Trump's Middle-Class Tax Pledges Go Unfulfilled in Senate Bill

(Bloomberg) -- President Donald Trump and Republican congressional leaders are on the brink of achieving their top priority, centerpiece tax legislation, but only after a series of inaccurate claims and broken promises.

Lawmakers have made -- and then retracted -- pledges that their planned overhaul bill wouldn't raise taxes on any middle-class families. Trump and his top aides have said the changes won't cut taxes for the highest earners, statements that are demonstrably false.

And all of them argue that the proposed tax cuts, estimated to reduce federal revenue by more than $1.4 trillion, won't increase federal deficits, an assertion that's been contradicted by Congress's official tax scorekeeper.

“The challenge is that there were a lot of promises made that can't live comfortably with each other,” said Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget. “The biggest loser in all this was their commitment to fiscal discipline, which went away as fast as you can blink.”

The White House didn't respond to a request for comment for this story.

House and Senate GOP leaders are trying to hammer out compromise legislation for Trump to sign before the end of the year. If they succeed, their tax overhaul will immediately become the top policy issue in the 2018 congressional elections. Here are a few statements they might expect to see in opponents' campaign ads:

No Tax Cuts for the Rich

WHAT THEY SAID: “Wealthy Americans are not getting a tax cut,'' Gary Cohn, Trump's top economic adviser, said Sept. 28 on ABC's “Good Morning America.''
 
“Any reductions we have in upper-income taxes will be offset by less deductions so that there will be no absolute tax cut for the upper class,” Treasury Secretary Steven Mnuchin said Nov. 30, 2016, in an interview on CNBC's “Squawk Box.''

WHAT THEY DID: While the Senate bill would cut tax rates for all income groups, on average, higher earners would receive the largest benefits, according to the Tax Policy Center, an independent Washington Policy group.

The top 5 percent of taxpayers -- roughly, those who make more than $215,000 a year, based on recent U.S. Census data -- would do well, the analysis shows. In 2019, those who rank in the 95th through 99th percentiles would see their after-tax incomes rise by more than 3 percent after receiving “the largest cuts as a share of income,” according to the study. By comparison, the bottom 60 percent of taxpayers would see after-tax income growth of roughly 1.5 percent or less, according to the study.

Over time, benefits for the highest earners would outstrip others'. By 2027, after a menu of temporary individual tax cuts would expire, the top 0.1 percent of earners -- those who make far in excess of $1 million a year -- would still see after-tax income growth of about 1.5 percent, dwarfing that for any other group.

The House bill would reduce taxes for taxpayers making $1 million and more by roughly 6.7 percent in 2019, according to Congress's official scorekeeper, the Joint Committee on Taxation. By 2027, that group would still be getting a 4.3 percent tax cut, JCT found.

Trump Won't Benefit

WHAT THEY SAID: “This is going to cost me a fortune, this thing,” Trump said last week during a speech in St. Charles, Missouri. “Believe me.”

WHAT THEY DID: Both bills include provisions that would have the potential to cut Trump's taxes. The House bill lowers the rate for pass-through income, which could cut taxes on Trump's real-estate and other businesses. The Senate bill provides a new deduction for such income. Both measures contain language that would limit the use of those benefits, however.

The Senate bill would cut the top individual income tax rate to 38.5 percent -- a measure that would benefit Trump, who has disclosed multimillion-dollar annual earnings.

The House bill would repeal a tax that has cost Trump in the past: the individual alternative minimum tax, which operates as a kind of parallel tax calculation that originally designed as a way to prevent high earners from using too many deductions or other breaks to zero out their tax bills.

A copy of Trump's 2005 tax return that was leaked earlier this year showed that he had to pay $31 million in AMT that year, accounting for about 80 percent of his total tax bill. Beyond that instance, it's difficult to assess the impact of any tax changes on Trump's personal taxes: He has not followed his predecessors' precedent by releasing any tax returns.

Asked to name which proposed tax provisions would cause the president to pay more, White House Press Secretary Sarah Huckabee Sanders wouldn't offer any specifics. She said only that “a lot of the deductions” that would be eliminated might affect Trump.

No Middle Class Tax Increase

WHAT THEY SAID: “Nobody in the middle class is going to get a tax increase,” Senate Majority Leader Mitch McConnell said on MSNBC on Nov. 4. McConnell later retracted his statement, acknowledging it wasn't correct.

Describing the bill to conservative radio host Rush Limbaugh on Nov. 7, House Speaker Paul Ryan called it “a tax cut for everybody” and said “every single person” would see a reduction in tax rates. He dismissed claims that the bill would raise taxes on millions of Americans as misinformation “from the left.” He later corrected himself as well.

Vice President Mike Pence championed the proposal as an “across-the-board tax cut.” Trump said the middle class would be “the biggest beneficiary” in the tax overhaul.

WHAT THEY DID: While most income groups would see cuts on average, studies have shown that many individuals would not, depending on their specific situations.

In fact, millions of people stand to see higher tax bills because of the elimination or curtailment of deductions such as one for state and local taxes, according to the Joint Committee on Taxation, the nonpartisan official scorekeeper for Congress.
 
And because most of the Senate bill's individual tax breaks expire by 2027, more than 20 million households with income below $200,000 would face tax increases by then.

“We've said all along that our tax reform bill would create more jobs, fairer taxes, and bigger paychecks for the American people,” said Doug Andres, a spokesman for Ryan, said this week.

No New Deficits

WHAT THEY SAID: “It will have to be revenue-neutral,” McConnell told Bloomberg News about any tax overhaul in May.
 
“It will be revenue-neutral when you add growth,” Trump echoed in September.
 
WHAT THEY DID: An earlier version of the Senate plan would increase deficits by roughly $1 trillion over 10 years, even when taking into account additional economic growth forecast with the tax cuts, the Joint Committee on Taxation said last week. Since then, senators revised the bill in ways that would only add to its cost, according to the JCT. Moreover, those changes would stymie some of the bill's economic-growth provisions, business groups said.
 
Republican senators who had previously assailed the nation's debt burden -- including Senators Jeff Flake of Arizona and James Lankford of Oklahoma -- eventually fell in line to support the bill after efforts to include a backstop against growing deficits failed.
 
In the end, Bob Corker of Tennessee was on the only Republican senator to oppose the Senate measure due to his concerns about the debt. Asked if his stand against adding to budget shortfalls made him feel like one of a dying breed, Corker answered: “I do.”

--With assistance from Laura Litvan Anna Edgerton and Steven T. Dennis

To contact the reporter on this story: Toluse Olorunnipa in Washington at tolorunnipa@bloomberg.net.

To contact the editors responsible for this story: Alex Wayne at awayne3@bloomberg.net, John Voskuhl at jvoskuhl@bloomberg.net, Mike Dorning, Joshua Gallu

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