It’s officially summer and the election season is officially hot. Hilary is officially the Democratic nominee and Trump is still only “presumptive.” But unless Republican delegates conduct a successful coup d’etat (isn’t anything possible this year?) he will soon be an official nominee as well.
For those who take sides primarily on economic—rather than social—issues, understanding the candidates’ tax plans is critical. And lest you add even more hot air to the debate, to understand a tax plan you must understand the numbers.
There are myriads of ways to analyze a tax plan. But most of us just really want to know:
- Who will more?
- Who will pay less?
- Will the Treasury collect more? and
- Will the federal deficit increase?
To see who will likely pay more or less under either plan, there are myriads of tables you can dissect. Most divide the population into five income “quintiles.” But they do not always lay a clear picture of who is in that quintile and how much that individual will save or pay under each candidate’s plan. The tables below dissect data from the Tax Policy Center’s analyses.
It is clear: Everyone will save under Trump’s plan, and everyone will pay under Clinton’s plan. But how is Trump’s savings and Hilary’s expenses distributed? The table below shows the average effect on each individual’s average tax rate according to their income.
Clearly, Trump’s plan brings savings to everyone. However, the savings is greatly disproportionate across income brackets. Those in the top 0.1% of income earners (those earning over $3.7 million) will see a 12% reduction in their average tax rate, whereas the lowest income earners will see only a 1.1% reduction in their average tax rate.
Under Clinton’s tax plan, while no income brackets would enjoy a tax savings, only the top 1% of income earners would see their average federal tax rates increase by more than 0.8%.
The savings offered by Trump’s plan come at a cost. Over 10 years, the Tax Policy Center estimates that, absent extreme spending cuts, Trump’s plan would increase the federal debt by 11.2 trillion. That constitutes a 39.2% increase in the national debt relative to the GDP.
Over the same time period, Hilary’s plan would reduce the national debt by $1.2 trillion and reduce the debt relative to the GDP by 4.4%.
But lower tax rates boost the economy, which leads to greater GDP, which leads to more tax revenue! … Right?
The impact of Trump’s plan on the federal debt is alarming. But won’t all those tax cuts kick-start the economy and “Make America Great Again”? Decades of studies on the argument found that the correlation may only exist if federal spending is cut by the same amount as the reduction in expected tax revenue. Reducing taxes reduces revenue. Period.
The Tax Policy Center estimates that to maintain the federal debt at its current levels under Trump’s plan, federal program spending would have to be cut by 21%. Not even eliminating the entire Department of Defense would save that much!
Both candidates’ plans are expected to change, but we can expect plans along the same lines.
For now, if you know anything at all about the proposed plans, it should be this:
Trump’s Plan: Everyone pays less. If you are in the lowest 40% of income earners, you pay a LITTLE less. If you are in the 41-95% of income earners, you pay MODERATELY less. If you are in the top 5% of income earners, you pay A LOT less. Decreases in federal revenues and increases in federal debt are staggering.
Clinton’s Plan: Everyone pays more. If you are in the lowest 95% of income earners, you pay a LITTLE more. If you are in the top 5% of income earners, you pay MODERATELY more. Federal revenue is expected to increase and federal debt is expected to decrease.
 Data interpreted from Urban-Brookings Tax Policy Center Microsimulation Models (Auxier, Richard, Len Burman, Jim Nunns, and Jeff Rohaly. Mar. 3, 2016. “An Analysis of Hillary Clinton’s Tax Proposals.” http://www.taxpolicycenter.org/publications/analysis-hillary-clintons-tax-proposals/full) (Hereinafter referred to as “Analysis of Clinton’s Plan”).
 Data interpreted from Urban-Brookings Tax Policy Center Microsimulation Models (Nunna, Jim, Len Burman, Jeff Rohaly, and Joe Rosenberg. Dec. 22, 2016. “An Analysis of Donald Trump’s Tax Plan.” http://www.taxpolicycenter.org/publications/analysis-donald-trumps-tax-plan/full) (Hereinafter referred to as “Analysis of Trump’s Plan”).
 See Analysis of Trump’s Plan, p. 8, Table 4. Effect of Trump Tax Proposal on Federal Revenues, Deficits, and the Debt.
 See Analysis of Clinton’s Plan, p. 9, Table 3. Effect of Trump Tax Proposal on Federal Revenues, Deficits, and the Debt.
 See Analysis of Trump’s Plan, p. 17.
 See Analysis of Trump’s Plan, p. 17.