Scott Greenberg, of the conservative Tax Foundation, cautioned against jumping to conclusions about who will benefit more, given the scant level of specificity released. But he said “clearly some elements” of the plan will reduce the tax liability of high income households.
He misleadingly said the ending the “crushing” estate tax will overwhelmingly help farmers and small business owners.
The primary benefactors of an estate tax repeal are not small businesses or farms, as Mr. Trump claimed; most farmers will not be impacted by it.
Analysts at the nonpartisan Tax Policy Center found that after deductions and exemptions, about 5,460 estates will owe a tax, paying a combined estimated $20 billion. About 80 estates facing the tax in 2017 are small businesses and farms. Their total tax liability is $30 million, “fifteen hundredths of 1 percent of the total estate tax revenue,” according to the Tax Policy Center.
Of 2.1 million family farms in the United States, the Department of Agriculture estimated that 38,328 estates would be created in 2016 — 0.4 percent of which owed estate taxes. The estate tax mostly impacts high-income individuals, with the top 10 percent of income earners paying nearly 90 percent of the tax, according to the Tax Policy Center.
Almost doubling the standard deduction may not amount to a tax cut for everyone.
Under his plan, Mr. Trump said, less income would be subject to taxation. He proposes to raise the standard deduction to $12,000 from $6,350 for single filers, and to $24,000 from $12,700 for married couples filing jointly. But it also eliminates personal exemptions, valued at $4,050 per person.
While the plan doubles the standard deduction, people shouldn’t assume that “their income, subject to taxation income, would double” — though most taxpayers will see an increase, said Mr. Greenberg.
Under the current tax code, a single filer deducts a total of $10,400, which would increase by about 15 percent under the Republican plan.
An “archetypical American family” — which Mr. Williams described as a married couple with two children — may actually see their overall deductible income decrease. That family can deduct $28,900 under the current tax code, but just $24,000 under the Republican plan.
Taxpayers filing as the head-of-household are not mentioned in the plan, but if their deduction does not double or if the status is eliminated altogether, as Mr. Trump previously proposed, they too would see their deductions decrease. A single parent with one child, for example, can take $18,350 under the current tax code, but just $12,000 as a single filer under Mr. Trump’s plan.
The Republican plan also does propose increasing the child tax credit, so it’s possible — though currently unclear — whether the additional amount will offset these losses.
The claim that workers bear the brunt of corporate taxes is disputed.
Mr. Trump claimed that slashing the corporate tax code will benefit workers. Senator Rob Portman, Republican of Ohio, told a news conference on Wednesday that 70 percent of the benefit of lowering corporate taxes go to workers.
Most economists agree that workers pay some portion of corporate taxes, but disagree on how much. Some analyses use economic modeling, while others focus on evidence from different countries — and make different assumptions about the mobility of capital and workers.
Mr. Portman referred to a 2006 working paper from an economist at the Congressional Budget Office as the source of his 70 percent figure.
But the C.B.O.’s most recent official estimate is that 75 percent of corporate taxes fall upon “the owners of capital,” and 25 percent on labor income. The Treasury Department in 2015 attributed an even smaller proportion — 19 percent — to workers. Nongovernment estimates can range from the independent Tax Policy Center’s 20 percent to the conservative Heritage Foundation’s 100 percent.
Comparing tax rates for small businesses around the world can be misleading.
Mr. Trump also touted the plan as lowering the rate for pass-through businesses to 25 percent. Paul Ryan, the House speaker, justified the decrease at an August town hall by comparing America’s 44.6 percent tax for “successful small businesses” to Canada’s 15 percent, Ireland’s 12.5 percent, China’s 25 percent and the industrialized world’s average of 22.5 percent.
Most small businesses are “pass-throughs,” so they are not subject to the corporate tax rate, but rather the individual income rate.
But the vast majority of small businesses do not meet the income threshold for a rate that high. In 2014, just 3 percent of small business owners faced even the second highest top marginal rate, which applied to filers making over $405,100, according to analysts at the Treasury Department.
Like large corporations, the effective tax rates for small businesses are also lower than the statutory rates: 13.6 percent for sole proprietorships, 15.9 percent for partnerships and 25 percent for S-corporations.
The top corporate rates of other countries is an inappropriate comparison. The relevant pass-through tax rate for any other country is always its individual income tax rate for business income, said Wei Cui, an expert in international tax law at the University of British Columbia.
In Canada, sole proprietorship and partnerships that are not publicly traded are treated as pass-throughs. They face individual federal and provincial taxes that range to 54 percent from 44.5 percent, which is on par with the combined federal and state rates in the United States.
The top rates in Canada also kick in at lower income levels than in the United States. A small-business owner would face the highest possible combined Canadian rate of 54 percent in Nova Scotia, with an income over $165,500. The highest possible American rate of 51.9 percent, in California, would apply to incomes over $418,400.
“U.S. personal income tax rates are at the bottom end of O.E.C.D. countries,” Mr. Cui said, referring to the Organization for Economic Cooperation and Development. “This is a very well-known fact among people who are acquainted with tax policy.”
Continue reading the main storySource: New York Times – Politics