Investment guru Ron Insana says that President Donald Trump stands to benefit from his own tax-cut proposal, despite his public proclamations to the contrary.
A proposal to cut taxes on limited liability companies and other so-called pass-through entities would appear to benefit Trump, who has reported owning or controlling 500 LLCs.
Trump called on Wednesday for a new pass-through tax rate of 25 percent that could mean big savings for owners of sole proprietorships and partnerships who now pay 39.6 percent, Reuters explained.
But it could also mean a windfall for partners in private-equity, venture-capital and hedge funds, unless Congress can figure out a way to block them from taking advantage of the new rate, Reuters explained.
Eliminating the alternative minimum tax and the estate tax would also benefit the super-rich, Insana wrote in a blog for CNBC.
Salaried employees could actually see their taxes increase, not fall, and the same holds for many middle-class families, based on what we know from the current proposals.
All of this in the face of a public declaration that the president wasn’t looking out for his own best interests.
"I'm doing the right thing, and it's not good for me, believe me," President Donald Trump said of the proposed tax cuts in a speech this week.
However, the CNBC and MSNBC contributor doubts the sincerity of the president’s vow.
“It appears likely the new structure will leave the president's real estate and licensing entities qualifying for the much lower rate, while the question remains whether doctors, accountants and other such entities will continue paying the highest marginal rate,” Insana wrote.
“Assuming the president has actually paid federal income taxes in the last 12 years, his new rates clearly would be lower than in the past, and his business income has innumerable large deductions, as well. He may still have to file a Schedule C personal return — that is unclear. But, again, his rate would be 25 percent, not 39.6 percent, on reported income,” Insana said.
“His presidential salary, which would normally be taxed as ordinary income, is being donated, meaning yet another deduction. So netted out, the taxes paid are on his business income, less expenses and deductions, at a 25 percent rate,” the author of four books on Wall Street explained.
“The new plan also calls for the repeal of the alternative minimum tax. According to the only Trump tax record we have, the tax payments he made in 2005 were entirely the result of the AMT. He would have otherwise paid almost nothing in taxes that year,” Insana said.
“Finally, the new plan calls for the total repeal of the estate tax, or "death tax," as conservatives like to call it. Again, if the estate tax is repealed and assuming the president has a positive net worth upon his death and an estate of more than $11 million, those assets would pass, tax-free, to his heirs,” Insana claimed.
“The elimination of the estate tax could save the super-rich money setting up trusts and other vehicles now used to dodge paying both income taxes on inheritable assets, and on the estate itself, though of course there are still plenty of reasons for setting up a trust regardless of taxes, avoiding probate among them.”
Meanwhile, Ron Wyden, top Democrat on the tax-writing Senate Finance Committee, said Democrats supported a pass-through rate for small businesses, such as “a cleaner, a garage, a restaurant.”
He said Trump’s plan, however, would create “a whole new set of wealthy individuals being able to dodge their taxes through this new provision.”
At issue is the taxation of the roughly 95 percent of American businesses that are not public corporations. Non-public pass-through businesses, such as sole proprietorships, limited liability companies and partnerships, pay no income tax themselves. Instead their profits “pass through” directly to their owners, who pay tax on them at the individual tax rates.
A small fraction of those business owners pay the top individual tax rate of 39.6 percent, higher than the current top corporate income tax rate of 35 percent. Those business owners have long complained that the disparity is unfair, especially in view of the fact that many multinationals pay much less than the 35 percent statutory corporate tax rate by exploiting abundant loopholes and tax breaks available to large, global corporations.
Republicans have been eager to address the issue. Trump’s plan proposes a new tax rate of 25 percent for the pass-through income of “small and family-owned businesses.”
The problem, according to the plan’s critics, is that financial entities such as private-equity, venture-capital and hedge funds are all partnerships whose wealthy partners would see substantial tax savings on large portions of their income unless congressional tax writers find a way to exclude them.
The White House document that spelled out Trump’s plan signaled that the administration was aware of the potential problem but would leave addressing it up to Congress.
The document said: “The framework contemplates that the (congressional tax) committees will adopt measures to prevent the recharacterization of personal income into business income to prevent wealthy individuals from avoiding the top personal tax rate.”
A Treasury Department spokesman did not respond to a request for comment on the pass-through rate or plans to exempt certain categories of firms, Reuters reported.
Frank Clemente, executive director of Americans for Tax Fairness, a liberal advocacy group, said the idea that a new pass-through rate would help small business was “simply a hoax.”
Tax experts said it would be difficult for congressional tax writers to exempt partners at services firms from using the new pass-through rate.
“There has always been talk of how to carve out ‘good’ pass-through income from ‘bad’ pass-through income. The problem is it’s exceedingly hard to do and there is no way to draw clear lines that won’t be manipulated,” said Seth Hanlon with the Center for American Progress, a liberal group.
Victor Fleischer, a law professor at the University of San Diego, agreed it would be “challenging.”
“Still, I think it can probably be done,” Fleischer said.
(Newsmax wires services contributed to this report).
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