Who Would Benefit From Trump's Tax Overhaul? Rachel Martin talks to David Wessel, director of the Hutchins Center at the Brookings Institution, about Republican proposed tax cuts for individuals and unintended consequences.
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Who Would Benefit From Trump's Tax Overhaul?

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Who Would Benefit From Trump's Tax Overhaul?

Who Would Benefit From Trump's Tax Overhaul?

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RACHEL MARTIN, HOST:

The framework for overhauling the tax code that President Trump unveiled yesterday would touch almost every American family and every American business. To get beyond the laundry list of proposals, we have asked David Wessel to take a closer look at one issue. Who would benefit if these proposals become law - the rich, the middle class, the poor? David is going to sort all this out for us. He's the director of the Hutchins Center at the Brookings Institution and a contributing correspondent for The Wall Street Journal.

Good morning, sir.

DAVID WESSEL: Good morning.

MARTIN: So before we start with what might change, let's start with where we're at right now. To what extent does the current tax code play Robin Hood of sorts, taking from the rich, redistributing income to the poor? And then what issues does that raise?

WESSEL: Well, the - today's tax code serves more than one purpose. It raises a lot of money to finance the government, $3 trillion a year. It gives Americans incentives to do things that the government wants them to do like save for retirement, buy houses - and to avoid things that the government wants them to avoid, like smoking cigarettes. And for decades, it has reduced the gap between winners and losers in the economy, reduced inequality. That's why tax rates on the rich are generally higher than those on the middle class. That's why a quarter of all households at the bottom are freed of paying any federal income or payroll tax.

Now, because we've had a lot of increase in inequality in the last decade or two, liberals want to use the tax code more aggressively to reduce inequality. Conservatives generally believe that's a bad idea, that this redistribution has unwelcome effects on economic growth. And this is always an issue when we're trying to do a big tax bill. So the last time we did big tax reform - that was in 1986 - going in, everybody decided OK, we want it to be what they called distributionally neutral. That is, it wouldn't change the tax burden on the rich or the poor. It would just move things around.

MARTIN: And that's the goal of this new attempt, this broad tax overall?

WESSEL: Well, it's not quite clear. Congressional Republicans generally haven't wanted to make that a condition, although they frame this as a tax break for the middle class. But here's how President Trump put it yesterday.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED REPORTER: It's a huge tax break.

PRESIDENT DONALD TRUMP: My plan is for the working people, and my plan is for jobs.

UNIDENTIFIED REPORTER: So you wouldn't benefit under your tax plan?

TRUMP: No, I don't benefit. I don't benefit.

UNIDENTIFIED REPORTER: You don't think rich people benefit?

TRUMP: In fact, very, very strongly, as you see, there's no - I think there's very little benefit for people of wealth.

WESSEL: And the White House, in their eight-page framework document, kind of doubled down on that, promising that the reformed tax code, as they put it, will be at least as progressive as the existing code, won't shift the tax burden from high- to low-income people.

MARTIN: Is that true? I mean, from what we've seen so far, can they deliver on that?

WESSEL: That's a good question. And the answer - the short answer is probably not. A lot depends on the specifics we don't have yet, like what income levels would tax rates apply? What tax breaks will be eliminated? There are provisions that would hit upper-income taxpayers harder, like eliminating the federal tax deduction for state and local taxes. That would affect higher-income people. There are all sorts of vague statements like congressional committees will work on additional measures to meaningfully reduce the tax burden on the middle class. But if you take the package as a whole, it's nearly impossible to see how Congress can do all that's on this list - lower the top tax rate, raise the bottom tax rate from 10 percent to 12 percent, sharply cut business taxes, eliminate the estate tax - without ending up with a bigger tax break for people at the top than the bottom. And that's before you take account of the spending cuts in the future, our tax increases in the future that we're going to need eventually to pay down the borrowing...

MARTIN: Yeah.

WESSEL: ...That would be needed if they pursue this in its entirety.

MARTIN: So just briefly, in setting aside that whole issue of paying for this, what about the argument that overhauling the tax code, reducing tax rates, leads to economic growth and creates more jobs?

WESSEL: If this did produce substantially faster economic growth, more jobs and higher wages, that'd be good across the income spectrum. And there are parts of this that might move that needle a little bit. But it doesn't look to me like those effects would be nearly big enough to offset the disproportionate benefit of the tax breaks going to people at the top.

MARTIN: David Wessel of the Hutchins Center at the Brookings Institution breaking down for us the proposed new tax plan. David, thanks so much.

WESSEL: You're so welcome.

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