Trump’s ‘Small-Business’ Tax Cut Is Actually a Tax Cut for Trump and Fellow Millionaires

Seth Hanlon Senior Fellow, Center for American Progress

A tax proposal that President Donald Trump is describing as a tax cut for small businesses is actually a giant tax cut for millionaires, new model estimates from the Urban-Brookings Tax Policy Center show.

The proposal would provide massive tax windfalls for high-income owners of passthrough business entities, including President Trump himself. In light of this, perhaps a more appropriate name for the tax cut is the “Trump loophole.”

The tax plan released by the Trump administration on April 26 proposes capping the tax rate on passthrough business income to 15 percent. “Passthroughs” are business entities that do not pay the corporate tax, including S corporations, limited liability companies (LLCs), partnerships, and sole proprietorships. Currently, the owners of these entities pay tax directly on their profits at regular income tax rates, which range from 10 percent for people with a modest amount of taxable income to 39.6 percent for people with very high incomes. Therefore, Trump’s plan would slash the tax rate that millionaires and high-income people pay on passthrough business income by nearly 25 percentage points, from 39.6 percent to 15 percent—a massive windfall.

The Tax Policy Center’s new estimates* show just how skewed this tax cut is toward people at the very top of the income ladder:

  • 68 percent of the tax cut from the Trump loophole goes to millionaires, while less than 1 percent goes to taxpayers with annual incomes of less than $200,000.
  • Millionaires get an average tax cut of $114,000 from the Trump loophole. That is on top of the massive tax cuts they would get from the other parts of Trump’s plan, including cutting the corporate tax rate, cutting the top individual tax rate, and eliminating the estate tax. Nor does it include the windfall that millionaires would get from repeal of the Affordable Care Act.
  • 77 percent of the tax cut from the Trump loophole goes to the top 1 percent of income earners; the bottom 90 percent of taxpayers get less than 2 percent of the tax cut.
  • The top 1 percent get an average tax cut of $76,190—again, on top of other massive tax cuts they would receive under President Trump’s plan. The top 0.1 percent would get an average tax cut of $362,630.

The Trump loophole would reduce revenue by $1.4 trillion over the next 10 years, according to the Tax Policy Center—meaning that millionaires would receive a tax cut of nearly $1 trillion from this one policy alone.

And that estimate does not even reflect the fact that the Trump loophole would cause massive tax avoidance, as high-income people could recharacterize their wages and salaries as passthrough business income to take advantage of the special 15 percent rate. The Tax Policy Center estimates that such tax avoidance could increase the revenue loss from $1.4 trillion to nearly $2 trillion over 10 years. The organization also notes that by prompting business owners to recharacterize income as profits rather than wages, the special passthrough rate could reduce the payroll revenue that goes into the Social Security and Medicare trust funds. This would hasten the depletion of those funds and put those vital programs at greater risk.

The Trump loophole, the Tax Policy Center estimates show, is not aimed at actual small businesses. The passthrough businesses that would benefit the most from the president’s proposal include hedge funds and other investment partnerships; large S corporations, including some of the nation’s biggest companies; global law firms and accounting firms; and other large businesses—including The Trump Organization, which is an agglomeration of more than 500 passthrough entities.* The Trump loophole would slash the rate that the president pays on his income from The Trump Organization from 39.6 percent to 15 percent.

Meanwhile, most small-business owners are already in the 15 percent tax bracket or lower—so they would not benefit at all from the Trump loophole. Prior Tax Policy Center estimates found that more than two-thirds of all passthrough business owners are in the 15 percent tax bracket or lower.

In sum, the Trump loophole is not a policy aimed at actual small businesses. It is yet another tax windfall for millionaires.

***

Reposted from CAP.

Posted In: Allied Approaches

Union Matters

Get to Know AFL-CIO's Affiliates: National Association of Letter Carriers

From the AFL-CIO

Next up in our series that takes a deeper look at each of our affiliates is the National Association of Letter Carriers.

Name of Union: National Association of Letter Carriers (NALC)

Mission: To unite fraternally all city letter carriers employed by the U.S. Postal Service for their mutual benefit; to obtain and secure rights as employees of the USPS and to strive at all times to promote the safety and the welfare of every member; to strive for the constant improvement of the Postal Service; and for other purposes. NALC is a single-craft union and is the sole collective-bargaining agent for city letter carriers.

Current Leadership of Union: Fredric V. Rolando serves as president of NALC, after being sworn in as the union's 18th president in 2009. Rolando began his career as a letter carrier in 1978 in South Miami before moving to Sarasota in 1984. He was elected president of Branch 2148 in 1988 and served in that role until 1999. In the ensuing years, he worked in various roles for NALC before winning his election as a national officer in 2002, when he was elected director of city delivery. In 2006, he won election as executive vice president. Rolando was re-elected as NALC president in 2010, 2014 and 2018.

Brian Renfroe serves as executive vice president, Lew Drass as vice president, Nicole Rhine as secretary-treasurer, Paul Barner as assistant secretary-treasurer, Christopher Jackson as director of city delivery, Manuel L. Peralta Jr. as director of safety and health, Dan Toth as director of retired members, Stephanie Stewart as director of the Health Benefit Plan and James W. “Jim” Yates as director of life insurance.

Number of Members: 291,000 active and retired letter carriers.

Members Work As: City letter carriers.

Industries Represented: The United States Postal Service.

History: In 1794, the first letter carriers were appointed by Congress as the implementation of the new U.S. Constitution was being put into effect. By the time of the Civil War, free delivery of city mail was established and letter carriers successfully concluded a campaign for the eight-hour workday in 1888. The next year, letter carriers came together in Milwaukee and the National Association of Letter Carriers was formed.

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