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"The Very Rich Will Benefit": Trump's Proposed Tax Plan Makes It Clear

Saturday, October 07, 2017 By Ken Morris, Truthout | Op-Ed
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US President Donald Trump (R) with Speaker of the House Paul Ryan (C), Chairman of the Senate Finance Committee Orrin Hatch (L) and other members of congress and his administration regarding tax reform in the Roosevelt Room of the White House on September 5, 2017 in Washington, DC. (Photo by Shawn Thew-Pool/Getty Images)Donald Trump (R) with Speaker of the House Paul Ryan (C), Chairman of the Senate Finance Committee Orrin Hatch (L) and other members of congress and his administration regarding tax reform in the Roosevelt Room of the White House on September 5, 2017, in Washington, DC. (Photo: Shawn Thew-Pool / Getty Images)

Also see: Trump's Tax Plan Is Indefensible

Did anyone really believe Trump when he said of his tax plan: "It's not good for me, believe me. We're targeting relief to working families. We will make sure benefits are focused on the middle class, the working men and women, not the highest-income earners"? If so, it proves that there is indeed a sucker born every minute.

Now that the GOP has released its nine-page proposal, it is clear only a liar or fool or both (the definition of a politician?) would believe this to be anything other than a boon to Trump and his swamp-mates. Just what are some of the benefits accruing to those least in need of tax relief?

(1) The highest marginal tax rate (MTR) -- for individual incomes in excess of $418,400 -- will be reduced from 39.6 percent to 35 percent, a policy that (as I outlined in an earlier article for Truthout), is not economically stimulative. After all, people with everything already have everything. They take windfall wealth and simply sock it away in already bloated investment accounts.

(2) Then there is the elimination of inheritance tax. If Trump is worth the $10 billion he claims, his estate will benefit by something like $4 billion since the current rate on estates over $11 million for married couples (meaning that most estates already pay nothing) is 40 percent. And while Trump is undoubtedly lying about his net worth, it is still a windfall for his over-privileged heirs.

(3) More esoteric is the plan killing something called the Alternative Minimum Tax (AMT) which, according to the IRS, "applies to taxpayers with high economic income by setting a limit on those benefits." In other words, AMT ensures that the super-wealthy, no matter how clever their tax-attorneys are at constructing dodges, must pay something. And while Trump refuses to release his tax returns (for increasingly obvious reasons since he is saturated with conflict of interest like no other), in the one year available (2005), the elimination of AMT would have saved him $31 million.

(4) Despite former hedge fund manager and Treasury Secretary Steven Mnuchin earlier saying the tax plan would rectify abuses of something known as the Carried Interest (CI) loophole, the GOP tax plan being floated mysteriously ignores that pledge. CI entitles a general partner of a private investment fund to pay income tax on labor income at the long-term capital gains rate of 20 percent rather than the ordinary income rate. The most egregious beneficiaries are hedge fund managers (general partners in the fund) who typically charge their investors (limited partners) 20 percent of profits each year. With about $3.2 trillion in hedge fund investments and managers enjoying gobs of yearly wealth, the substantially lower taxes they pay is humungous (yep, another tax benefit to those who least need one and whose additional wealth adds nothing to economic growth).

This isn't a complete list of upper-end benefits (e.g. pass-through income of which Trump is, again, a beneficiary), but it is enough to debunk any claim that Trump and his Reverse Robin Hoods will not benefit from his plan.

And while the proposal does double the standard deduction which is beneficial to workers (to $24,000 for couples), the new rate on the lowest income bracket is brazenly raised from 10 to 12 percent. While the actual net financial implications to the middle class is arguable (since specifics are deliberately vague), two things are not: (1) the optics of lowering the highest while raising the lowest bracket are horrible and show how detached the GOP and Trump are from those living paycheck-to-paycheck; and (2) even White House chief economic advisor Gary Cohn admitted that some of those most in need of relief may end up paying more taxes, not less (while dodging questions about whether Trump would pay less: he will).

And what about the budget deficit? To justify the massive loss in government revenues, the claim is that economic growth will stimulate the economy so much that tax revenues will actually grow (once known as the Laffer Curve, now called Dynamic Scoring). However, there is evidence to the contrary. Reagan-era massive tax cuts blew up the deficit (so much so he later raised taxes dramatically). Kansas Governor Brownback's 2012 budget-busting tax cuts were so disastrous that his GOP-controlled legislature had to repeal them. George W. Bush's cuts? Growth floundered, deficits exploded. The notion of GOP fiscal conservatism? This is pretty much the opposite. 

