Still Confused About Trump's 1-Page Tax Plan? Goldman Explains It All

Tyler Durden's picture

Since at its core, yesterday's 1-page "tax plan" was a Goldman creation - and was presented to the world by two former Goldman employees -  who better to explain what Trump had in mind than Goldman Sachs itself, which it did overnight in a far lengthier note from its chief Washington analyst Alec Phillips. 

Here is Goldman with an elaboration of the handful of bullet points contained on the much anticipated one page, extending it by nearly 600% to some 6 pages of details. Perhaps it would be prudent to just have Alec Phillips present the next iteration of Trump's tax plan: after all he , together with Jan Hatzius, appears to be the man behind it.

From Goldman

Q&A on the President’s Tax Reform Plan

  • The White House announced a slightly revised set of principles for tax reform, which appear to incrementally reduce the size of the proposed tax cut compared with the President’s campaign proposal, and eliminate a few of the differences between the campaign plan and the House Republican blueprint on tax reform.
  • That said, the White House proposal is still likely to reduce tax receipts by substantially more than the House proposal would. While the White House appears likely to rely on optimistic growth assumptions to offset most of the fiscal effects of the proposed tax cut, Congress will not be able to do so and must decide whether to pursue revenue-neutral tax reform or an explicit tax cut. While no decision is imminent, today’s announcement and indications of openness to a tax cut among congressional Republicans suggest that a tax cut is more likely than revenue-neutral reform.
  • We expect a long road ahead for tax legislation. While we believe there is a good chance that tax legislation becomes law—in fact, market participants might be underrating the odds of tax cuts, a change from earlier this year—there may be few concrete legislative actions on tax legislation over the next couple of months for markets to react to.

Q: What did the White House announce?

Treasury Secretary Steven Mnuchin and White House National Economic Council Director Gary Cohn briefed the press today (April 26) on the direction that the President will take on tax reform this year. They provided little detail, and what detail was provided was mostly similar to President Trump’s campaign proposal. That said, there were some policy changes compared with the campaign proposal that provide clues about the direction the White House might take the debate. In addition, the Administration’s thinking on the fiscal impact of the tax cut is at least slightly clearer.

Q: What has changed compared with the last tax proposal?

The proposal appears to have changed in four areas compared with the campaign proposal:

  • A smaller tax cut for top income earners: The White House proposal would lower the top marginal tax rate for individuals from 39.6% to 35%, rather than the 33% proposed in the campaign.
  • A smaller tax cut for middle-income individuals: The proposal now calls for a standard deduction of $24k for couples rather than $30k. This is still roughly twice as much as the current standard deduction and is identical to the House Republican proposal.
  • Repeal of the state and local tax deduction: The Trump campaign proposal was unclear about which, if any, individual tax deductions might be eliminated, but the current White House proposal is more specific; the deduction for state and local taxes would be eliminated, while the deductions for mortgage interest, charitable contributions, and retirement savings would be maintained.
  • A territorial tax system for business income: The campaign proposal would have repealed the deferral of tax on income earned by foreign subsidiaries of US companies, and would have instead taxed those earnings at 15% minus foreign tax credits, amounting to what would effectively be a 15% minimum tax on foreign earnings. Instead, the revised White House plan would adopt a territorial tax system, which exempts foreign earnings from US tax.

In addition to the explicit changes compared to the campaign proposal, today’s announcement was also noteworthy for two conspicuous omissions.

  • No border adjustment: The plan does not endorse the border adjusted tax (BAT) that makes up part of the destination-based cash flow tax (DBCFT) system in the House Republican blueprint. In comments earlier in the day, Treasury Secretary Mnuchin indicated that the White House did not support the BAT in its current form, though he suggested that revisions might be considered. In light of substantial opposition to the BAT in the Senate, it would have been very surprising to see the White House endorse the proposal. That said, today’s announcement did not include an outright rejection of the proposal either.
  • No mention of interest deductibility or capex expensing: The Trump campaign proposal would have allowed businesses the option of full expensing of capital investment in return for non-deductibility of interest expense. However, today’s outline is silent on this question. This is notable since many observers assume that the White House does not support the mandatory shift to full expensing of capex and non-deductibility of interest included in the House Republican blueprint.

Exhibit 1: The latest White House plan includes some new elements

Source: White House, House Ways and Means Committee, Goldman Sachs Global Investment Research
Q: What effect would these revisions have on the size of the proposed tax cut?

