Former President Donald Trump's proposed tax plan would create tax cuts for the nation's top 5% of earners while leaving the rest of Americans to shoulder tax increases by 2026, according to a new analysis.
The report, released Monday by the Institute on Taxation and Economic Policy (ITEP), found that enacting Trump's tax proposals would offer the richest 1% of earners an average tax cut of over $36,300, while the next highest 4% of earners would see average tax cuts of nearly $7,200. The remaining 95% of Americans, however, would see average tax increases, spanning from just over $600 to nearly $1,800 depending on where they fall in the country's income distribution.
With just under a month left before Election Day, the ITEP analysis offers a comprehensive look at the combined impact on Americans of all the GOP nominee's tax proposals should he reclaim the White House and implement them. While Trump has boasted about these tax policies' money-saving potential in appeals to everyday Americans on the campaign trail — especially his broad-based tariff proposal — ITEP researchers concluded that the projected tax changes would hit working-class Americans the hardest while disproportionately benefitting the wealthy.
"It does seem like there's a whole bunch of complicated proposals here to just make the rich a little bit richer and then make everyone else worse off," Steve Wamhoff, the analysis' lead researcher and ITEP's federal policy director, told Salon in an interview. "That's not the way we would make tax policy if we were rational."
When measured as a share of their incomes, the tax increases Americans would face under Trump's policies would increase as a family's income decreases, according to the analysis.
The middle 20% of Americans, who the report describes as earning between $55,100 and $94,100, would shoulder an average tax increase of $1,530, which amounts to 2.1% of their incomes, ITEP found. The poorest 20%, whose income the report says falls below $28,600, would face an average tax increase of around $800, which comes out to 4.8% of their incomes.
Erica York, the Tax Foundation's senior economist and research director, told Salon that Trump's proposals generally rely on raising taxes that are "more regressively distributed" like tariffs and nixing taxes that are "more progressively distributed" such as individual and corporate income taxes.
"How each income group fares will depend on which combinations of tax and tariff ideas Trump ultimately pursues, and the higher tariffs could certainly outweigh the benefits of the reduced taxes for lower and middle-income groups," she said in an email.
York also noted that the "most accurate" method of understanding the distribution of tax burden is via the "percentage change in after-tax income," as opposed to looking at the dollar amount of a tax change or the share of a total tax change.
ITEP researchers hinged their analysis on Trump's major tax proposals, which include extending most of the temporary provisions of his 2017 tax law, which is set to expire at the end of 2025, except for its cap on state and local tax deductions.
Trump has also said he would reduce the corporate tax rate from 21% to 20% and further slash it to 15% for “companies that make their product in America;" repeal Biden administration tax credits incentivizing green energy production and use; create tax exemptions for certain types of income, such as overtime pay and tips; and impose a universal 20% tariff on all imported goods with an additional 60% tariff on all goods imported from China.
The former president has claimed that his proposed taxes on certain types of income would supplement the income of working-class families and encourage employers to hire more. He frequently lauds his proposed tariffs as beneficial to the nation, characterizing the plan as a way to siphon money from opposing countries during the presidential debate last month.
In a statement to Salon, the Trump campaign defended the former president's tax policy record and reiterated his plan to reimplement tax cuts if he returns to office.
“President Trump passed the largest tax CUTS for working families in history and will make them permanent when he is back in the White House in addition to ending taxes on tips for service workers and ending taxes on Social Security for our seniors," said Karoline Leavitt, the Trump campaign's national press secretary.
"If Americans want less taxes and more money in their pockets, the only option is to vote for President Trump," she added.
The income tax exemptions, green-energy credit repeals and 2017 tax law extensions would broker marginal tax cuts for the bottom 95% of Americans' taxes, according to the ITEP analysis. But the tariff proposal, which would essentially operate as a sort of federal consumption or sales tax, is so regressive that its projected increases would eclipse any impact of those tax cuts on low- and middle-income Americans, according to Brendan Duke, the senior director of economic policy for Center of American Progress Action Fund.
The distributions of Americans' income and consumption are both unequal, but the distribution of consumption is less unequal than that of income, he explained, because "low- and middle-income people spend everything they've got, whereas higher income people save and invest a lot of it because they have more money."
If a tax policy cuts a flat income tax across the board, "you would expect low-income Americans to not get as large of a tax cut as consumption tax increased," he told Salon in an interview. But, given that wealthier Americans pay a higher share of their incomes in taxes and the government "prevents lower income families from paying taxes," the Trump tax cuts "do very little for low-income families."
"This is an enormously redistributive tax plan from low- and middle-income families to the wealthiest Americans. It's basically taking money from 19 out of 20 Americans and giving it to that last 20th," he said, adding: "Because this whole thing brings in less revenue, that's gonna mean spending cuts down the line to programs people rely on" like Medicaid and Social Security.
The tariff proposal and the proposed extension of Trump's 2017 tax law, the latter of which would cut taxes on average for all Americans across income groups, are the driving forces shaping the ITEP's projections.
According to the think tank's analysis, the tariffs would raise taxes for the poorest 20% of Americans by an average of $930, amounting to 5.7% of their income, and increase taxes for the middle 20% of Americans by an average $3,370, a value equating to 4.6% of their income. The cuts provided by 2017 tax law extensions would only reduce taxes for those groups by an average of $110 and $1,020, which come out to 0.7% and 1.2% of their incomes, respectively.
Though the tariffs would raise taxes for the top 1% and the following 4% by an average $42,050 and $12,420, respectively, those values only account for 1.4% and 2.3% of their incomes. The 2017 tax law extensions, on the other hand, would trim their taxes by an average $80,680 and $16,630, values that make up about 2.7% and 3.1% of their respective incomes.
Overall, those highest earners would see a tax reduction from Trump's tax proposals that amounts to 1.2% to 1.3% of their incomes.
For the nation's top 5%, the projected changes from Trump's proposed tax policy are a "drop in the ocean," Wamhoff said. But for middle-income and low-income Americans, those tax changes are more likely to be noticeable in their day-to-day expenses.
An increase in the prices of everyday goods — like bananas, the bulk of the nation's coffee and off-season fruits, which the United States imports from other nations — will likely be the biggest drawback from the implementation of Trump's tariff policy as the taxes on those goods will likely be "passed onto the consumer," he explained. Buying U.S.-made products won't alleviate the burning hole in Americans' pockets because the seller "is going to be able to charge you more as a result of the tariff."
Together, those changes, if enacted in a potential Trump presidency, could also encourage Americans to consume less, Wamhoff said, "and that's also a type of cost that people are going to bear."