And with such a phony, muddled tax mess, what an opportunity for the Democratic Party to respond with something that really does make empirical and moral sense. Suggestions: Dramatically lower taxes on the lower and middle classes (zero percent for incomes below $50,000?). Pay for these by raising high-end marginal tax rates, across the board (marginal rate of 50 percent for incomes over $1,000,000?). Retain and increase the Alternative Minimum Tax rate. Eliminate the Carried Interest loophole: let hedge fund managers making a few hundred million a year pay their fair share; they'll live. Go down the list of deductions that provide upper-class windfalls: for example, eliminate interest rate deductibility for mortgages over $1,000,000. Be creative: there are plenty more ideas to be had.

Lest anyone believe these are fiscally irresponsible moves, history suggests otherwise. In 1993, President Clinton demonstrated that tax policy opposed by the GOP (not one Republican voted for his tax increases on the rich) can not only grow the economy (3.9 percent), but lead to budget surpluses while creating 21 million new jobs. A win, win, win.

To market such a progressive tax plan, it would not be difficult to line up millionaires and billionaires with a soul and a sense of empiricism: there are plenty, just ask Warren Buffett. As for wage-earners, the benefits should be self-explanatory (at least once you out-blast the Fox News echo chamber of misinformation).

My advice to Democrats: Embrace the moment and propose an alternative to this tax disaster.

Copyright, Truthout. May not be reprinted without permission.

Ken Morris

Ken Morris is a former Wall Street trader and executive who started Morgan, Stanley's International Equity Department in the mid-1980s and was once described by the London Times as a "Wall Street trading legend." Morris has authored two novels (Man in the Middle and The Deadly Trade) both financial thrillers. His nonfiction Blind Allegiance to Sarah Palin (Simon and Schuster), was a New York Times Bestseller. His website is www.kennethmorris.net.

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"The Very Rich Will Benefit": Trump's Proposed Tax Plan Makes It Clear

Saturday, October 07, 2017 By Ken Morris, Truthout | Op-Ed
  • font size decrease font size decrease font size increase font size increase font size
  • Print

US President Donald Trump (R) with Speaker of the House Paul Ryan (C), Chairman of the Senate Finance Committee Orrin Hatch (L) and other members of congress and his administration regarding tax reform in the Roosevelt Room of the White House on September 5, 2017 in Washington, DC. (Photo by Shawn Thew-Pool/Getty Images)Donald Trump (R) with Speaker of the House Paul Ryan (C), Chairman of the Senate Finance Committee Orrin Hatch (L) and other members of congress and his administration regarding tax reform in the Roosevelt Room of the White House on September 5, 2017, in Washington, DC. (Photo: Shawn Thew-Pool / Getty Images)

Also see: Trump's Tax Plan Is Indefensible

Did anyone really believe Trump when he said of his tax plan: "It's not good for me, believe me. We're targeting relief to working families. We will make sure benefits are focused on the middle class, the working men and women, not the highest-income earners"? If so, it proves that there is indeed a sucker born every minute.

Now that the GOP has released its nine-page proposal, it is clear only a liar or fool or both (the definition of a politician?) would believe this to be anything other than a boon to Trump and his swamp-mates. Just what are some of the benefits accruing to those least in need of tax relief?

(1) The highest marginal tax rate (MTR) -- for individual incomes in excess of $418,400 -- will be reduced from 39.6 percent to 35 percent, a policy that (as I outlined in an earlier article for Truthout), is not economically stimulative. After all, people with everything already have everything. They take windfall wealth and simply sock it away in already bloated investment accounts.

(2) Then there is the elimination of inheritance tax. If Trump is worth the $10 billion he claims, his estate will benefit by something like $4 billion since the current rate on estates over $11 million for married couples (meaning that most estates already pay nothing) is 40 percent. And while Trump is undoubtedly lying about his net worth, it is still a windfall for his over-privileged heirs.

