Does President Trump’s Tax Reform Plan Add Up?

URBANA, Ill., Sept. 28 -- The University of Illinois-Urbana-Champaign issued the following news release:

Richard L. Kaplan, the Guy Raymond Jones Chair in Law at Illinois, is an internationally recognized expert on U.S. tax policy and retirement issues. In an interview with News Bureau business and law editor Phil Ciciora, he discusses President Trump's recently unveiled and long-promised tax overhaul plan.

Does President Trump's tax reform plan measure up to the campaign promises he made about it?

For starters, it's no plan. It's a six-page campaign proposal with no legislative language, no effective dates, no cost estimates and no sense of trade-offs. It is more appropriately regarded as a tax-reform wish list.

It's also not reform. It maintains a system of graduated income-tax rates, and even promises to add a higher rate to "ensure that the reformed tax code is at least as progressive as the existing tax code." It retains in full the two major sources of real complexity in the tax law: the preferential treatment of capital gains versus ordinary income, and the unfettered deduction of business expenses versus nonbusiness expenses.

The bottom line is, it's not ready for rollout. Its stunning lack of detail suggests that the long road of drafting, formulating transition rules and moderating competing interests lies ahead, and that none of the impediments to major change have even been considered, let alone accommodated.

In short, it is extremely unlikely that this "plan" will take effect anytime soon.

If it were to come to fruition, what effect would this particular tax reform plan have on taming the deficit?

There is no assessment of the impact on federal revenues and the deficit. Only the vaguest promises of growth are offered to counterbalance these tax cuts. There will likely be some positive feedback effects but not enough to offset the loss of tax revenue from lowering tax rates, especially on business organizations.

One of President Trump's campaign promises was tax relief for the middle class. Does this plan achieve that goal?

It provides less to lower-income people than it promises: the promised "doubling" of the standard deduction is much less significant, since the "plan" indicates that the personal exemption will be eliminated.

The total amount of income exempted, therefore, will increase from $10,400 in 2017 to $12,000 for singles, and from $20,710 to $24,000 for married couples - an increase, to be sure, but not even close to a "doubling."

The increase for people age 65 and older will be even less, because the current additional standard deduction will be eliminated.

Moreover, this change is a net loser for those middle-income people who itemize their deductions. Previously, they could claim a personal exemption even though they did not get the standard deduction. Now, they will exclude nothing.

The framework clearly sets forth the tax-reform priorities of its authors, but getting those priorities enacted will require much more thought and balancing of competing considerations than this draft reflects.