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Trump’s Proposed Tax Overhaul Would Give Billions to Trump & Cabinet While Sparking Global “Tax War”

StoryOctober 23, 2017
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As the Senate narrowly passes a budget bill that clears the path for a historic tax reform, we’ll look at how President Trump’s proposed tax overhaul would shower billions of dollars in tax cuts upon the wealthiest Americans—including President Trump’s family and members of his administration. An analysis by the Center for American Progress Action Fund shows President Trump’s family and Trump’s Cabinet members would, combined, reap a $3.5 billion windfall from the proposed repeal of the estate tax alone. Trump’s plan would cap the tax rate on “pass-through income” at 25 percent—a move that would also shower millions in savings upon millionaires and billionaires. We speak with economist James Henry of the Tax Justice Network and Pulitzer Prize-winning journalist David Cay Johnston, whose latest piece is titled “Nine Reasons Trump’s Tax Plan Will Hurt You.”

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This is a rush transcript. Copy may not be in its final form.

AMY GOODMAN: We turn to President Trump’s efforts to dramatically rewrite the U.S. tax code, critics slamming the plan, saying it would massively redistribute wealth to the richest 1 percent of Americans—including President Trump and members of his administration. An analysis by the Center for American Progress Action Fund shows President Trump’s family and Trump’s Cabinet members would, combined, reap a $3.5 billion windfall from the proposed repeal of the estate tax alone. The plan also calls for slashing the corporate tax rate from 35 percent down to 20 percent. Earlier this year, Trump proposed cutting the corporate tax rate to as low as 15 percent.

The plan also proposes lowering the tax rate on so-called pass-through income, in which the profits of a business are transferred directly to the business owners. Under the current code, the tax rate on pass-through income varies based on the owner’s income, ranging from as low as 10 percent to as high as 39 percent. Trump’s plan proposes capping the tax rate on pass-through income at 25 percent, a move that would also shower millions in savings upon millionaires and billionaires, including Trump and his family. According to the Center for American Progress Action Fund, capping this tax rate would give Trump’s son-in-law, his senior adviser, Jared Kushner, an annual tax cut of up to $17 million. Based on President Trump’s 2016 financial disclosures, the Center for American Progress estimates Trump himself would receive a $23 million tax cut.

On Thursday, the Senate passed a budget blueprint that would protect a $1.5 trillion tax cut from a Democratic filibuster, clearing the way for Congress to take up Trump’s proposed tax overhaul. The measure passed 51 to 49. Republican Senator Rand Paul was the only Republican to vote against the budget plan, but on Friday he said he was all in for Trump’s proposed tax cuts. All Democrats voted against the budget plan. This is Vermont independent Senator Bernie Sanders.

SEN. BERNIE SANDERS: Mr. President, this is not a bad budget bill. It is an horrific budget bill, an extremely cruel bill and the most unfair budget ever presented in the modern history of our country. At a time of massive income and wealth inequality, this budget provides $1.9 trillion in tax breaks for the top 1 percent. At a time when millions of working families are struggling to keep their heads above water, this budget cuts Medicaid by a trillion dollars. Fifteen million Americans could lose their health insurance.

AMY GOODMAN: President Trump is demanding Congress pass the tax overhaul by the end of the year.

For more, we’re joined by two guests. Democracy Now! video stream brings us, from Sag Harbor, New York, James Henry, economist, lawyer, senior adviser with the Tax Justice Network, Global Justice fellow at Yale University, former chief economist at McKinsey & Company. And joining us in Rochester, New York, is David Cay Johnston, the Pulitzer Prize-winning investigative reporter, previously with The New York Times, now founder and editor of DCReport.org. Johnston’s biography of Donald Trump is titled The Making of Donald Trump. His forthcoming book on Trump is titled It’s Worse Than You Think.

So, let’s start with David Cay Johnson. Your latest piece is headlined “Nine Reasons Trump’s Tax Plan Will Hurt You.” What are they?

