IT takes a certain chutzpah to propose bigger tax cuts than your rival, claim your plan is cheaper and then suggest your sums add up due to “common sense”. This is what Donald Trump, the iconoclastic frontrunner for the Republican nomination, did on the morning of September 28th, when he became the second leading Republican candidate to publish a tax plan, following Jeb Bush’s effort earlier this month. Critics of Mr Bush’s plan said it was a giveaway for high-earners, funded by optimistic assumptions about its effect on growth. On both counts, Mr Trump, who has never suffered from a lack of gall, makes Mr Bush look positively pussyfooted.
The plan burnishes Mr Trump’s Republican credentials by giving high earners whacking tax cuts. Individuals earning more than $150,000 will see their marginal tax rate fall from close to 40% now to 25%, three percentage points lower than under Mr Bush’s plan. Whereas the former Governor of Florida wants merely to double the standard deduction, the amount that can be earned before paying tax, to $11,300, Mr Trump would quadruple it, to $25,000 (or $50,000 for a married couple). This would remove more than half of households from the income tax rolls altogether, he says.
The outdoing does not end there. Mr Trump is more aggressive on corporation tax, too, promising to lower the levy on company profits to 15% rather than 20% under Bush. Furthermore, 15% would be the most any business would pay on their income—including self-employed freelancers. Even with big cuts to income tax, letting freelancers pay only 15% tax on their earnings would create a sharp and unwelcome incentive to masquerade as self-employed.
What would this largesse cost? Mr Bush’s number crunchers reckoned his plan, which is modest in comparison, would reduce annual receipts by $376 billion, or about 7.5%, by 2025, before accounting for its effect on the economy. Allow—optimistically—for a boost to growth of half a percentage point per year, and the cost falls by two thirds. Mr Trump provides no such detailed estimates but claims, incredibly, that his plan pays for itself. In his press conference, Mr Trump suggested that under his stewardship, the economy might achieve annual growth of five or six percent. That would certainly pay for huge tax cuts, but is a fantasy.
Mr Trump does suggest some new sources of revenue. He would eliminate many tax deductions, most of which remain unspecified. In particular, the controversial “carried interest” deduction, beloved of partners in private equity firms and hedge funds, would go. This raises, perhaps, $1 billion-2 billion. But Mr Bush promised this too, so it was included in his costings. Mr Trump would cap the tax-deductibility of debt interest. But Mr Bush would abolish it altogether, saving more. The only part of Mr Trump’s plan which is clearly cheaper than Mr Bush’s pertains to the overseas profits of American corporations. Unlike Mr Bush, Mr Trump would keep taxing these earnings (though companies will no longer be able to defer paying until the money is brought back, ending the incentive to stash cash overseas).
Mr Trump is supposed to be a new kind of politician; a straight-talker who, freed from the usual constraints of politics by his billions, tells it like it is. But promising to fund tax cuts by closing unspecified loopholes is an old political wheeze. Mr Trump says the country’s “top” economists helped to develop his plan; alas, for now they remain anonymous. Any contributor would be wise to stay in the background. Mr Trump’s plan is twaddle.
