Trump's tax plan carries a $9.5 trillion price tag
WASHINGTON - Donald Trump says he wants to cut taxes for every income level, but that plan could cost the federal government $9.5 trillion over 10 years and send the national debt through the roof.
A new analysis by the Tax Policy Center found that Trump's plan to cut tax rates for all individuals could create big incentives to save and invest, but it also would add lots of red ink to the government's books by 2026, violating Trump's pledge to cut rates without adding to the debt or deficit.
"If you wanted to cut spending to offset these tax cuts you'd have to eliminate all of national defense and still a bunch of discretionary spending or spending on Medicare and Social Security to do it." said Tax Policy Center Director Leonard Burman on a Tuesday call with reporters.
The analysis was based on a tax proposal released by the Republican presidential candidate's campaign earlier this year. His plan would cut the top rate for individuals from 39.6 percent to 25 percent, set a top business tax rate of 15 percent and eliminate the estate tax. Trump has said he would offset the cost of the tax cuts by eliminating most deductions for individuals and businesses and imposing a one-time tax on corporate assets held abroad. But the center included these changes in its calculations and still found Trump's proposal would cost $9.5 trillion.
Analysts at the Tax Policy Center, a partnership between the Urban Institute and Brookings Institution, agreed that lower rates would encourage savings and investment but they found that cutting federal revenue by $9.5 trillion would force the government to borrow trillions of dollars to operate. When you include the cost of servicing that debt, the center said Trump's plan would cost $11 trillion over 10 years.
"Increased government borrowing would push up interest rates and crowd out private investment, offsetting some or all of the plan's positive incentive effects," the report found. "Offsetting a deficit this large would require unprecedented cuts in federal spending."
Trump isn't alone in creating a tax plan slammed by economists. The Tax Policy Center and other organizations in Washington estimate that nearly every Republican tax proposal released this year would lead to drastic cuts in federal revenue. An earlier analysis found that the tax plan released by former Florida Gov. Jeb Bush would cost the federal government $6.8 trillion over 10 years. But Bush has paired his tax plan with a proposal to reform and reduce spending on entitlement programs like Social Security and Medicare, which could help offset the cost of his tax proposal.
In April Trump said he opposed cutting entitlement programs, meaning he would have to find other ways to make up the $9.5 trillion in revenue losses from his plan.
Trump may have other ideas for filling the deficit hole his tax proposal would create, but the center said it had to rely on sparse information about Trump's budget plans.
Burman told reporters on Tuesday that staff working on the analysis repeatedly attempted to contact the Trump campaign for additional information but received no response.
The report also estimates that Trump's proposal would reduce incentives for charitable donations by reducing the number of individuals that itemize their tax deductions. The Trump plan would increase the standard deduction and limit the value of itemized deductions.
Trump did carve out a protection that would allow people to deduct charitable contributions and mortgage interest but reducing the value of itemized deductions means fewer people will take advantage of the breaks that still exist.
"Most very high-income taxpayers, who account for the bulk of the dollar value of charitable donations, would continue to itemize and thus still benefit from the deduction," the report found. "However, their subsidy would be much lower than today because of the significant reduction in their tax rates; for taxpayers whose marginal rate is cut to 25 percent, the price of giving a dollar would rise to 75 cents."