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Study Looks At US Tax Reform Revenue Gap

by Mike Godfrey, Tax-News.com, Washington

13 July 2017

The Tax Policy Center (TPC) has said the Trump Administration's plan for tax reform could reduce federal revenues by as much as USD7.8 trillion over the next decade.

The TPC modeled tax cuts which were "consistent with those the Trump Administration outlined in April." This is the figure if revenue-raisers are not included. During the second decade, the cost to revenues would be USD13.1 trillion, it said.

The TPC noted that it "could not model an actual Trump tax plan since far too many critical details are unknown," but was able to model "a stylized version of what the key elements of a Trump plan might look like." This included: a tax rate of 15 percent on businesses, including pass-throughs; a territorial tax system; a one-time tax on unrepatriated foreign earnings; reduced individual income tax rates; a doubling of the standard deduction; and repeal of the Alternative Minimum Tax, estate tax, and the 3.8 percent Medicare surtax.

However, even when accounting for tax increases included in the April outline and those suggested by Donald Trump during the 2016 Presidential campaign, the TPC estimated that the plan would be far from revenue neutral. These measures included repealing all itemized deductions except for charitable giving and mortgage interest, repealing the personal exemption and head of household filing status, repealing certain business tax preferences, a tax on capital gains at death, and a tax on distributions from pass-throughs.

Including these revenue-raisers would cut the revenue cost of reform to USD3.4 trillion over the first decade and USD5.9 trillion in the second.

In addition to the impact on revenue, TPC analyzed the effects on households. "A Trump-like tax plan would be highly regressive with or without the revenue raisers," said Howard Gleckman, a senior fellow at the TPC, adding that there would be "moderate tax cuts for low- and moderate-income households and big tax reductions for the highest-income households."

However, according to Gleckman, not everybody would experience a tax cut under the President's proposals. "Interestingly, with the revenue raisers, about 20 percent of households would face higher taxes than under current law," he concluded.

TAGS: tax | business | law | corporation tax | United States | tax reform | individual income tax | Tax

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