Overall, we figure that the changes the White House has announced would shrink the size of the proposed tax cut by more than $1 trillion over ten years compared with the prior version:

  • A standard deduction of $24k for couples costs about $300bn less over ten years than the $30k standard deduction proposed in the campaign;
  • A 35% instead of 33% top marginal rate for individuals probably reduces the cost of the proposal by around $400bn over 10 years;
  • Repeal of the state and local tax deduction would raise around $800bn in tax revenue; and
  • The shift to a territorial tax system would reduce corporate tax receipts by $200bn to $300bn more over ten years than the prior proposal.

With these changes, we expect that the overall cost of the tax plan would decline from the roughly $6 trillion cost over ten years previously estimated by the Tax Policy Center (TPC) to just under $5 trillion.

As noted above, it is unclear how the proposal would treat capital investment and interest expense, but if the proposal omitted any changes in this area, it would shrink the cost of the proposal over the next ten years by another $1.3 trillion to around $3.7 trillion, based on TPC estimates.

Q: Where does this put the proposal in comparison with the House and Senate?

It brings the White House proposal closer to where Congress is likely to be on most issues, but the rate cuts on corporate and business income are still greater than we think Congress will support. On the individual side, we believe that a 35% top marginal rate is more likely than the 33% rate that House Republicans have proposed, given fiscal constraints and the fact that a 35% rate would be a natural place to settle, as it was also the top rate prior to 2013.

The White House’s proposed $24k standard deduction and elimination of the state and local deduction bring it into line with the House Republican blueprint. While we are skeptical that the state and local tax deduction will be repealed entirely, we note that the House, Senate, and White House now all appear to be focused on limiting this benefit, suggesting that at least a limitation is becoming more likely.

On the corporate side, the inclusion of the territorial system for corporate income in the White House plan brings it in line with the House proposal as well as the position that we expect the Senate to take. However, the 15% rate that the White House proposes on corporate and pass-through business income is lower than the 20% and 25% rates, respectively, that the House proposes or that the Senate is likely to agree to. Ultimately, we expect that Congress will cut the corporate rate to perhaps 25%, and we would expect the tax rate on small business to be higher—quite possibly still aligned with the top individual tax rate.

Q: What have we learned about how the tax cut might be paid for?

Secretary Mnuchin has stated that the tax proposal would be offset through a combination of growth and various base broadening measures. We expect this to be outlined in more detail by May, when the President submits a formal budget to Congress for fiscal year 2018, including projections of revenues and deficits over the next ten years. Our preliminary expectation is that the White House will assume that the majority of the fiscal effect of the tax cut would be offset through a projection of faster GDP growth. For example, if the White House assumes a 3% growth rate over the next ten years, rather than the 1.8% average rate that CBO assumes, this would increase revenues by roughly $3.7 trillion over the ten- year period. We note that the fiscal benefits of a higher trend growth forecast are very backloaded; over half of the total revenue gain over the ten-year period would come in the final three years, so the projected deficit over the next several years would expand as a result of the tax cut, regardless of what growth assumptions one makes.

White House growth projections would have little direct effect on the legislative process in Congress, whereas the Joint Committee on Taxation (JCT) will use growth projections provided by the CBO as a starting point for analysis and is likely to make much more conservative estimates of the effect that tax legislation is likely to have on growth. That said, optimistic White House growth assumptions might help build political support in Congress for the eventual legislation. With apparent support for an explicit tax cut from key Republicans like Senate Finance Committee Chairman Orrin Hatch (R-UT), momentum for a tax cut rather than revenue-neutral reform appears to be growing.

Q: Won’t Senate rules make it difficult to pass a tax cut that is not paid for?

Rules regarding the “reconciliation” process make it more difficult to pass a tax cut than to pass revenue-neutral tax reform, but we expect lawmakers to get around these obstacles. Republican leaders have made clear their intent to use the reconciliation process to pass tax legislation, since this allows the Republican majority to circumvent likely Democratic opposition in the Senate. However, the “Byrd Rule” in the Senate prohibits reconciliation legislation from increasing the deficit after the period covered by the budget resolution that governs the process, which traditionally lasts for ten years.

The most obvious way that congressional Republicans might get around this constraint is simply to allow the tax cuts to expire after ten years (i.e., by 2027). This was done in 2001 when the Bush Administration passed a large individual tax cut. However, two reasonable objections to this have been raised. First, structural reforms to the tax code could do more harm than good if they were made temporary. That said, a simple tax cut (for example, dropping the corporate rate from 35% to 25%) would not be as difficult to implement on a temporary basis, particularly since we expect that there would be a widespread belief that such a tax cut would be extended or made permanent before it expires, just as the 2001 tax cuts were for the most part.

