Trump Tax Plan Would Increase Deficit By Over $10 Trillion

This post was originally published on Forbes Sep 29, 2015

When I wrote about Donald Trump's tax plan yesterday, I wrote that I would leave the scoring to the people who did that sort of thing, but that I would be surprised if the plan turned out to be revenue neutral. Well the Tax Foundation, which bills itself as "the nation’s leading independent tax policy research organization" has scored the plan and I am surprised.  I am  surprised at how far from revenue neutral the proposal is.  According to the Tax Foundation, on a static basis the plan would cut revenue over the next decade by $11.98 trillion.

 For perspective, according to this site projected federal revenue for fiscal year 2015 is $3.2 trillion.  So on a lazy math basis, we could call it a third. You know the old joke about a billion here a billion there, pretty soon you are talking about real money.  Doesn't work that way with a trillion. A trillion is real money all by its lonesome.

But There Will Be Growth

They are onto the growth thing.

However, it also would improve incentives to work and invest, which could increase gross domestic product (GDP) by 11 percent over the long term. This increase in GDP would translate into 6.5 percent higher wages and 5.3 million new full-time equivalent jobs. After accounting for increased incomes due to these factors, the plan would only reduce tax revenues by $10.14 trillion. (Emphasis added)

Early in my parenting days, I adopted a rule with my children, which I have not changed even as they are now in their twenties.  I will scold them if they use the word "only" in conjunction with any sum of money greater than four dollars. The report's author Alan Cole has perhaps perpetrated an epic oxymoron with his "only ... $10.14 trillion".

It Gets Worse

The report notes that its estimate does not include increases in the deficit due to additional spending on interest on the national debt.  It also does not consider the macroeconomic effects of any spending cuts that might be required in light of the much lower federal revenue.

The Benefits

It is hardly shocking that the across the board benefits of the massive tax cut are concentrated in the upper income range.

Taxpayers in the bottom deciles (the 0-10 and 10-20 percent deciles), would see increases in after-tax adjusted gross income (AGI) of 1.4 and 0.6 percent, respectively. Middle-income taxpayers with incomes that fall within the 30^th to 80^th percentiles would see larger increases in their after-tax AGI, of between 3.0 and 8.3 percent. Taxpayers with incomes that fall in the highest income class (the 90-100 percent decile) would see an increase in after-tax income of 14.6 percent. The top 1 percent of all taxpayers would see a 21.6 percent increase in after-tax income.

Randall Lane has just written a story about the way Donald Trump tends to challenge Forbes on its estimates of his net worth.  It will be interesting to see what Trump has to say about the Tax Foundation.