Friday 29 September 2017

Fact Checker: President Trump keeps saying rich people don't benefit from his tax plan. That's false.

Three things in life are certain: death, taxes and fact checking.  This week, President Trump unveiled his (still somewhat vague) tax plan. He delivered a major speech (filled with his favorite inaccurate claims) and his aides pushed the administration’s talking points about it. First of all, nothing we saw in the announcement this week confirms Trump’s …
 
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Three things in life are certain: death, taxes and fact checking. 

This week, President Trump unveiled his (still somewhat vague) tax plan. He delivered a major speech (filled with his favorite inaccurate claims) and his aides pushed the administration’s talking points about it.

First of all, nothing we saw in the announcement this week confirms Trump’s repeated claim that his tax plan will be the “biggest tax cut in U.S. history.” The details remain incomplete, but that’s a dubious claim when properly measured as a percentage of the nation's gross domestic product.

‘The wealthy are not getting a tax cut’

This is one of the biggest myths spread by Trump and his aides. The wealthy pay most of the taxes, so unless the tax plan specifically leaves them untouched — which Trump's plan does not — they will get big tax cuts.

On its face, this is a ridiculous statement to make for any plan that includes reductions in tax rates. That's because federal income taxes are paid mostly by the wealthy. So when you cut income tax rates, it results in lots of dollars for the wealthiest taxpayers.

The Trump tax plan drops the top bracket from 39.6 to 35 percent, and allows for the possibility of a 25 percent top rate through a pass-through entity. It presumably would also eliminate a 3.8 percent Obamacare tax on investment income that only hits upper-income tax payers.

There are many other reasons, including these two major ones: The tax plan would eliminate the alternative minimum tax, which would be a boom for the wealthy. The plan also calls for eliminating the estate tax, though it’s unclear on whether any tax would be required when someone dies. Currently, the estate tax is only estimated to affect about 5,500 estates out of nearly 3 million estates because as much as $11 million can be shielded from taxation. We awarded Four Pinocchios.

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Fact-checking Trump’s speech about his tax plan

Below are three key claims from Trump’s speech in Indianapolis. For more, read the full round-up.

"To protect millions of small businesses and the American farmer, we are finally ending the crushing, the horrible, the unfair estate tax, or as it is often referred to, the death tax."

The president's suggestion that "millions" of small businesses and farms are affected by the estate tax is absurd. Only 80 — that's right, 80 — taxable estates would be farms and small businesses, according to the Tax Policy Center.

The number of estates affected by the tax has declined dramatically in recent years. In 1977, 139,000 estates had to pay the tax. In 2000, it was 52,000. But Congress has kept raising the exemption and lowering the tax rate. So for virtually all Americans, even farms and small businesses, the estate tax is just not a problem.

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"A married couple won't pay a dime in taxes on their first $24,000 of income. So a married couple, up to $24,000, can spend their money on their family, on their children, on what they have to do — so much better."

It's debatable that this would be much better for a middle-class couple with children — and it could be worse. The tax plan would nearly double the standard deduction, $12,000 for individuals and $24,000 for married couples, but also eliminate personal and dependent exemptions (currently $4,050 per family member).

So a couple with two children already don't “pay a dime” on their first $28,800. That's because they get $12,600 in a standard deduction and $16,200 in dependent and personal exemptions. It's possible Trump's expanded child tax credit might help make up some of the difference, but maybe not.

Lily Batchelder, a professor of public policy at New York University who was deputy director of the National Economic Council in 2014-2015, "conservatively" estimated in 2016 that "Trump's plan would increase taxes for about 8.7 million families," but the number could be as high as 11 million under "reasonable assumptions." That analysis was based on Trump's campaign plan, which envisioned a larger increase in the standard deduction ($30,000 for a married couple).

"The tax strategy that Ronald Reagan used to create an economic boom in the 1980s when our economy took off, the middle class thrived. And the family income of all families was increasing more and more, and it was a beautiful sight to behold."

This is a flip-flop. He was always a fierce critic of the bill, Reagan's Tax Reform Act of 1986, which he now calls "a beautiful sight to behold." The law simplified tax brackets and eliminated tax shelters, and also lowered the top individual tax rate to 28 percent but raised the capital gains rate to the same level, giving them parity.

In the years following the law, Trump repeatedly blamed it for the savings and loan crisis, a decline in real estate investing and the 1990-1991 recession.

Trump also frequently attacked one of the Democratic sponsors of the bill, Sen. Bill Bradley (D-N.J.), including in a Wall Street Journal commentary in 1999. "Mr. Bradley's last big idea to be enacted into legislation was also one of the worst ideas in recent history," Trump wrote, saying Bradley was responsible for the elimination of a tax shelter for real estate investments. (He said the good parts of the bill could be attributed to Reagan.)

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We’re always looking for fact-check suggestions. You can also reach us via email, Twitter (@myhlee@GlennKesslerWP@mmkelly22@nikki_lew or use #FactCheckThis), or Facebook (Fact Checker or myhlee). Read about our rating scale here, and sign up here for our weekly Fact Checker newsletter.

Scroll down for this week’s Pinocchio roundup.

–Michelle Ye Hee Lee

 
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