Donald Trump’s election frightened investors, sending markets into a temporary tailspin.
But stocks have rebounded sharply, a clear sign that he was Wall Street’s guy all along, thanks to his proposed tax cuts for the rich. His largess, however, will cost the people who elected him.
During the campaign, Trump railed against the “monied interests” on Wall Street.
He claimed they were backing Democrat Hillary Clinton as part of Washington’s “corrupt culture” of money and influence. But Trump was really their guy all along.
His tax cut plan will cause corporate profits to soar, which is great for corporations, their high-salaried chief executives and high-rolling investors.
Among his proposals, he’s promised to slash the tax on capital gains, which benefits mostly wealthy households with investment portfolios. He would also slash the corporate tax rate and abolish the estate tax, which will exclusively benefit estates over $10 million.
Corporations that have been dodging U.S. taxes by sheltering profits overseas will also get a huge break. Trump will only tax those profits at a 10 percent rate, if profits are repatriated.
Trump has also promised to abolish the so-called “carried interest” loophole that mostly hedge-fund managers have used to dodge taxes.
On the flip side, some reports claim Trump will repeal the so-called Dodd-Frank reforms that were enacted in the wake of the 2008 financial collapse. That could open up Wall Street to more financial chicanery.
Although Trump plans to cut marginal tax rates across the board, the largest benefits–in dollar and percentage terms–will go to the highest-income households, according to an analysis by the Tax Policy Center, an arm of the Brookings Institution.
The plan would slash federal revenues by $9.5 trillion over its first decade before accounting for added interest costs or considering the impact on the economy. It would boost the deficit by as much as $11.4 trillion over the same time, according to other experts.
“Unless it is accompanied by very large spending cuts, it could increase the national debt by nearly 80 percent of gross domestic product by 2036, offsetting some or all of the incentive effects of the tax cuts,” the center warns.
But the practical effect will be a massive shift in income from the middle-class to the wealthiest 1 percent.
Trump will likely try to make up some of the loss through “tax reform,” by targeting deductions long-favored by Republicans, the home mortgage interest deduction and deductions for state and local taxes. Both largely benefit the middle- and working-class.
He’s also proposed substantial cuts in federal agencies, but they will also come at a cost. As many as 1 million federal jobs could be lost by his proposals, cutting consumer spending and hammering the economy.
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