DCRREPORT EXCLUSIVE: Trump Quietly Breaks Another Promise
Breaking News, Budget, Featured Story, Taxes

DCRREPORT EXCLUSIVE: Trump Quietly Breaks Another Promise

We Do the Math—He Said He’d Grow the Economy 4% a Year,  But His Own Number-Crunchers Say No Way

David Cay Johnston

Donald Trump told voters he would double economic growth from about 2% annually under Obama to more than 4%.

But Trump’s own planners at the Office of Management and Budget (OMB) don’t think that will happen. Using current tax rates, they project that federal tax revenues will grow at a slower pace than under President Obama through 2022, just the opposite of what you’d expect to see if the overall economy was suddenly growing at double the pace of the Obama years. The OMB numbers are presented in a new federal document, not mentioned in other major news organizations’ reporting, and analyzed by DCReport.

A doubling of economic growth to 4% annually would produce a much bigger increase in individual income tax revenues. That’s because as incomes rise so do the rates at which they are taxed. At 4% annual increases in Gross Domestic Product (GDP) incomes would soar, pushing many people into higher tax brackets on their increased incomes.

Corporate income tax revenues should also grow faster. That’s true even though the corporate rate is a flat 35%.  The reason is that GDP growth compounding at double the rate of recent years would mean increasingly robust corporate profits, which would be expected to soar.

Trump promised 3.5% growth until his irrationally exuberant Sept. 15 speech to the Economic Club of New York. “My great economists don’t want me to say this, but I think we can do better than” growth of 4%, Trump declared.

Widely respected economists of any political perspective who believe that claim are as rare as Trump apologies.

Candidate Trump also promised voters his plan to cut tax rates would pay for itself even with individual tax rate cuts. “If we reach 4% growth, it will reduce the deficit,” Trump claimed, even with reduced tax rates that primarily benefit the highest income Americans.

His plan called for lowering the top tax rate from 39.6% to 25% for the very highest paid workers, mostly senior executives, top surgeons and the like.

In addition, Trump proposed that people who get their money as profits from LLCs, LLPs, S Corporations, and sole proprietorships pay tax rates of no more than 15%.  That would encourage those who can to cease being employees and instead work through the personal corporation on contract, which would lower their 39.6% tax rate to just 15%.

Trump would also eliminate an Obamacare add-on tax for very wealthy investors, which adds an extra 3.8 percentage points to their bill. Over a decade this surtax is projected to raise about $123 billion to help pay for healthcare for those who have not had it, are poor or disabled or lose employer-provided coverage.

The accompanying table shows the last six years under Obama compared to the official Trump Administration estimates for six years.

Growth in federal income tax revenues is expected to slow, growing by a third less than under Obama’s last six years, according to the official OMB estimates of the Trump administration.

The OMB charts are prepared using existing tax rates. Refigured using the economic assumptions OMB applied, but at the lower rates Trump proposes, and federal revenues would likely to decline.

That’s what happened during the 12 years that the George W. Bush tax cuts of 2001 and 2003 were in effect. Adjusted for inflation the federal government took in less revenue in 2001 through 2012 than it did in 2000, the year President Bush set as the standard by which to judge whether his tax rate cuts prompted economic growth.

The bottom line: Trump snookered voters, but his own budget planners know better.

June 12, 2017