Trump’s tax plan and the wealthy

On Wednesday Donald Trump unveiled an ambitious tax plan, proposing sweeping tax cuts for individuals and corporations in what the president dubbed a “once-in-a-generation” opportunity to overhaul America’s tax code.

“These tax cuts are significant. There’s never been tax cuts like what we’re talking about,” Trump said in characteristically grandiose fashion.

“We will make taxes simple, easy, and fair for all Americans.”

Significant, yes. Fair for all Americans? No. Great for the wealthy? You bet.

The individual tax rates would be 12%, 25% and 35% – and the plan recommends a surcharge for the very wealthy. But it does not set the income levels at which the rates would apply, so it is unclear just how much of a tax cut would go to a typical family.

Trump insisted the tax plan would not benefit the “wealthy or well-connected”, stating: “They can call me all they want, it’s not gonna help.”

The wealthy would only be calling Trump to thank him for his generosity. They’ll be great calls. The best calls. The most calls. The most fabulous calls.

There are also signs that the wealthiest sliver of Americans could still reap tremendous benefits from the proposed changes, even though Trump has suggested that the rich will not be better off. Ya. Right.

Trump also dedicated a considerable portion of his remarks in Indiana to railing against the estate tax, which he referred to as the “death tax” and would be eliminated under his plan. Such a move would primarily benefit top earners, including the president.

“We’re finally ending the crushing, horrible unfair disaster of the estate tax,” Trump said.

The tax in question applies to estates valued at more than $5.49m for individuals or $10.98m for married couples. According to the Tax Policy Center, a research group based in Washington, just 0.2% of estates of people who died were subject to the tax, which currently stands at a rate of 40% under the law.

Trump and Republicans in Congress have argued the estate tax has a crippling effect on family farms, ranches and small businesses. But a Tax Policy Center analysis of the year 2013 found only 3% of the 0.2% of the estates subject to the tax were farms and businesses.

3% of 0.2% isn’t exactly what some people would say is a “crushing, horrible unfair disaster”.

By contrast, a review by Bloomberg revealed huge savings for Trump and his cabinet, which is regarded as the wealthiest in US history.

Trump’s estate would save $564m, the review found, based on his estimated net worth of $3bn. Trump claims his net worth to be at least $10 bn, but he has refused to release his tax returns in a break from precedent, making it difficult to fully evaluate how Trump’s tax plan as president would affect him personally.

According to the Bloomberg analysis, a repeal of the estate tax would save Trump’s commerce secretary, Wilbur Ross, roughly $545m and potentially result in more than $900m in savings for Richard DeVos, the father-in-law of Betsy DeVos, Trump’s education secretary.

Trump’s phone is going to be ringing off the hook. They’ll be great calls. The best calls. The most calls. The most fabulous calls. Believe me.

Corporations would see their top tax rate cut from 35% to 20%. For a period of five years, companies could further reduce how much they pay by immediately writing off their investments.

New benefits would be given to firms in which the profits double as the owners’ personal income. They would pay at a 25% rate, down from 39.6%. This creates a possible loophole for rich investors, lawyers, doctors and others, but administration officials say they will design measures to prevent any abuses. Ya. Right.

Read the complete article on The Guardian newspaper web site.

More on Trump’s tax plan:”Trump’s tax proposal would push US below Greece on inequality index

 

 

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Bruised Apple

Bruised Apple-Economist Magazine

The European Commission’s huge penalty against Apple opens up a new front in the war on tax avoidance

Apple, with its abundance of intangible assets, which are easier to play around with, has been one of the cleverest at exploiting the gaps. A bill of €13 billion ($14.5 billion) plus interest, the amount that the European Commission says Ireland must recover from the firm for tax avoidance, would pay for all the country’s health-care budget this year and barely dent Apple’s $230 billion cash mountain.

But in tilting at Apple the commission is creating uncertainty among businesses, undermining the sovereignty of Europe’s member states and breaking ranks with America, home to the tech giant, at a time when big economies are meant to be co-ordinating their anti-avoidance rules. Curbing tax gymnastics is a laudable aim. But the commission is setting about it in the most counterproductive way possible.

The commission concluded that Irish rulings in 1991 and 2007 artificially lowered the tax Apple was due to pay, and that although the firm did not break any law, this arrangement was in breach of EU state-aid rules preventing member states from offering preferential treatment to particular firms. The spat centres on two Irish-registered subsidiaries that hold the right to use Apple’s intellectual property to make and sell its products outside the Americas. The commission argues that a dubious profit-allocation deal allowed most of their profits to be moved to a “head office” that existed only on paper and was tax-resident in no country—allowing Apple to shrink its tax rate in Europe to well below 1%.

The ruling is part of a broader assault on aggressive tax avoidance, led by Europe. This began several years ago, when post-crisis austerity produced calls for greater tax fairness. The commission is looking into questionable structures set up by several other (mostly American) firms, including Starbucks and McDonald’s—though these involve much smaller sums than Apple. The focus is on arrangements that allow the firms to minimise taxes paid in Europe on sales in the region, while simultaneously using deferral provisions in the American tax code to keep the profits offshore indefinitely—thereby also shielding them from a tax hit back home, where they would be taxed at a hefty 35% (minus any payments made in Europe) if repatriated.

Some see a bright side. Money paid by Apple and other American firms to European governments will not go into tax coffers back home; the realisation that European politicians might gain at their expense could, optimists say, at last spur American policymakers to reform their barmy tax code. American companies are driven to tax trickery by the combination of a high statutory tax rate (35%), a worldwide system of taxation, and provisions that allow firms to defer paying tax until profits are repatriated (resulting in more than $2 trillion of corporate cash being stashed abroad). Cutting the rate, taxing only profits made in America and ending deferral would encourage firms to bring money home—and greatly reduce the shenanigans that irk so many in Europe. Alas, it seems unlikely. The commission has lobbed a grenade; a tax war may result.

Read more from The Economist magazine on this subject here and here.