Topic: Taxes
“The Treasury should work with Congress to simplify the tax code by enacting a simple two-rate individual tax system of 15 percent and 30 percent that eliminates most deductions, credits and exclusions. The 30 percent bracket should begin at or near the Social Security wage base to ensure the combined income and payroll tax structure acts as a nearly flat tax on wage income beyond the standard deduction. The corporate income tax rate should be reduced to 18 percent.”
Specifically, Project 2025’s tax reform plan would:
- Enact a two-income tax bracket system that would raise taxes by $3,000 for the median family of four—which makes about $110,000 a year—and raise taxes by $950 for the typical single-person household, which makes about $40,000 a year. (see Appendix for state-specific data)
- Provide an average $1.5–2.4 million tax cut for the 45,000 U.S. households making more than $10 million annually from the combination of the “two-bracket” system and cuts to taxes on the wealthy’s investment income.
- Cut the corporate tax rate to 18 percent, which amounts to a $24 billion tax cut for the Fortune 100.
- Replace all individual and corporate income taxes with a consumption tax in the long term. This could take the form of a value-added tax well above 45 percent, which would produce an enormous one-time burst of inflation and raise prices.
The shift toward a flat consumption tax while eliminating income taxes would lead to an average $5,900 tax increase for the middle 20 percent of households and an average $2 million tax cut for the top 0.1 percent. [Source]
Full contextual analysis of Section 4.2: Department of the Treasury here.
“In addition, intermediate tax reform should repeal all tax increases that were passed as part of the Inflation Reduction Act, including the book minimum tax, the stock buyback excise tax, the coal excise tax, the reinstated Superfund tax, and excise taxes on drug manufacturers to compel them to comply with Medicare price controls.”
Oh good, let’s go back to uncontrolled prescription prices. /sarcasm
Full contextual analysis of Section 4.2: Department of the Treasury here.
“All non-business tax deductions and exemptions that were temporarily suspended by the 2017 tax bill should be permanently repealed, including the bicycle commuting expense exclusion, non-military moving expense deductions, and the miscellaneous itemized deductions. The individual state and local tax deduction, which was temporarily capped at $10,000, should be fully repealed. Deductions related to educational expenses should be repealed. Special business tax preferences, such as a special deduction for energy-efficient commercial building properties, should be eliminated.”
No more deductions for any of those things. If you were keeping track, that’s no more tax writeoffs for moving expenses related to work (unless you’re in the military), no more deductions for tax preparation fees, work-related expenses not reimbursed by an employer, or cost of your home office setup. No more being able to deduct any state or local taxes from your federal tax return. No more deducting student loan interest and certain tuition expenses. No more deductions based on sustainable construction practices, which will discourage businesses from doing them.
This means that WAY more of your income is subject to taxation under this plan. This is a regressive tax, meaning that it impacts the wealthy far less than it would everyone else.
Full contextual analysis of Section 4.2: Department of the Treasury here.
“The public finance literature is clear that a consumption tax would minimize government’s distortion of private economic decisions and thus be the least economically harmful way to raise federal tax revenues.”
Consumption taxes are levied on what you spend, rather than what you earn. The theory is that it encourages people to spend less and save more. But this is also a regressive tax – if you live paycheck to paycheck and can’t save anything, you’re just being taxed even more on what you’re being forced to spend. There’s a huge equity problem here.
Full contextual analysis of Section 4.2: Department of the Treasury here.