What Trump and the G.O.P. Can Agree On: Tax Cuts for the Rich
In some important ways, the House Republicans’ new plan to overhaul the tax code has more in common with proposals from the candidates who lost their party’s presidential nomination than those from Donald J. Trump, the one poised to win it.
Like Senator Ted Cruz of Texas, the Republicans boast that most Americans will be able to file their taxes on a postcard.
Like the former Florida governor Jeb Bush, they would eliminate deductions for interest payments for businesses and allow them to immediately write off all capital investments.
Like Senator Marco Rubio of Florida, they would no longer tax a company’s foreign profits.
But most significant, the blueprint, shepherded by Paul D. Ryan of Wisconsin, the House speaker, embraces a transformational shift promoted by both Mr. Cruz and Mr. Rubio, but not Mr. Trump: a move away from taxing income to a system that basically taxes consumption.
“What Ryan and the House Republicans are doing is staking out an entirely different approach to taxes,” said Steven Rosenthal, a senior fellow at the nonpartisan Tax Policy Center in Washington.
Despite their conceptual differences, however, there is a crucial feature that Mr. Trump’s plan and the House Republicans’ plan share: The biggest tax cuts are reserved for the wealthiest.
“Relative to the current system, the plans are pulling in the same general direction, reducing taxation on capital gains and high-income households,” said William Gale, a co-director of the Tax Policy Center and a former economic adviser to President George H. W. Bush.
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Beyond sharply cutting income tax rates across the board, both Mr. Trump and the House Republicans would eliminate the estate tax (which currently applies to only about 5,300 of the richest families); end the 3.8 percent surtax on high earners’ investment income, which helps pay for health coverage for lower-income Americans; and scrap the alternative minimum tax, which is aimed at making it harder for the affluent to take advantage of various tax breaks.
But they reach those goals by different paths. While the Trump plan stays squarely within the traditional framework of an income tax, the Ryan plan takes a giant step toward taxing what people spend.
Alan Viard, a tax expert at the conservative American Enterprise Institute and a proponent of consumption taxes, explained the difference. The “Trump plan has a bigger revenue loss and more harmful effects on the budget outlook,” he said, while “the Ryan plan is more revolutionary from the standpoint of tax policy.”
The best-known version of a consumption tax is the value added tax, or V.A.T., which functions like a national sales tax.
Such taxes have long been popular among some economists, who argue that they encourage people to save for tomorrow, rather than spend today, and help foster more investment that leads to longer-term growth.
But skeptics point out that unlike the rich, people on the lower end of the income ladder must spend most, if not all, of their earnings — on things like housing, food, cellphones, doctors, toothpaste, bus fare, jeans and haircuts — and have little left over to save. Taxing consumption means the burden inevitably falls more heavily on them.
From this vantage point, a progressive income tax based on the ability to pay is the most practical way to ensure that the wealthy contribute their fair share to financing the government, particularly when wealth inequality has widened to the greatest levels since the Gilded Age.
Supporters of a progressive income tax argue that it is fairer in another way because it taxes earnings from capital as well as labor (even if sometimes at a different rate). Workers who earn their money in the form of wages or salaries should not pay a larger share of their income, they say, than taxpayers who live off their investments and tend to be among the wealthiest Americans. Nearly 70 percent of capital gains benefits go to the top 1 percent.
Those proponents also note that there is little evidence that lowering taxes on the wealthy leads to significantly stronger economic growth. There is no guarantee that the rich will not use their extra money to buy, say, a multimillion-dollar Picasso to hang in their living room or finance a company in China rather than plow the money into American businesses and their workers.
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Senator Ted Cruz has promoted a shift toward taxing consumption rather than income.CreditZach Gibson for The New York Times
Like Mr. Rubio and Mr. Cruz, the House majority has tried — as the song advises — to accentuate the positives and eliminate the negatives, by mixing and matching elements of both approaches.
Individuals would continue to pay taxes on their income at mildly progressive rates. Instead of imposing a regressive tax on consumers at the checkout counter, however, the government would collect that money after it was spent, from businesses.
Businesses would then be allowed to deduct all their expenses and investments right away, rather than depreciating them over time. But it would mean an end to the deduction for interest paid on loans, which can often favor industries that depend heavily on debt financing — like real estate, Mr. Trump’s own business.
“It’s a combination of a consumption tax on the business side and an income tax,” said Roberton Williams, a fellow at the Tax Policy Center.