(3) More esoteric is the plan killing something called the Alternative Minimum Tax (AMT) which, according to the IRS, "applies to taxpayers with high economic income by setting a limit on those benefits." In other words, AMT ensures that the super-wealthy, no matter how clever their tax-attorneys are at constructing dodges, must pay something. And while Trump refuses to release his tax returns (for increasingly obvious reasons since he is saturated with conflict of interest like no other), in the one year available (2005), the elimination of AMT would have saved him $31 million.

(4) Despite former hedge fund manager and Treasury Secretary Steven Mnuchin earlier saying the tax plan would rectify abuses of something known as the Carried Interest (CI) loophole, the GOP tax plan being floated mysteriously ignores that pledge. CI entitles a general partner of a private investment fund to pay income tax on labor income at the long-term capital gains rate of 20 percent rather than the ordinary income rate. The most egregious beneficiaries are hedge fund managers (general partners in the fund) who typically charge their investors (limited partners) 20 percent of profits each year. With about $3.2 trillion in hedge fund investments and managers enjoying gobs of yearly wealth, the substantially lower taxes they pay is humungous (yep, another tax benefit to those who least need one and whose additional wealth adds nothing to economic growth).

This isn't a complete list of upper-end benefits (e.g. pass-through income of which Trump is, again, a beneficiary), but it is enough to debunk any claim that Trump and his Reverse Robin Hoods will not benefit from his plan.

And while the proposal does double the standard deduction which is beneficial to workers (to $24,000 for couples), the new rate on the lowest income bracket is brazenly raised from 10 to 12 percent. While the actual net financial implications to the middle class is arguable (since specifics are deliberately vague), two things are not: (1) the optics of lowering the highest while raising the lowest bracket are horrible and show how detached the GOP and Trump are from those living paycheck-to-paycheck; and (2) even White House chief economic advisor Gary Cohn admitted that some of those most in need of relief may end up paying more taxes, not less (while dodging questions about whether Trump would pay less: he will).

And what about the budget deficit? To justify the massive loss in government revenues, the claim is that economic growth will stimulate the economy so much that tax revenues will actually grow (once known as the Laffer Curve, now called Dynamic Scoring). However, there is evidence to the contrary. Reagan-era massive tax cuts blew up the deficit (so much so he later raised taxes dramatically). Kansas Governor Brownback's 2012 budget-busting tax cuts were so disastrous that his GOP-controlled legislature had to repeal them. George W. Bush's cuts? Growth floundered, deficits exploded. The notion of GOP fiscal conservatism? This is pretty much the opposite. 

And with such a phony, muddled tax mess, what an opportunity for the Democratic Party to respond with something that really does make empirical and moral sense. Suggestions: Dramatically lower taxes on the lower and middle classes (zero percent for incomes below $50,000?). Pay for these by raising high-end marginal tax rates, across the board (marginal rate of 50 percent for incomes over $1,000,000?). Retain and increase the Alternative Minimum Tax rate. Eliminate the Carried Interest loophole: let hedge fund managers making a few hundred million a year pay their fair share; they'll live. Go down the list of deductions that provide upper-class windfalls: for example, eliminate interest rate deductibility for mortgages over $1,000,000. Be creative: there are plenty more ideas to be had.

Lest anyone believe these are fiscally irresponsible moves, history suggests otherwise. In 1993, President Clinton demonstrated that tax policy opposed by the GOP (not one Republican voted for his tax increases on the rich) can not only grow the economy (3.9 percent), but lead to budget surpluses while creating 21 million new jobs. A win, win, win.

To market such a progressive tax plan, it would not be difficult to line up millionaires and billionaires with a soul and a sense of empiricism: there are plenty, just ask Warren Buffett. As for wage-earners, the benefits should be self-explanatory (at least once you out-blast the Fox News echo chamber of misinformation).

My advice to Democrats: Embrace the moment and propose an alternative to this tax disaster.

Copyright, Truthout. May not be reprinted without permission.

Ken Morris

Ken Morris is a former Wall Street trader and executive who started Morgan, Stanley's International Equity Department in the mid-1980s and was once described by the London Times as a "Wall Street trading legend." Morris has authored two novels (Man in the Middle and The Deadly Trade) both financial thrillers. His nonfiction Blind Allegiance to Sarah Palin (Simon and Schuster), was a New York Times Bestseller. His website is www.kennethmorris.net.