Tax Analysts Blog

Trump's Tax Plan Is Pretty Much GOP Orthodoxy

Posted on Sep 29, 2015

In late August, Jeb Bush attacked Republican front-runner Donald Trump by calling the billionaire a Democrat. Although Bush's remarks were intended to blunt some of Trump's momentum and were part of a broader strategy for the establishment candidate to regain relevancy, they were prompted by Trump's call for higher taxes on carried interest income. Statements that hedge fund managers were getting away with murder made it seem like Trump might be taking a more populist line on tax and fiscal policy than his fellow Republicans.

Well it turns out that Trump isn't really that different from Republicans on taxes after all. The Donald released some details of his proposed tax plan this week and, quite frankly, it doesn't look all that different than what you might expect from a sitting GOP senator or representative.

Trump wants to consolidate seven brackets into four, which would have rates of 0, 10, 20, and 25 percent (compared with the current top rate of 39.6 percent). He would tax capital gains income at 20 percent. Individuals making less than $50,000 would pay nothing at all. Trump's campaign said that would exempt roughly 50 percent of households from the income tax.

On the corporate side, Trump would drop the rate to 15 percent, approaching that of Ireland. He would tax offshore earnings at a one-time repatriation rate of 10 percent, something that is now part of almost every international tax proposal (at least he doesn't propose using the money raised for highways). His differs from most GOP plans by ending deferral, from the territorial systems that are part of many GOP plans. One interesting tidbit in Trump's plan is that the 15 percent rate would apply to all business entities, not just corporations. How this would be accomplished is a bit vague, but at least Trump is trying to deal with the growing number of passthroughs in the United States, and the inequitable tax treatment between Schedule C and other types of companies.

There aren't many pay-fors detailed in Trump's plan. He would cap corporate interest deductions (some candidates have called for eliminating them altogether), tax high-income taxpayers' life insurance, and, of course, repeal the carried interest preference. (It should be noted, however, that hedge fund managers might end up with a net tax break from the Trump plan even if they lose capital gains treatment for carried interest. The 15-percent rate for businesses almost certainly would apply to them.) He wouldn't touch high-dollar tax expenditures like the mortgage interest and charitable deductions.

Frankly, it's all pretty ho-hum. If Bush had released this plan instead of his September 8 release, no one would have been shocked at all. This hasn't been lost on commentators. The criticisms and compliments sound like the same sound bites you would get for most any GOP tax proposal -- it will lose a lot of money, according to critics, and it will jump-start the economy by lowering business taxes, according to proponents.

For all his bluster, Trump is actually trying to win the nomination the same way a "normal" candidate would: moving to the center of the relevant electorate. That means he has to appeal to GOP voters. It's why he ultimately took the loyalty pledge, promising not to run a third-party campaign. It's why he has tried to temper some of his perceived extremist remarks on issues other than immigration. And it's why he didn't put out a tax plan that tried to be some kind of third way between Republicans and Democrats.

Read Comments (4)

edmund dantesSep 29, 2015

Trump did not take the loyalty pledge to move to the center. He initially
balked at the pledge, so all the other Republicans took it, thinking it made
them better than him. After they were all on board, Trump took the pledge
himself because then they would all have to fall in line behind *him* if he
gets the nomination.

Actually quite clever.

I believe that the Trump plan does touch the mortgage interest and charitable
deductions for high income taxpayers. I just wish he would also touch the tax
exemption for muni bonds and nonprofits. It burns me up to hear that the Yale
endowment made another $2.6 billion last year, all tax free.

AMTtbuffSep 29, 2015

Monte Cristo is right. I would guess that Trump will limit the value of all
deductions by high-income taxpayers to much less than 25% of the amount
deducted. That would include mortgage interest and charitable gifts. Even gifts
to one's own foundation.

If congress attempts a tax reform, we will certainly see some efforts to
curtail the ability of college endowments worth billions of dollars to continue
to avoid taxation. It will be delightful to see progressives argue that the
benefits of the current tax-free treatment trickle down to the students.

AMTbuffSep 29, 2015

Monte Cristo is right. I would guess that Trump will limit the value of all
deductions by high-income taxpayers to much less than 25% of the amount
deducted. That would include mortgage interest and charitable gifts. Even gifts
to one's own foundation.

If congress attempts a tax reform, we will certainly see some efforts to
curtail the ability of college endowments worth billions of dollars to continue
to avoid taxation. It will be delightful to see progressives argue that the
benefits of the current tax-free treatment trickle down to the students.

MIKE55Oct 7, 2015

So a Republican tax plan that: (1) taxes pass-through entities and (2)
eliminates deferral is "pretty ho-hum" from your perspective? To me those are
dramatic changes, particularly item (1). I'm curious what sort of proposals
Trump would have needed to make to avoid this line of criticism.

"The criticisms and compliments sound like the same sound bites you would get
for most any GOP tax proposal"

I wonder if this says more about the commentators than it does about Trump's
plan.

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