DAVID CAY JOHNSTON: Well, essentially, what the Trump tax plan, to the extent that we know what it is, Amy, is a plan to give tiny little tax cuts to most Americans, raise taxes on perhaps one in five families and shower benefits on people who earn millions of dollars a year. If you make $40,000 to $50,000, the Institute on Taxation and Economic Policy estimates you’ll get a tax savings of about $8 a week. If you make an income of $10 million, you’re going to save about a million-and-a-half dollars a year. As much as two-thirds of the tax cuts will go to the 1 percent.

And this fits with a fundamental principle the Republicans have been pursuing for a long time. They don’t use these words, but it boils down to: The rich aren’t investing and creating jobs, because they don’t have nearly enough money, and so we need to get them money. And the way the Republicans want to get it to them is tax cuts first, and then, when there’s no money because of the tax cuts, to take away help for children, the disabled, the elderly and the poor.

AMY GOODMAN: So, explain how President Trump, his family and his Cabinet will profit from what you understand they’re putting forward so far.

DAVID CAY JOHNSTON: Right. Well, in the estate tax area, if Donald Trump had $10 billion—and he doesn’t. His signed-under-oath financial statement indicates his wealth is less than $2 billion, and that’s probably inflated. But at $2 billion, his family would save, when he runs out of time, $800 million. And yet Trump says, “I won’t benefit from this tax plan. This is a middle-class plan. I don’t benefit from it.” In his businesses, he has more than 500 pass-through businesses alone, and his tax rate on those would fall from roughly 40 percent to 25 percent. Well, that’s a million-and-a-half-dollar savings on every $10 million of income. This is clearly and unquestionably a plan designed for people at the top.

And by the way, if you’re a small business owner who makes a very modest profit, Trump would raise your tax rate 50 percent, from 10 to 15 percent. If you’re a working individual, your first tax dollar—first dollar subject to tax would be taxed not at 10, as it is now, but at 12 percent. And if you have more than two children, you will lose the ability to deduct them, and it won’t be offset by the changes they’re proposing. So this is also an anti-large family plan, raising the question of whether the Republicans really want to emulate China’s one-child policy.

AMY GOODMAN: James Henry, you’re an economist and a lawyer with the Tax Justice Network. Can you talk about how—talk about the Republicans who are opposed to Trump’s plan.

JAMES HENRY: Well, we haven’t heard much from them. Ostensibly, they’re opposed to the deficits this is going to create, something like $1.5 [trillion] to $2.6 trillion of additional deficit. So, you know, traditionally, the deficit hawks, some of whom are like Senator Corker, Rand Paul, have been concerned about that. But that appears to be going away. And the reason is that this is a huge payday for their donor class.

I would say that the most important impact of this, that we haven’t really discussed, is the $2.6 trillion offshore that belongs to companies like Apple and Google and Microsoft, you know, very large U.S. companies, going to be able to repatriate all that and pay only a 5 to 10 percent tax on it, you know, which is going to save them about $800 billion.

AMY GOODMAN: Wait, explain exactly how that works. You have written a lot about this.

JAMES HENRY: Well, this is basically a one-time repatriation, like Bush tried in 2004 when he did the same thing, gave major companies that had parked money offshore a 5 percent tax rate. When they brought it back, they usually—they used it not to create jobs, but to do shareholder buybacks. So it had no beneficial impacts at all. This blows that up, because now the stash offshore, under U.S. corporate tax law, if you put money offshore, you can keep it there. You can even borrow against it and not pay tax until you bring it back. So there’s $2.6 trillion offshore now. Effectively, if they brought it back at the 35 percent rate, as opposed to the 5 percent rate, they would pay an extra $800 billion.

The second thing that’s critical about this is that, you know, none of these major companies pay anything like 35 percent. They’re down in the 5 percent range, companies like GE and Apple, because of all this offshore loot, much of which is illicit. I mean, the European Union has determined that Apple and Google were running around Europe cutting special deals and parking their patents and software offshore, then paying themselves royalties tax-free. So this corporate tax reform, for them, amounts to a kind of repeal of the corporate tax, because it’s a territorial tax. U.S. companies will no longer be taxed on their offshore earnings at all. So this will just encourage exactly the kind of behavior that the EU and the OECD and the G20 have been going after. This is a tax haven relief act. Effectively, they will be able to get negative taxes, because of all—all this offshore income will be tax-free.

