On Wednesday, the Trump administration announced what it is calling the “biggest tax cut in US history.” The proposal involves cutting the number of individual income tax brackets from the current seven down to three, lowering the highest individual tax rate from 39.6% to 35%, and slashing corporate tax rates from 35% to 15%.
The announcement was made by US Treasury Secretary Steven Mnuchin and the president’s chief economic adviser Gary Cohn during a press conference. While Mnuchin described the plan as “the largest tax reform in the history of our country,” many consider it a simplification of the individual tax code and not true tax reform.
As reported by CNN, the current individual tax rates are 10%, 15%, 25%, 28%, 33%, 35% and 39.6%. Trump’s plan would chance the brackets, leaving only the 10%, 25% and 35% rates intact.
During the press conference, it was not made clear precisely how much income would fall in each bracket, so it isn’t clear how the change would affect individual taxpayers.
The new plan also includes additional changes to corporate taxes, including the removal of the alternative minimum tax (AMT), a tax created to ensure the wealthy cannot use tax deductions to eliminate their full tax liability.
When asked about how Trump would personally benefit from the proposals, Mnuchin and Cohn avoided the question.
Trump’s cabinet is the richest in history, including several billionaires among its ranks, with many of the individuals set to benefit from the proposed changes.
As reported by The Guardian, some additional changes to the current tax policies include eliminating deductions for state and local taxes, leading to potentially significant increases for residents of states like California and New York based on the high state taxes in place. Deductions for charitable donations and mortgage payments would remain, and the standard deduction would be doubled.
When discussing the tax cuts, Munchin declined to comment regarding whether the changes would be revenue neutral, stating the administration was “working on a lot of details.” However, he did assert the changes “will pay for itself through growth, reduction of deductions, and closing loopholes.”
Trump has regularly spoken about how tax cuts were a major part of his economic plan. While previewing his proposals to Congress in February, Trump said, “My economic team is developing historic tax reform that will reduce the tax rate on our companies so they can compete and thrive anywhere and with anyone.”
He also promised to lower the approximately $19 trillion deficit while on the campaign trail. However, a 20% cut to the corporate tax rate could add an estimated $2.4 trillion to the national debt, based on an analysis by the nonpartisan group Americans for Tax Fairness.
At this time, no information has been provided regarding how the cuts would be accounted for to avoid driving up the deficit.