As befitting a multi-billionaire tycoon currently sitting atop the presidential polls, Donald Trump on Monday presented a highly ambitious vision for overhauling the nation’s tax, trade and budget policies. He claims the plan could nearly double the current annual economic growth rate in the coming years.
The topic de jour was Trump’s far-ranging tax plan, including a promise to zero out income taxes for millions of low-income Americans while slashing tax rates for the rest of the country. But his tax plan was couched in a much broader view of how he would dramatically shift away from Obama administration policy in the coming years if he were elected president.
Those changes would include sharp cuts in wasteful government spending, with Trump boasting that he could “save 20 percent of our budget” if he were at the helm and overseeing programs. He vowed to scrap and renegotiate major trade agreements, like NAFTA and an emerging trade agreement with Pacific Rim countries, to get a better deal for the U.S. and its workers. And he would force many of this country’s allies, including Germany and South Korea, to relieve the U.S. of some of its costly military commitments.
“We protect South Korea, we protect Germany, and we protect some of the wealthiest countries in the world, like Saudi Arabia. We protect everybody and we don’t get reimbursement.”
“If I become president I’m going to renegotiate our trade deals because our trade deals are not sustainable by this country,” he said. “We cannot continue to let our jobs go to all the different countries. I’m also going to renegotiate some of our military costs because we protect South Korea, we protect Germany, and we protect some of the wealthiest countries in the world, Saudi Arabia. We protect everybody and we don’t get reimbursement.”
Trump said that slashing government spending and balancing the budget must be part of major tax cuts. “We are reducing taxes, but if I’m president we would cut spending.”
Trump summoned reporters and supporters to a news conference at his Trump Tower skyscraper in New York City to formally unveil his highly touted tax proposal – one that would consolidate and cut income tax rates across the board, eliminate income taxes altogether for millions of low income couples and individuals, and cut the tax rate on all businesses to 15 percent.
The plan – which Trump previewed on CBS’s 60 Minutes Sunday evening -- would also close costly tax loopholes and deductions and alter the treatment of corporate earnings being stashed overseas to entice companies to bring that money home. Trump said that while politicians for years have sought to tap into those overseas revenues – which he estimates to be as much as $2.5 trillion – only he could provide the leadership to repatriate those funds.
“We have an amazing code,” Trump declared, seeking to strike a populist chord while assuring Wall Street and major investors that in the end it will be good news for just about everybody. “It will be simple, it will be easy, it will be fair, it is graduated.”
“As you get up in income you pay a little more,” he added. “Some of the very unfair deductions that certain people have been given who make a lot of money will not be available any longer. But I actually believe they will do better. Because I think the economy will grow, it will grow rapidly and we will have something very special.”
Trumps proposal would eliminate federal income taxes on married couples earning less than $50,000 a year and individuals earning less than $25,000. Currently, 43 percent of working Americans pay little or no federal income tax, although they do pay federal payroll tax. Former Massachusetts governor Mitt Romney, the 2012 GOP presidential nominee, seriously undercut his own campaign when he was caught in a closed-door speech to donors writing off the “43 percent” of Americans who don’t pay federal income tax.
According to the Wall Street Journal, the Trump campaign estimates that the change would eliminate taxes for 31 million households that currently pay at least some income tax. The highest individual income tax rate would be 25 percent in Trumps plan, in contrast to the current 39.6 percent. The GOP presidential frontrunner would also slash business tax rates to no more than 15 percent.
Trump’s plan would consolidate the current seven federal income tax brackets into four, with the lowest bracket paying nothing but having to file a one-page tax return. The highest bracket -- 25 percent – would apply to those making more than $150,000 a year or couples making more than $300,000.
Like Bush’s across the board tax cut plan, Trump’s approach would disproportionately benefit wealthy taxpayers who pay roughly 60 percent of all federal income tax revenue.
Precisely how Trump would offset or pay for billions of dollars in tax relief he is promising without raising the deficit was not immediately clear. He said he would do it in part by eliminating the “carried interest” provision that allows managers of hedge funds and private equity firms to pay a much lower rate on their profits than ordinary Americans pay on their income, and by eliminating scores of other loopholes and deductions.
Taxing carried interest at ordinary income rates would raise about $18 billion over 10 years, according to estimates of the Treasury and the Joint Committee on Taxation, although some analysts say it would be even more. Trump says he would get a lot more from closing other loopholes, but a lot of what he is counting on is the supply side magic of tax cuts to bolster the economy – and generate even more revenues.
Trump predicted that his tax cuts would spur economic growth by at least three percent a year – a curiously unambitious target given that the gross domestic product grew at a healthy rate of 3.9 percent in the last quarter.
However, he quickly added that he was just being conservative and that the growth rate under his plan could go as high as five percent or six percent – which is beyond the four percent promised by former Florida governor Jeb Bush and a level that many economists deem unrealistic.
“We’re going to have growth that is tremendous,” Trump boasted. “And by the way, if we have more than 3 percent growth, these numbers are really spectacular. And what they don’t take into account is the cutting. There is so much waste in government that I believe that when I get in there we will be able to cut tremendous amounts.”