And this is going to be an absolute disaster for the rest of the world, especially developing countries, because right now U.S. companies can get tax credits against their income in, say, South Africa. After this tax bill is passed, with no hearings and no debate, by the way, you know, they will find themselves under extreme pressure to cut their own tax rates. So this amounts to a unilateral declaration of a tax war, tax competition, as they like to style it. But basically, as the Australian finance minister said recently, you know, “They’re going to cut their taxes. We’re going to cut our tax rates. This is going to be a race to the bottom.” And so, effectively, this is not only the amnesty on the $2.6 trillion one-time payoff, but, going forward, it’s an effective repeal of taxation on multinationals. U.S. businesses, small business, can’t take advantage of these offshore games, but the giant companies really can. And by the way, they’re at all-time record levels in terms of profits. They don’t need these kinds of tax benefits to compete.

AMY GOODMAN: James Henry, you’ve said that Trump’s plan for corporate tax reform should be called “the Goldman plan.” Why?

JAMES HENRY: Well, it’s written by the former—Gary Cohn, who is a former—

AMY GOODMAN: Gary Cohn.

JAMES HENRY: Cohn, who is the former president of Goldman Sachs. And he has 13 other members of—former directors of Goldman Sachs in his administration. This is going to be a major benefit—

AMY GOODMAN: Of course, Treasury Secretary Mnuchin.

JAMES HENRY: Of course. And it’s going to be a major benefit not only personally to these people, because of their estate planning and the way they’re taxed personally, but also Goldman is going to benefit directly, because Goldman and other firms have major stakes in many of these companies that are going to get this huge payday. So this is going to be financed by a deficit. It’s a transfer of wealth to the top, I would say, 0.1 percent of the population, not just the 1 percent. These are the folks—you know, private equity firms now own a majority of shares in the U.S. stock market. So, you know, this is, I think, one of the most reactionary, if not the most reactionary, wealth transfers in U.S. history.

AMY GOODMAN: So, David Cay Johnston, talk about how Trump is framing this, repeatedly saying this is about helping the middle class. Now, you have covered him for decades.

DAVID CAY JOHNSTON: Well, Donald is a master salesman. And he creates his own reality. So if he tells you, “This is a middle-class tax cut, and I, Donald Trump, won’t benefit,” he expects you to believe that. It doesn’t matter that it’s not true. It’s he said it, you’re supposed to believe it. And that’s how he’s run his entire administration. If he says it, that makes it true. Donald is not unique about this. I’ve covered other people in public life who create their own reality in this way.

But ordinary Americans should be rising up and saying, “Wait a minute. We went down this path in 2001.” And what happened when we had a similar plan—and not, by the way, as heavily rigged to the top as this plan is? Well, job growth basically stopped. For eight years, the population of the United States grew five times faster than the number of jobs grew. We saw wages slide. Incomes fell for everybody, including the super rich, the top 10th of 1 percent that Jim just talked about. Their incomes fell, as well. And we ran up these huge deficits.

And Donald Trump ran for office complaining that at $19 trillion, the U.S. debt was completely out of control, and yet what he’s planning to do is throw trillions of dollars more onto that debt. If this plan is enacted, 10 years from now America’s debt will be over $30 trillion. And so, he’s contradicting, Amy, his own stated positions. And that’s because, to Donald, none of this is about policy. It’s not about sound economics. It’s about greed and the glorification of the great leader.

AMY GOODMAN: So, what would a progressive tax plan look like?

