Published: Sun, May 07, 2017
Economy | By Melissa Porter

NY Lawmakers Hatch Plan to Release Trump's State Taxes

NY Lawmakers Hatch Plan to Release Trump's State Taxes

The Trump administration on Tuesday stuck with its assertion that tax reform could push economic growth above 3 percent. Judging by the president's looney-tunes tax plan, you would be wrong. While the details are sparse and will have to be filled in by Congress, President Trump's outline resembles the supply-side principles he campaigned on and is an ambitious and necessary economic course correction that would help restore broad-based USA prosperity. But the outlines of his proposal, released Wednesday, are nothing short of hallucinatory.

Instead, many more people took advantage of the loophole than expected, the state economy and tax receipts slowed to a crawl, and a gaping budget hole forced legislators to close schools early. They must be deeply embarrassed at now having to pretend that two plus two equals seven. Trump is proposing big tax cuts for the superrich, including repealing the estate tax. As the population ages, the country is already on track to borrow more and squeeze spending for everything except interest on the debt, pensions and health care: national parks, the Federal Bureau of Investigation, defense, schools and more.

You will recall that Trump also wants to spend $1 trillion on upgrading our sagging infrastructure, which is a good idea; and he wants to vastly boost defense spending, which is a bad idea.

But with Republicans controlling Congress and the White House, there is no appetite at either end of Pennsylvania Avenue to tackle the long-term drivers of debt - Social Security and Medicare.

"WASHINGTON '" The administration officials who gave President Donald Trump's tax plan a splashy debut in recent days seem to have caught the exaggeration bug from their boss. The fact the Supreme Court agrees to hear a case means it's likely to overturn it. But the only people who will clearly benefit from the plan are people like Trump. So he'd have to do what President George W. Bush did with his own tax cuts - pass them with the provision that they'd expire in 10 years.

But the heart of Trump's "plan" is to lower taxes for corporations and the affluent.

NY Lawmakers Hatch Plan to Release Trump's State Taxes
NY Lawmakers Hatch Plan to Release Trump's State Taxes

The broader GOP fight is likely to focus on cost and how to pay for the individual and corporate tax cuts, if at all.

Much of Trump's income from his various businesses are taxed as "pass-through" corporations, a category that requires owners under current rules to pay individual tax rates as high as 39.6 percent. In fact, 44 percent of all US households pay no federal income tax, though most pay other taxes. This filing status provides a lower tax rate and a higher standard deduction than filing as a single person.

Separately, House of Representatives Speaker Paul Ryan said he had seen a "sneak preview" of the plan. But 15 percent is too low, and fiscal conservatives in the House are already balking. The income these private equity and hedge-fund partners receive, after all, is pass-through income; Trump would let them trade one juicy tax break for an even juicier one.

Trump has proposed reducing the number of tax rates from seven to three - 10 percent, 25 percent and 35 percent. It is hard to gauge the precise impact, since Trump did not specify the income levels that define the three brackets.

When Mr. Trump wrote off $100 million in losses in 2005 for what the White House called depreciation on construction, the write-off would have allowed him to pay a mere $7 million on an income of $153 million, for a tax rate of only 5 percent, if it hadn't been for the alternative minimum tax. The benefit to Trump could run as high as tens of millions of dollars a year. Now, his ambitious proposal to cut taxes is again encountering GOP opposition - from lawmakers in Democratic-leaning states. The standard deduction, for those who do not itemize, would be doubled. But Treasury Secretary Steven Mnuchin stated categorically on Wednesday that the president has "no intention" of releasing them. The more consistent view is that we probably need more investment on both fronts, and thus cuts in the corporate tax rate are a welcome start, at least if we put aside the pessimistic scenario mentioned above.

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