Under His Plan, Will Trump’s Taxes Go Up?

By Sam Brunson

Honestly, we have no way of knowing. For one thing, we don’t know how much Trump currently pays in taxes. For another, the plan he has provided is less a plan than it is a shopping list, a shopping list that’s really light on details. But we can at least make a guess. (Spoiler alert: he probably won’t.)

Why His Taxes Will Go Up

I mean, one thing the plan says is, “Eliminate targeted tax breaks that mainly benefit the wealthiest taxpayers.” So maybe that’s what he’s talking about. But since he doesn’t provide any details about what those targeted tax breaks are (and, for that matter, since we don’t have any idea what kinds of tax breaks he takes advantage of), trying to quantify the increase from that proposal is quixotic at best.

He has proposed eliminating the deduction for state and local taxes, though. How much does the SALT deduction reduce his taxes? Well, he lives in New York City. New York State has a top marginal rate of 8.82 percent, and New York City adds an additional 3.876 percent, for a combined tax rate of 12.696 percent.

While we don’t know what Trump’s income is, according to the leaked 1040, in 2005, Trump had almost $50 million in adjusted gross income. Is that representative? I don’t know, but for the sake of math, let’s go with that.[fn1] That means his New York tax liability would be $6.348 million. Deducting that against a top marginal federal rate of 39.6 percent would reduce his taxes by about $2.5 million. In other words, assuming $50 million of income (and ignoring progressivity in his state tax rates), eliminating the SALT deduction would increase his taxes by about $2.5 million.

(Being a little more realistic, it’s likely that eliminating the SALT deduction wouldn’t affect his taxes at all—in 2005, he paid the alternative minimum tax, and, for purposes of the alternative minimum tax, the SALT deduction is already eliminated. But again, I’m trying to do this calculation giving him the benefit of the doubt.)

Why His Taxes Will Go Down

In a word (or four): 15-percent business tax. While in the last section, I assumed he had all ordinary income, here, I’m going to assume all long-term capital gains. His marginal capital gains rate is 20 percent. In addition, he would pay the 3.8-percent net investment income tax on his long-term capital gains. That means under current law, if all of his income were long-term capital gains, he’d pay taxes of $11.9 million.

But if he earns all of his income through, say, an LLC, presumably, he’d pay taxes at the 15-percent business tax rate. And his plan proposes eliminating the net investment income tax. If that all happens, he would owe $7.5 million in taxes, a tax reduction of $4.4 million.[fn2]

Takeaway

It looks suspiciously like, on a net basis, Trump’s tax plan will reduce his net taxes by at least something in the range of $1.9 million. It depends, of course, on all kinds of details that we don’t know, meaning it’s conceivably possible that his tax plan will increase his tax liability.

But it’s really, really doubtful.

[fn1] I realize that it’s possible that he’s not paying taxes, or that some portion of his taxes are paid at long-term capital rates. But I’m trying to take extreme positions here, positions that make his assertion as likely as it can possibly be. If he’s paying less in taxes, that decreases his SALT deduction, which makes the increase in his taxes lower.

[fn2] Note that the reduction in his tax liability jumps to about $12.3 million if we assume that his income was ordinary.

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