Both Mr. Ryan and Mr. Trump have indicated a willingness to compromise on details, but as Mr. Ryan told C-Span, “On the critical aspects of this agenda, on the foundations of it and the basic principles, we are in agreement on these things.”
Mr. Trump’s campaign team did not respond to repeated requests for comment.
With only sketchy details, predicting how either plan would affect the economy and the federal budget is difficult. Both Mr. Trump and House Republicans contend that explosive growth unleashed by their proposals would make up for revenue losses.
The conservative Tax Foundation estimated that the Ryan plan would cost $2.4 trillion in the first decade, without accounting for growth.
As for the Trump plan, the Tax Policy Center has calculated that it would drain a staggering $9.5 trillion from the Treasury over 10 years. The top 1 percent of taxpayers would save about $275,000, on average, or 17.5 percent of their after-tax income, it estimated. For middle-income families, the cut amounts to about $2,700, a 4.9 percent savings.
And so while Mr. Trump’s proposals strike a more populist note, claiming to eradicate sweetheart deals for the rich, in reality both Republican plans offer the wealthy even better breaks than they get now.
Take, for example, Mr. Trump’s proposed elimination of what’s known as the carried interest loophole, which has enabled private equity and hedge fund titans to save billions of dollars. They are allowed to classify what are essentially ordinary earnings — taxed at over 40 percent for the highest incomes — as investment profits, which are subject to a rate of 23.8 percent.
But as Mr. Rosenthal of the Tax Policy Center sees it, “Trump is closing one carried interest loophole and opening another.”
Many of those money managers could end up paying less than they do now — just 15 percent — by simply reclassifying their earnings as income from pass-through businesses or partnerships.
That loophole would also get bigger under the Ryan plan, because the tax rate on capital gains would be reduced.
When it comes to companies parking their overseas profits outside the United States, Mr. Ryan and Mr. Trump seem to stake out conflicting positions. The Ryan plan eliminates taxes on foreign earnings altogether, and instead taxes businesses on the basis of where their goods and services were sold.
By contrast, Mr. Trump has promised a crackdown, forcing multinationals to pay United States taxes every year.
As it turns out, the get-tough approach would not necessarily matter much. Because Mr. Trump promises to cut the corporate rate and allow credits for foreign taxes paid, many multinationals could end up owing nothing.
“Superficially, Trump is at the opposite end of the spectrum from the House Republicans” on this issue, said Mr. Viard of the American Enterprise Institute. “But in practice, not that much.”
WASHINGTON — Unless they have a book to sell, Supreme Court justices rarely give interviews. Even then, they diligently avoid political topics. Justice Ruth Bader Ginsburg takes a different approach.
These days, she is making no secret of what she thinks of a certain presidential candidate.
“I can’t imagine what this place would be — I can’t imagine what the country would be — with Donald Trump as our president,” she said. “For the country, it could be four years. For the court, it could be — I don’t even want to contemplate that.”
It reminded her of something her husband, Martin D. Ginsburg, a prominent tax lawyer who died in 2010, would have said.
“‘Now it’s time for us to move to New Zealand,’” Justice Ginsburg said, smiling ruefully.
In an interview in her chambers on Friday, Justice Ginsburg took stock of a tumultuous term and chastised the Senate for refusing to act on President Obama’s Supreme Court nominee.
Her colleagues have said nothing in public about the presidential campaign or about Mr. Obama’s stalled nomination of Judge Merrick B. Garland to the Supreme Court. But Justice Ginsburg was characteristically forthright, offering an unequivocal endorsement of Judge Garland.
“I think he is about as well qualified as any nominee to this court,” she said. “Super bright and very nice, very easy to deal with. And super prepared. He would be a great colleague.”
Asked if the Senate had an obligation to assess Judge Garland’s qualifications, her answer was immediate.
The court has been short-handed since Justice Antonin Scalia died in February, and Justice Ginsburg said it will probably remain that way through most or all of its next term, which starts in October. Even in “the best case,” in which Judge Garland was confirmed in the lame-duck session of Congress after the presidential election on Nov. 8, she said, he will have missed most of the term’s arguments and so could not vote in those cases.
Justice Ginsburg, 83, said she would not leave her job “as long as I can do it full steam.” But she assessed what is at stake in the presidential election with the precision of an actuary, saying that Justices Anthony M. Kennedy and Stephen G. Breyer are no longer young.
“Kennedy is about to turn 80,” she said. “Breyer is going to turn 78.”
