Republican presidential candidate Donald Trump has just released his tax plan. Some of its basic features are:
- Lowering and consolidating seven current tax brackets into three: 10%, 20% and 25%.
- The corporate tax rate would be cut from the current level of 35% to just 15%.
- The income tax on all businesses would be cut to 15% as well.
- Taxing carried interest at ordinary income tax rates instead of at the lower capital gains rate.
- Eliminating the Alternative Minimum Tax as well as the Estate Tax.
The nonpartisan Tax Foundation has analyzed the Trump plan and predicts the following positive long term effects:
- 11.5% higher GDP,
- 29% increase in capital investment,
- 6.5% higher wages and
- 5.3 million more full-time equivalent jobs.
The tax Foundation also performed an analysis of Jeb Bush’s tax plan and found roughly similar economic benefits except for a lesser number, 2.7 million, of new jobs created. But the Tax Foundation also predicts that the Trump plan would cut tax revenue by $11.98 trillion over ten years on a static basis or $10.14 trillion on a dynamic basis (accounting for economic growth effects of the plan). This compares with a loss of revenue of $3.6 trillion over ten years (static) or $1.6 trillion over ten years (dynamic) for the Bush plan.
In other words, for a substantially larger growth in new jobs under the Trump plan, there is an enormous cost in additional deficit spending.
Conclusion: I have previously criticized the Bush plan for increasing deficit spending and therefore adding to the debt when we should be shrinking it. The Trump plan is much, much worse in this respect, running annual deficits of over $1 trillion per year, moving in exactly the wrong direction.
The Bush tax plan, while needing changes to make it revenue neutral, is far superior to the Trump plan, which simply blows off any concern for deficits and debt.