The structure of the Trump organization makes it a prime potential beneficiary – one estimate says the tax plan will save Donald Trump $65m a year in taxes.
A tax plan released by the White House on Wednesday could deliver many millions of dollars annually in tax savings to Donald Trump personally under the guise of helping small businesses, multiple tax experts have told the Guardian.
Trump would not be alone among the super-rich to benefit from the plan, analysts said, although the structure of the Trump organization, an agglomeration of hundreds of owner-operated entities, made it a prime potential beneficiary.
The shrouded way of the Trump association, which the president has not stripped from, and the absence of Trump’s own assessment forms to work with, made it hard to bind how much the president and his family could remain to pick up from the duty code changes proposed on Wednesday, examiners said.
Chuck Marr, director of federal tax policy at the nonprofit Center on Budget and Policy Priorities, referred the Guardian to a paper in which he wrote that, “conservatively…the Trump plan would give the 400 highest-income households a tax break of about $9m each” per year.
Dean Baker, co-founder of the nonpartisan Center for Economic and Policy Research, estimated loosely – given the dearth of information about Trump’s income, assets and tax strategy – that “the Trump tax plan will save Donald Trump $65m a year in taxes”.
The mechanism by which Trump would claim those savings would be irrelevant for most small business owners, analysts said, despite the White House billing the tax plan as “helping the low- and middle-income families who have been left behind by this economy”.
“We are going to cut taxes for businesses to make them competitive and we’re going to cut taxes for the American people, especially low- and middle-income families,” Trump’s chief economic adviser, Gary Cohn, the former president of Goldman Sachs, said in rolling out the plan on Wednesday.
“This is a classic kind of shell game; this is done all the time in political circles,” Baker said. “The reality is it does very little for small businesses – in most cases it does nothing for them, because they’re already paying taxes at a lower rate. So this is a way of cutting taxes for the very wealthy but hiding it as helping small businesses.”
Trump’s plan, which would have to be adopted by Congress to take effect, far from a given, would introduce a new tax rate of 15% for owner-operated businesses known as pass-throughs, which are called that because, for tax purposes, income is “passed through” from the business balance sheet to individual owners and taxed like personal income.
Earners in the top income bracket face a 39.6% hit under current law. Trump’s plan would permit the wealthy business owner who re-categorized personal income as business income to access the lower 15% rate.
Such owners potentially include the president himself. The Trump Organization last year comprised approximately 500 separate pass-through entities, in each case with Trump as the sole or principal owner, according to a statement released by his lawyers during the presidential campaign. Businesses typically run as pass-throughs include hedge-funds and other investment firms, medical and legal practices, lobbying firms and real estate enterprises.
Small businesses are pass-throughs, as well, however small businesses are not positioned, the way the Trump Organization would be, to score a huge tax break because most owners aren’t top earners and already pay taxes at lower rates.
“The small business is the poster child,” Marr said. “The same with the estate tax; they hold up a farmer when no farmers are affected. Because a farmer’s sympathetic and the Walton family’s not.”
“The [media] coverage ignores, though, that most small businesses are small. You have a graduated rate structure. So if you don’t make much money, you don’t pay a high rate.”
“Seventy percent of entities with pass-through income already pay 15%. So this doesn’t affect them. It only affects those who are at the higher rates. And that money, again, is very concentrated at the top.”
The nonpartisan Tax Policy Center has estimated that changes in the way pass-through owners would pay taxes under Trump’s plan would cost the government $1.5tn over 10 years.
Scott Greenberg, a policy analyst at the conservative Tax Foundation, explained the rationale behind the administration’s assertion on Wednesday that the new lower business tax in Trump’s plan was aimed at stimulating economic growth.
“The motivation behind such proposals I think comes from, number one, a desire to lower taxes on businesses generally, recognizing that investment is potentially particularly sensitive to taxes, which might provide a rationale for lowering taxes specifically on business investments,” Greenberg said.
He said that anti-abuse rules in Trump’s tax code, if it is passed by Congress, could stop some business owners from aggressively re-categorizing their income to achieve a lower tax rate.
“Certainly businesses are required to pay their owners reasonable compensation,” Greenberg said. “So if some of your income from a business is compensation for your labor services provided, under current law you are required to report that as wages and salaries rather than as business income. However, this standard hasn’t always proven robust. There’s some evidence that wealthy individuals will use the pass-through business form to re-categorize income already from wages and salaries to business income.”