Trump’s Tax Plan Is Even More Dangerous Than It Sounded

Trump’s Tax Plan Is Even More Dangerous Than It Sounded

Day by day, the Trump tax plan sounds worse and worse. Yesterday came the news that it involved a 15% maximum corporate tax rate rather than the current 35%.

That was bad enough. Corporations on the whole get to use a wide range of tax strategies, credits, incentives, and loopholes to bring that 35% down to about 14%. In any given year, according to the most recent U.S. General Accountability Office analysis, at least two-thirds of active corporations pay no federal taxes at all. Dropping the rate to a maximum 15% without a complete overhaul of tax law would likely mean corporations could use the same tools to reduce the 15% to next to nothing.

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Now the other shoe has dropped. According to the Wall Street Journal, Trump also wants a 15% on owner-operated companies. That hugely broadens the spectrum. The result will turn

 Now the other shoe has dropped. According to the Wall Street Journal, Trump also wants a 15% on owner-operated companies. That hugely broadens the spectrum. The result will turn the plan into a massive giveaway for business owners, particularly the top 1% wealthiest, while leaving wage earners behind and widen income inequality even more.
The key phrase is pass-through businesses. These are enterprises, ranging from small operations to sizable companies, that aren’t technically old-style corporations, otherwise known as C-corporations. Instead, they are sole proprietorships, partnerships, limited liability companies, and other structures.
Unlike C-corporations that are taxed as entities separate from the owners, profit from a pass-through company is treated at the individual level. Rather than a C-corporation being taxed and then profits divided among the owners taxed again, there is only one round of taxes, reducing the total amount.
According to a 2015 working paper from the National Bureau of Economic Research, pass-through structures have become extremely popular with the wealthiest Americans. A few decades ago, traditional C-corporations represented the “vast majority of business income.” From a public policy view, the benefit from the double layer of taxation is that such businesses have an incentive to invest to grow and build shareholder value. That grows wealth while reducing taxes.
Pass-through businesses have no such inherent incentive. Owners can avoid double taxation and pull income down to themselves.

he plan into a massive giveaway for business owners, particularly the top 1% wealthiest, while leaving wage earners behind and widen income inequality even more.

The key phrase is pass-through businesses. These are enterprises, ranging from small operations to sizable companies, that aren’t technically old-style corporations, otherwise known as C-corporations. Instead, they are sole proprietorships, partnerships, limited liability companies, and other structures.

Unlike C-corporations that are taxed as entities separate from the owners, profit from a pass-through company is treated at the individual level. Rather than a C-corporation being taxed and then profits divided among the owners taxed again, there is only one round of taxes, reducing the total amount.

According to a 2015 working paper from the National Bureau of Economic Research, pass-through structures have become extremely popular with the wealthiest Americans. A few decades ago, traditional C-corporations represented the “vast majority of business income.” From a public policy view, the benefit from the double layer of taxation is that such businesses have an incentive to invest to grow and build shareholder value. That grows wealth while reducing taxes.

Pass-through businesses have no such inherent incentive. Owners can avoid double taxation and pull income down to themselves.