Let's Fix This Country
tax reform

A Bespoke Tax Plan for the Trump Family

"It's not good for me, believe me", said Donald Trump about the tax plan developed by him and a group of six from the Senate, the House and his administration. From a president infamous for inventing his own reality, this claim dwarfs all that came before. When he said in January, "We are going to be cutting taxes massively", it turns out he meant his own.

what they meant by simplification

To begin, the plan would eliminate the Alternative Minimum Tax (AMT). That is a second way of calculating taxes required of the wealthy to prevent their huge
deductions from wiping out any obligation to pay taxes. Proof enough of how this will hugely benefit the rich is Trump's own tax return of 2005 leaked to the media. He had written off more than $100 million in business failings, mostly paper losses that the White House described as "large-scale depreciation for construction", that led to taxes of only $5 million of his declared income of $150 million when the primary method of computation was used. But the AMT requires high earners to test whether they owe more via its secondary method. Its worksheet backs out deductions and computes taxes on a formula that had Trump pay $38 million instead of $5 million. It is not hard to see why Trump and the wealthy in general want to get rid of the AMT. Trump plans to serve himself and others in his bracket this enormous windfall.

rates at random

Corporate taxes will be its own subject and one for intense debate over the coming months. For now, we'll look only at what the basic tax rate change would do for Donald Trump.

Without any "scoring" by the Congressional Budget Office to determine what will happen to the deficit and national debt, the Trump plan calls for reducing the corporate tax rate from 35% to 20% (trump wanted 15%). That rate pertains to standalone "C" corporations. But something like 95% of all businesses are set up as "pass-throughs" — partnerships, S-corporations, limited liability companies — whose profit or loss results flow through onto their owners' personal tax returns where they are taxed at the personal rates. While that rate can be as high as 39.6% (more, with the Obamacare surcharge), the usual case fits into a tax bracket less than the 35% rate for independent corporations, which is why owners have set up their businesses in this form.

But with the corporate rate dropping to 20%, pass-through owners would find themselves stranded, still paying personal rates that are now higher than 20%. So the Trump plan says that's not fair, pass-through businesses should get a lower rate, too. How about no more than than 25%?

Which happens to be very helpful to Donald Trump. A March letter to the president from law firm Morgan Lewis tells us

"…you hold interests as the sole or principal owner in more than 500 separate entities…Because you operate these businesses almost exclusively through sole proprietorships, S corporations, and/or partnerships, your personal federal income tax returns reflect income that is earned by these entities…

Fortune magazine estimates that the 25% rate will slash the taxes on profits from Trump's myriad of enterprises by a third. How much that would be in dollars, we don't know, but the question is a major reason why he refuses to make public his tax returns. Given his claim that he is a multi-billionaire, it's fair to say that Trump is giving his enthusiastic blessing to a tax feature that will pay him many millions yearly.

More alarming than even his self-serving, we can expect a stampede of high-earners — lawyers, doctors, lobbyists, and yes, real estate developers — to re-engineer their businesses so as to classify as business profits the money formerly passing through as personal wage income subject to the higher tax rates for individuals. The Wall Street Journal acknowledges in an editorial that avoiding

"this will require some finesse, as tax writers must develop guardrails that prevent lawyers of hedge-fund operators from dumping wages into pass-throughs and paying less than salary folks."

So easily said but how is that to be audited when a vast new echelon emerges to fudge their tax returns and in the process further widen the gap between the ordinary citizen and an upper stratum of society accorded ever more lavish concessions.

death not taxes

The biggest of all bonuses Trump hopes to pay himself is the complete elimination of the estate tax. It is as if he had run for the presidency only as a maneuver to transfer his claimed billions in assets to his children without their paying a dime in taxes.

Killing the estate tax is the age old dream of Republicans, who are obsessed with having to pay what they call "death taxes". Whenever the subject arises, we hear the bleats from politicians about the good people of America "having to sell the family farm" to pay the taxes. And in this go 'round Mike Pence would not disappoint. There he was in a speech promoting the tax overhaul at the end of September lamenting the plight of dairy farmer Hank Choate, who “says he needs a tax cut so he can keep the family farm when we repeal death taxes, once and for all.”

Note that Choate did not say he is selling the farm; Pence probably had difficulty finding an actual victim. Pence's problem is that the non-partisan Tax Policy Center estimates only 50 entities will pay estate taxes in 2017, and that includes small businesses, not just the folkloric farms of the Republican myth. About 0.4% of the family farms that passed into estates in 2016 had to pay estate taxes. And the average rate to be paid by the 50 is estimated by the Center to be only 6%.

Why so low? Because tax law already allows the transfer of the first $5,450,000 free for an individual (and twice that for a married couple). The average value of those 50 entities is projected to exceed that threshold by a small enough taxable amount that the tax is expected to be only to 6% of the total value of the transfer.

Republicans successfully float that melodrama every time, causing the distraction you just read to explain it away. It serves to obscure the far bigger point that every dollar of labor, of day to day work, is taxed. Why should the gains enjoyed by those whose assets have appreciated in value by the time of their death not be taxed at all? The other Republican refrain is "why should I be taxed twice", another ruse to confuse because, first, there's that whopping free allowance and, second, they are not being taxed twice as only the gains on asset values beyond that threshold are taxed. Democrats should counter keenings about the family farm with their own flagrant example: how about the wealthy art collector who bought years ago, sold for a profit in millions, and on a huge windfall of passive income would pay no taxes at all according to the Trump and gang of six plan.

to be determined

After so much time it is extraordinary that the Trump plan was a mere nine pages, with very little specifics, and no indication of what it will cost in lost revenue to the government. Republicans were supposedly the party of fiscal restraint but that has proven to be only to restrain Democrat desires during the Obama presidency. Now that they are in power, they have unhesitatingly voted for a budget resolution that okays a $1.5 trillion deficit over the next 10 years. Budget watchdogs think the Trump tax plan could cost several times that. This page will make it a continuing topic.

Wrangling over tax "reform" will be the hotly contested subject for weeks to come. But first we need the specifics. But all the while during the process, we should bear in mind that we tax payers seem to exist to make the Trump family far richer.

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