue states, can expect to pay even more as their average deductions will drop considerably. California’s average payment on property tax is $3,104, which will convert into another increase in taxes. Higher-priced districts like San Francisco, Santa Clara and Marin will face higher tax increases because of their inherently larger property tax. Because nine of the 10 states with the highest property tax rates voted blue last November, eliminating this deduction is an obvious attack on Democratic states.
This tax plan reduces the burden that the wealthiest will pay by lowering their tax bracket, diminishing the capital gains tax, corporate tax and the carried interest tax, all of which make up a large portion of the taxes that the biggest earners pay. Instead, Trump’s tax plan shifts punishes every individual in blue states. The obvious attack on blue states, however, is also the bill’s ultimate weakness and will, in its current state, leave it unpassable. A tax bill like this will need multi-party support to clear the three-fifths majority necessary for any bill that affects the national debt ten years out. No senate Democrats would be willing to flip on such a poorly constructed bill, effectively making this proposal symbolic. This proposal does, however, fan Trump’s deepest supporters who favor, and will receive under this tax plan, lower taxes. President Trump’s oversimplification of government is apparent again, not only in the length of this memo, but in his failure to understand how tax and budget policies will fare in the Senate.
The president has put forth a tax plan that shows his beneficiaries: his rich donors. Using most of his major appointments to pad the government with Goldman Sachs executives, investment bankers and millionaire donors, Trump has shown that policies that benefit the rich will grow, while the middle class will be left with the tab. The bread and butter of the Trump administration is not Republican populism fueled by a desire to help the middle class – it is, instead, lying and deception. This proposal shows that, once again, this is a president that wants to turn his back on the average voter and pander to the wealthy elites that make up his cabinet.