Saturday, December 03, 2016

Lies, Damn Lies and Politicians' Tax Talk, Continued

While campaigning, President-elect Trump promised massive income tax cuts. Now his choice to serve as treasury secretary says upper-income taxpayers will receive no "absolute tax cut."

As politicians know too well, nobody pays income tax on all their income. They pay on a "tax base," representing income less exemptions and deductions, and they may pay even less thanks to tax credits. If you remove or limit enough tax breaks to expand the tax base significantly, you can cut tax rates and still increase tax revenue.

Consequently, politicians find it easy to propose lower rates, even though their tax cuts are less, than, er, "absolute."

The good news for top-bracket taxpayers: Trump's proposed rate cuts, lowering the top rate to 33% and cutting the rate on business income to 15%, are so robust that no realistic increase in the tax base could deprive them of an unqualified, unconditional tax cut.

Earlier post: Lies, Damn Lies and Politicians' Tax Talk.

No comments: