On MSNBC’s Morning Joe today, Steven Rattner presented charts on President Trump’s tax reform proposal. While many details were left unresolved, we learned enough to know that it would favor business, increase the national debt substantially and hurt badly residents of high tax states such as New York and Connecticut.
Based on very preliminary estimates, the plan provides for $5.8 trillion of total cuts over the next 10 years, roughly equally divided between individuals and business. However, the proposal also includes the elimination of a number of deductions – most importantly, for state and local taxes – that essentially negate any aggregate tax cut for individuals. Thus, more than 100% of the net $2.2 trillion of reductions would go to business, principally by lowering the corporate tax rate from the current 35% to 20%. On the other hand, repealing most itemized deductions (except for mortgage interest and charitable contributions) would cost individual Americans $1.6 trillion in higher taxes over the coming decade.
Not surprisingly, the tax cuts would drive up the deficit and add to the nation’s growing pile of debt. By 2027 — 10 years from now – our total debt burden would exceed the size of our economy for the first time since World War II. That’s 10 percentage points higher than what would occur under current law and more than 20 percentage points higher than the current debt level. And extending one provision – involving how business deducts capital expenditures – to 10 years instead of the 5 years in the Trump proposal would add another 3 percentage points to the debt level.
Finally, one of the most significant provisions – eliminating the deductibility of state and local taxes – would have vastly different effects on residents of different parts of the country, mostly penalizing blue states and benefiting red states. Each resident of New York and Connecticut would face an estimated increase in their federal tax bills of more than $4,000 annually. For residents of Florida and Texas, the additional tax bite would be about $1,300 per year.