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It is time for more details on the Trump tax plan

Last week, Trump administration officials held a news conference to unveil their tax plan. Joseph Rosenberg, a senior research associate with the Washington, D.C.-based Urban-Brookings Tax Policy Center, spoke with Scotsman Guide News about the potential winners and losers in that plan, and its impact on the housing and mortgage markets.   '

Has the Trump administration revealed anything new in the tax plan revealed last week?

So, what they released last week, there wasn’t all that much that was new information. It was largely a repeat of the main features of the campaign plan. There was actually less detail in that a couple of things were omitted and left unclear, a couple provisions of the campaign plan. That being said, there were a few small, specific tweaks. They slightly changed the tax rates in the plan, including bumping the top individual rate from 33 [percent] to 35. They slightly lowered the increase in the standard deduction. But, beyond that, the principles of it largely followed the campaign proposal.

RosenbergpicIn what respects do the Trump plan and the Republican blueprint still differ?

They are similar in a number of ways. Again, Trump has slightly tweaked his individual tax rates to slightly different than the House plan. But the principal difference between where the House is and where Trump came out last week was in the taxation of businesses and corporations. Trump highlighted in advance of Wednesday’s release the 15 percent tax rate both for corporations and for what are known as pass-through businesses [where the business profits pass back to the owners who are taxed individually]. The House, in their proposal, were basically at a 20 percent corporate rate and a 25 percent rate for pass-throughs. Beyond the rates, they really have different structures of how they would tax businesses. The House plan would allow businesses to fully deduct investments in exchange for foregoing the deduction for interest expense, whereas Trump’s new proposal was silent on that, and simply called for eliminating any tax on overseas earnings of businesses.

Assuming that some form of the Republican plan gets adopted, who would benefit the most from this?

Last year, the Tax Policy Center did analyses of both the House Republican blueprint and the Trump campaign proposal. The common theme from those analyses, in terms of who benefits the most, it is very clear that high-income people, in particular taxpayers with a lot of capital income, would stand to benefit the most.    

Is there enough detail to determine who loses?

No. Certainly, the one-page bullet list was much more heavy on the tax cut than any specific ways to offset those tax cuts. Based on the analyses that we have done, there are a couple of things that you can say. Interestingly, if the House and the Trump administration are really serious about eliminating deductions, then some of the taxpayers who fare the worst are those in roughly the 80 to 95th percentiles of the income distribution, or from the roughly $100,000 to $200,000 of income. Those are people, wage earners, who don’t benefit much from the rate reductions, but could stand to lose a lot from losing their itemized deductions, like their deductions for state and local income tax.  

What kind of deficits might this create?

The short answer is large ones. Again, both of our analyses found that neither of the proposals were revenue neutral. Both would increase the deficit. The Trump plan would do so much more aggressively, we found, on the order of some $6 trillion dollars over 10 years in terms of its impact on tax revenue and the deficit. Obviously, the specific number depends on a lot of details. That is one of the major sources of concern, especially with the Trump proposals.

The Trump plan preserves the mortgage interest deduction but, according to groups like the National Association of Realtors, it would essentially nullify it by raising the standard deduction. If the standard deduction is raised, these groups will likely propose that the break on mortgage interest be preserved fully by making it a special line-item deduction that could be taken with the standard deduction. How much would that cost? Another way of asking this is how much is the government saving by reducing the number of people who deduct for mortgage interest?

That is a big chunk of the savings. It is sort of the combination of increasing the standard deduction, but also eliminating all the other itemized deductions other than mortgage interest and charity, the largest of which is the state and local tax deduction.

Just to put some numbers on it. Our analysis found that the number of itemizers would fall by more than 80 percent. So, whereas about 30 percent of taxpayers itemize, less than 5 percent would do so under the House plan, which the new Trump plan is most similar to in this respect. And so, obviously, while the plans nominally keep the deductions for mortgage interest and for charitable, there is a lot of angst among those groups. While those deductions are available, very few taxpayers would elect to take them.

What you do about that is that you can try to remove the way in which they are structured as an itemized deduction and still give everybody the standard deduction and the ability to deduct these other things. We haven’t run numbers on what that would cost to bring those deductions.

Just as point of reference, currently the mortgage interest deduction is a $60 or $70 billion tax expenditure a year. That is what it costs the federal government in terms of lost revenue. So, if the plan is getting rid of roughly 80 percent of that, the value [of the mortgage interest deduction] would be slightly lower under the lower rates. But you could easily be looking at something in the neighborhood of $40 billion or more a year, if you allowed the mortgage interest deduction to be available to everybody.

Is there anything else in this proposal that affects the mortgage and housing industry? Some experts have expressed concern about losing the deduction for state and local taxes, including property taxes.

On the individual side, currently the property-tax deduction is wrapped into the more general taxes-paid deduction. That sounds like what they would like to get rid of. The property-tax deduction is one area.

The other big area on the business side is that the route that the House plan would go would be to eliminate the ability of businesses to deduct their interest expense. Since a lot of real estate investment is financed through the business sector and by debt, that is one of the sectors that could really be affected and might require either special rules, or they could potentially be affected by the inability to deduct the interest on the debt they issue.

What about these proposals most concern you?

My answer on this would be it is really the lack of specifics. You can point to the large revenue losses and the windfalls to the high-income people, but those are things that are hard to evaluate fully until you see the final bill. It is disappointing that where the White House ended up last week was really offering less information about what its goals and thoughts are as far as tax changes than it did during the campaign. Similarly, with the House plan, they released the blueprint last year. There are a lot of important areas where specifics weren’t given, and we have yet to see additional information come out. I’d say it is really time to go beyond the broad principles and actually specify some specific proposals, so folks like us and voters, and businesses and consumers, can understand what might happen.  


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