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Home>UPDATE: Why the Trump tax plan's fuzzy math doesn't add up

UPDATE: Why the Trump tax plan's fuzzy math doesn't add up

UPDATE: Why the Trump tax plan's fuzzy math doesn't add up

09/26/2017

By Robert C. Pozen

Corporate tax rate should be cut, but not to 15%

Senate Republicans last week agreed on a budget resolution allowing a $1.5 trillion increase in the federal deficit over the next 10 years from tax legislation. This resolution paves the way for 51 Republican Senators to enact mammoth tax cuts by September 30, 2018.

Let's be clear: these are tax cuts (https://www.wsj.com/articles/senate-republicans-reach-tentative-deal-on-budget-1505842102), despite their tax reform rhetoric.

As the centerpiece of these tax cuts, President Donald Trump has proposed to lower the corporate tax rate (http://www.marketwatch.com/story/what-to-expect-from-congress-and-trump-on-tax-reform-next-week-2017-09-22) to 15% from 35%. However, despite the deficit cushion of $1.5 trillion allowed by last week's budget resolution, a 15% rate is totally unrealistic.

Read: Tax reform is about to get harder (http://www.marketwatch.com/story/tick-tock-tax-reform-is-about-to-get-harder-2017-09-25)

Cutting the corporate tax rate to 15% would cost the U.S. Treasury $3.7 trillion over 10 years. But that cost cannot come close to being offset by repealing existing tax preferences, which all will be fiercely defended by special interests. A realistic legislative target would be a corporate tax rate of 25%. And under Senate rules this rate would have to expire after 10 years because it creates future budget deficits.

Let's do the math on corporate and individual rates, together with optimistic assumptions about limiting existing tax preferences. The numbers are based on dynamic estimates from the nonpartisan Tax Policy Center (http://www.taxpolicycenter.org/), unless noted otherwise.

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