President Donald Trump’s tax plans hardly match his populist rhetoric.
Though he sold his plan to rewrite the tax code as a boon to the average American worker in a speech Wednesday, he mostly focused on the taxes paid by America’s largest corporations.
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Trump argued that his plans to cut the 35 percent corporate tax rate for the first time in 30 years would benefit regular wage earners by putting more money in corporate coffers, which he said business leaders would then use to hire more people and raise wages.
But most economists say companies’ shareholders would be the primary beneficiaries of a corporate tax rate cut. That’s because it would make companies more profitable, which would boost their stock price while also leaving them with more money to pay out dividends.
The official Joint Committee on Taxation, as well as the Treasury Department and the independent Tax Policy Center, all say shareholders bear roughly three-quarters of the burden of the corporate tax, and therefore would be the main winners were it cut.
The administration rejects those studies, pointing to other analyses showing workers bearing the brunt of the tax.
“Multiple economic studies have shown that over 70 percent of the cost of the corporate tax are actually born by the worker,” Treasury Secretary Steven Mnuchin said in May, contradicting his agency’s analysis.
Trump wants to cut the corporate tax rate to 15 percent, while House Republicans have proposed a 20 percent rate. But it’s hard to know exactly what Republicans have in mind for the tax code. Trump has repeatedly revised his plans, which have gradually become less specific. His administration is now working behind closed doors with lawmakers on what they hope will be a consensus plan backed by the House, Senate and administration.
There’s long been a mismatch between how Trump described his tax plans and what he’s actually proposed, going back to his days on the campaign trail. But some are likely to end up in any final proposal, especially with congressional Republicans seconding many of his ideas.
Republicans are well aware of polls showing corporate taxation is hardly a top concern for voters, and that historically Congress has only tended to cut business taxes when they’ve been paired with comparable cuts for individuals.
Trump has proposed cutting the number of individual tax brackets from seven to three, and setting the rates at 10, 25 and 35 percent. The top rate is now 39.6 percent. He has also said he wants to double the standard deduction and expand subsidies for child care.
“We will lower taxes for middle-income Americans so they can keep more of their hard-earned paychecks, and they can do lots of things with those paychecks,” Trump said in his speech.
But his plan could actually raise taxes for some low-income people, though, because he wants to end the head-of-household filing status that benefits single parents.
Workers would benefit from a corporate tax cut, albeit more gradually, economists say. Companies could invest in new things like, say, building a hotel for which they’d have to hire workers. It could also persuade companies considering moving overseas to remain in the U.S.
But independent analyses of Trump’s tax plans have found the wealthy would be the biggest winners, thanks to not just his proposed cuts in business taxes, but also his plans to cut the top marginal income tax rate and eliminate the estate tax.
“It doesn’t fit the model for a populist plan,” said Roberton Williams, a Tax Policy Center economist. “The business cuts really help the rich, and the individual tax cuts somewhat help the rich, and overall the benefits disproportionately go to the top end.”
That’s sure to be a political headache for Republicans — one that Democrats immediately seized upon — as GOP lawmakers push to rewrite the code by the end of the year.
“If the president wants to use populist to sell his tax plan, he ought to consider actually putting his money where his mouth is, and putting forward a plan that puts the middle class, not the top 1 percent, first,” Senate Minority Leader Chuck Schumer said.