For the time being and under the circumstances, she said, the Supreme Court is doing what it can. She praised Chief Justice John G. Roberts Jr.
“He had a hard job,” Justice Ginsburg said. “I think he did it quite well.”
It was a credit to the eight-member court that it deadlocked only four times, she said, given the ideological divide between its liberal and conservative wings, both with four members.
One of the 4-4 ties, Friedrichs v. California Teachers Association, averted what would have been a severe blow to public unions had Justice Scalia participated. “This court couldn’t have done better than it did,” Justice Ginsburg said of the deadlock. When the case was argued in January, the majority seemed prepared to overrule a 1977 precedent that allowed public unions to charge nonmembers fees to pay for collective bargaining.
A second deadlock, in United States v. Texas, left in place a nationwide injunction blocking Mr. Obama’s plan to spare more than four million unauthorized immigrants from deportation and allow them to work. That was unfortunate, Justice Ginsburg said, but it could have been worse.
“Think what would have happened had Justice Scalia remained with us,” she said. Instead of a single sentence announcing the tie, she suggested, a five-justice majority would have issued a precedent-setting decision dealing a lasting setback to Mr. Obama and the immigrants he had tried to protect.
Justice Ginsburg noted that the case was in an early stage and could return to the Supreme Court. “By the time it gets back here, there will be nine justices,” she said.
She also assessed whether the court might have considered a narrow ruling rejecting the suit, brought by Texas and 25 other states, on the ground that they had not suffered the sort of direct and concrete injury that gave them standing to sue. Some of the chief justice’s writings suggested that he might have found the argument attractive.
“That would have been hard for me,” Justice Ginsburg said, “because I’ve been less rigid than some of my colleagues on questions of standing. There was a good argument to be made, but I would not have bought that argument because of the damage it could do” in other cases.
The big cases the court did decide, on abortion and affirmative action, were triumphs, Justice Ginsburg said. Both turned on Justice Kennedy’s vote. “I think he comes out as the great hero of this term,” Justice Ginsburg said.
The affirmative action case, Fisher v. University of Texas, was decided by just seven justices, 4 to 3. Justice Elena Kagan had recused herself because she had worked on the case as United States solicitor general.
But Justice Ginsburg said the decision was built to last. “If Justice Kagan had been there, it would have been 5 to 3,” she said. “That’s about as solid as you can get.”
“I don’t expect that we’re going to see another affirmative action case,” Justice Ginsburg added, “at least in education.”
The abortion decision, Whole Woman’s Health v. Hellerstedt, in a 5-to-3 vote, struck down two parts of a restrictive Texas law, ones requiring doctors who perform abortions to have admitting privileges at nearby hospitals and abortion clinics to meet the demanding standards of ambulatory surgical centers.
Justice Kennedy had only once before voted to find an abortion restriction unconstitutional, in Planned Parenthood v. Casey in 1992, when he joined Justices Sandra Day O’Connor and David H. Souter to save the core of Roe v. Wade, the 1973 decision that established a constitutional right to abortion.
Asked if she had been pleased and surprised by Justice Kennedy’s vote in the Texas case, Justice Ginsburg responded: “Of course I was pleased, but not entirely surprised. I know abortion cases are very hard for him, but he was part of the troika in Casey.”
Justice Breyer wrote the methodical majority opinion in the Texas case, and Justice Ginsburg added only a brief, sharp concurrence.
“I wanted to highlight the point that it was perverse to portray this as protecting women’s health,” she said of the challenged requirements. “Desperate women then would be driven to unsafe abortions.”
The decision itself, she said, had a message that transcended the particular restrictions before the court.
“It says: ‘No laws that are meant to deny a woman her right to choose,’” she said.
Asked if there were cases she would like to see the court overturn before she leaves it, she named one.
“It won’t happen,” she said. “It would be an impossible dream. But I’d love to see Citizens United overruled.”
She mulled whether the court could revisit its 2013 decision in Shelby County v. Holder, which effectively struck down a key part of the Voting Rights Act. She said she did not see how that could be done.
The court’s 2008 decision in District of Columbia v. Heller, establishing an individual right to own guns, may be another matter, she said.
“I thought Heller was “a very bad decision,” she said, adding that a chance to reconsider it could arise whenever the court considers a challenge to a gun control law.
Should Judge Garland or another Democratic appointee join the court, Justice Ginsburg will find herself in a new position, and the thought seemed to please her.
“It means that I’ll be among five more often than among four,” she said.