DAVID CAY JOHNSTON: Well, the most important element of a progressive tax plan would be to have top rates that don’t start at $400,000 a year. People who make $400,000 a day—i.e. Donald Trump—should pay a much higher rate than a couple who both work all year and make $400,000. They make a lot of money, but people who make that much per day pay the same or lower tax rates. So we need to recognize we need to have a tax schedule that goes up at a million dollars, two-and-a-half million, $5 million, $10 million, $100 million. And remember, we have people in America now who have reported billion-dollar and multibillion-dollar annual incomes—not wealth, incomes. And those people would get incredible tax cuts under this.

Secondly, these accounting rules that allow companies to earn profits in the United States, send the money offshore, effectively taking money out of their right pocket and putting it into their left, and getting a tax deduction and then keeping the money offshore and obtaining, in that fashion, a zero-interest loan from the federal government for the amount of taxes that they owe—every dollar of tax they don’t pay because they put the money offshore amounts to the government loaning money to these companies at zero interest. That needs to be stopped.

There is nothing in this plan that suggests that they intend to reform the tax system. This is simply the oligarchs of America reaching into the pockets of the middle class, and especially the upper middle class and the moderately prosperous, the people in America who make $100,000 a year up to about a million dollars a year, and taking money out of their pockets. People who make $100,000 to $250,000 a year would actually see their taxes rise under this plan, based on what we know so far. This is simply a huge redistribution scheme by the rich, for the rich and paid for by everybody who is not already rich.

AMY GOODMAN: David Cay Johnston, I wanted to ask you about this latest news and whether you think it matters, that President Trump, according to the annual Forbes magazine rankings, had dropped from—lost $600 million, dropping him to $3.1 billion, dropping him from 156th richest American to 248th in their 400 ranking?

DAVID CAY JOHNSTON: Right. Well, first of all, let me point out, the Forbes list is deeply, deeply flawed. I know people who are billionaires who are not on that list because it’s privately held wealth. It is a measure of liquid wealth. And Donald Trump’s wealth is privately held. He doesn’t own any significant stocks or bonds.

But I think the most important element is this. When Donald Trump announced in 2015 that he was running, he said he was worth $8.7 billion, and then he said 10, more than 10, once he said 11. The statement he filed in May, in which he asked if he could file without signing it, and was told, “No, you’ve got to sign it, under penalty of perjury,” he listed his wealth as $1.4 billion, with the possibility it’s somewhat higher because of the way the form is done. So I’ve redone the form, and it comes out to less than $2 billion. Not only is that below what Forbes said, but it’s nowhere near what ran for office claiming. And this goes to the fact that Donald Trump is a con artist. He just tells you what he thinks you want to hear. And I’m shocked that none of the American newspapers and networks ran stories saying, “President Trump didn’t have $10 billion like he claimed. He’s got less than $2 billion.”

But I’m not surprised if his wealth fell during this period of time, because he put a lot of money into the campaign, number one. What we should see happen is his income rising. He doubled the price to join Mar-a-Lago between Election Day and the day he took office, from $100,000 to $200,000. His Washington hotel, the Old Post Office, is the highest-priced hotel in Washington, even though there’s nothing to distinguish it except the name of the owner on the door. Steaks at that place start at $60. Drinks start at $24. They’re taking in $68,000 a day just in food and beverage, which is an extraordinary amount for a hotel. And they’re charging rates that are three times the average in the District of Columbia and higher than any other luxury hotel, even though nothing distinguishes them.

This is a kleptocracy in the making. And the deals with China, where Trump used to be very critical of China, now he and his family have well more than a hundred trademarks in China, and suddenly they’re not so critical of the Chinese anymore. This is a presidency for profit.

AMY GOODMAN: James Henry, we have 10 seconds. Your prediction about how this plan will go in Congress?

JAMES HENRY: I think they’re going to race it through the Congress without any debate, no hearings. And we’re going to have a gigantic tax war, where what we really should be doing is working with our allies and countries around the world to establish a fair taxation. This upsets 10 years of progress with the OECD and the G20.

AMY GOODMAN: We’re going to have to leave it there. I want to thank James Henry, economist with the Tax Justice Network, and David Cay Johnston. I’m Amy Goodman. Thanks for joining us.

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