The Trump tax plan benefits the best winners: the think tank

• Former President and GOP nominee Donald Trump has proposed a series of tax changes.
• His plans to cut tariffs and taxes will benefit America’s top 5 percent and hurt lower-income workers, a left-wing think tank says.
• With the economy in mind for many voters, fiscal policy will be significant in the election.

As the election approaches, everyone’s least favorite April activity is taking center stage: finding out how much they’ll have to pay in taxes.

Former president and current GOP candidate Donald Trump has proposed a series of tax and tariff changes, but there are fears that his plan will have an uneven impact on Americans of different income levels.

According to a new analysis by the Institute on Taxation and Economic Policy — a left-leaning think tank — Trump’s tax and tariff proposals could spur an average tax cut of about $36,300 for the richest 1 percent of Americans, or income earners of $914,900 and up. In addition, ITEP expects the next richest 4% to receive an average tax cut of about $7,200.

On the other hand, the lowest-income quintile of Americans could see an increase in taxes of about $800, taking into account how the tariffs would affect household costs, ITEP data show.

“It would be a dramatic shift in the burden from the top to the middle and the bottom,” Ernie Tedeschi, director of economics at the Yale Budget Lab and former chief economist at the White House Council of Economic Advisers, said of Trump. plan.

The looming expiration of former President Trump’s 2017 TCJA tax law sets up a big fight next year over whether to extend those tax cuts in part or in full. Trump’s proposals include eliminating tip and overtime taxes, extending the 2017 tax cuts for individuals, implementing higher tariffs on imported goods and reducing the corporate tax rate.

While the tariffs would likely hurt households across the income spectrum, ITEP’s analysis suggests that extending and even increasing the 2017 tax cuts for the highest earners would more than offset those costs, leading to a net benefit for the top 5 percent.

ITEP senior research fellow Matthew Gardner explained how the think tank estimated the effects of tax and tariff changes on U.S. taxpayers during a call with reporters on Monday. Gardner said the analysis used a computer model based on actual federal tax returns from the IRS to make the estimates. Because some of Trump’s proposals, such as tariffs, have no direct connection to the income tax, Gardner said the ITEP team worked extensively with data from other government sources, such as the Bureau of Economic Analysis, using techniques similar to other analyzes of how tariffs affect households.

Notably, the analysis assumes that the 2017 tax cuts will be extended — but Trump previously said he would reverse the $10,000 cap on the state and local tax deduction, so the ITEP analysis included that reversal in their estimates, which further distort the benefits of the tax proposals. to the top of the income ladder.

Other studies have found similar potential impacts of the proposed tariffs on US families. An analysis by the left-leaning Center for American Progress found that Trump’s proposals to impose tariffs on all imports could result in a $1,500 tax increase for the typical American household, something that would disproportionately impact the those with lower incomes.

Casey B. Mulligan, former chief economist of the White House Council of Economic Advisers under Trump and current adviser to the right-wing America First Policy Institute, estimated for the Washington Post that a 10 percent tariff proposal could lead to an additional . point in inflation. Meanwhile, the Tax Policy Center found that the policies would reduce after-tax income by $1,800 in 2025.

Trump went on to argue that the tariffs would not harm American consumers, but rather raise prices for other countries. He said during a speech in August that “I’m going to put tariffs on other countries coming into our country, and that has nothing to do with tariffs on us. It’s a tax on another country.”

When it comes to Trump’s other tax proposals, such as eliminating tip taxes and overtime pay, ITEP’s analysis found that the proposal would help higher-income Americans more than lower-income ones because a significant number of tipped workers do not make enough money to pay income tax and would not benefit from changes to the payment structure. Joe Hughes, a senior analyst on federal tax policy at ITEP, previously told BI that high-wage workers could take advantage of Trump’s proposals to earn more money.

“A lot of lawyers work 60, 70 hours a week, don’t they? So why not reclassify as a salaried employee, then you can take advantage of the overtime rules and not pay taxes on it,” Hughes said.

Brian Hughes, a senior adviser to the Trump campaign, told BI in a statement that “President Trump’s historic tax cuts have laid the foundation for robust, non-inflationary growth that has fueled more revenue for the federal government, not less “.

Ultimately, however, any tax the proposals would need approval from the House and Senate. As with the top presidential race, the fate of both houses of Congress is uncertain, and if Trump faces a Democratic House or Senate, he could have trouble advancing an aggressive tax agenda.