A second, more technical, objection has also received some attention recently. The JCT has indicated that the revenue loss associated with a temporary tax cut would continue several years after it expired, because companies might postpone their use of certain tax benefits until after rates have risen and might pull forward income that would otherwise be recognized later. The JCT estimates imply that allowing a 20% corporate tax cut to expire after nine years would result roughly a $90bn revenue loss in the second decade, which would violate the Byrd Rule. However, this would become a much less important consideration if a corporate tax cut were considered as part of a larger package that also included some permanent provisions that raised revenue, considering that the House and White House proposals would already raise hundreds of billions of revenue through base broadening in the second decade, even excluding the effects of controversial proposals like border adjustment.

Q: Now that the White House has made its proposal, what happens next?

There are four important milestones coming up over the next few months:

  • The President’s Budget: The White House is expected to submit its budget proposal to Congress in mid-May. We would expect this to include some additional detail regarding tax legislation—at a minimum, it is likely to include more specifics regarding the potential effect on revenues and the deficit—as well as an a general indication of the scale of its infrastructure plan.
  • The final disposition of the health bill: House Republicans look likely to make another attempt at passing the American Health Care Act (AHCA), after announcing modifications intended to satisfy the conservative and centrist Republicans who signaled they would oppose the prior version. However, the announced revisions appear likely to increase support among conservative Republican lawmakers but they do not appear to have shifted the views of centrist Republicans nearly as much. As of this writing, consideration of the revised health bill within the next week or so appears possible but not likely unless it becomes clear there will be adequate support. Even if health legislation passes in the House, we do not expect a majority of the Senate to support the House version, and developing a bill that can pass the Senate is likely to take several weeks, at least. The upshot is that Republican leaders will soon need to decide whether they can pass a health bill in the House, or officially postpone consideration and move on to other issues, since the budget and tax process cannot move forward until they do.
  • The congressional budget resolution for FY2018: At the start of the year, Congress passed a budget resolution for FY2017, which served the sole purpose of providing instructions to the committees with jurisdiction over the Affordable Care Act (ACA) to pass health legislation using the reconciliation process. It was expected that a second resolution for FY2018 would then be passed once health legislation had been enacted, in order to provide instructions for passage of tax reform legislation. With health legislation in legislative limbo, it is unclear whether Republican leaders will pass a second budget resolution this year. However, since the instructions under the FY2017 resolution called for legislation that was roughly budget-neutral, the only way Congress can pass a meaningful tax cut would be to win bipartisan support, which seems unlikely at the moment, or to pass a new budget resolution that explicitly instructs the tax-writing committees to cut taxes.
  • Draft tax legislation released: It is difficult to predict when tax legislation might be made public in the House or the Senate, but our expectation is no earlier than June and possibly not until July. In the near term, we expect the tax-writing committees, particularly the House Ways and Means Committee, to hold hearings examining some of the key issues in its proposal, like the border-adjusted tax. Once the procedural groundwork for a committee vote has been laid, by passing a new budget resolution or re-using the instructions intended for the health bill, the committee is likely to release its proposal to the public and pass it quickly. In the Senate, the timing is even more fluid; we expect more detail from the Senate Finance Committee over the next couple of months regarding its likely approach for tax reform legislation, but a formal proposal appears to be a ways off.

The extended timeline for even releasing a draft proposal suggests that while the House could vote on tax legislation in committee before August, a vote on the House floor is less certain, and Senate passage before August looks very unlikely. This suggests that tax legislation is unlikely to become law before Q4 2017. While enactment shortly before year-end is a clear possibility, we believe it is more likely to become law in Q1 2018.

We continue to believe that tax legislation is fairly likely to become law. In fact, market sentiment regarding fiscal policy might have become too negative. This is a substantial shift from the start of the year, when sentiment among market participants took a much more positive view regarding the potential for major policy changes. However, we expect the process to continue slowly over the next couple of months, and without any clear signs of progress financial markets are apt to take a wait and see attitude toward tax reform.

Source: Goldman

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DaddyO's picture

Repeal the 16th amendment?!?


de3de8's picture

As usual the hardest working worth the highest work ethic get screwed the most. They know the game of smoke and mirrors.

MK13's picture

As usual small business owners and HENRYs get screwed - while ultra rich with penchant to buy tax protection make out like bandits.

Flat tax of 19% would have done the trick for US - but no we need complexity to rule it all.

redtie's picture

I thought I read small business would be at the 15% ?

Dukes's picture

Isn't 15% where the current "self employment" tax is?

Depending on structure, it would seem not much would change for many small businesses.  

Friedrich not Salma's picture

YOu are speaking of payroll tax. Owners then pay income tax on what is left.

COmpanies contribute 7.5 percent of a worker wage to payroll tax and the worker pays 7.5 percent. It is a hidden tax since most people dont realize it exists. It covers social security, unemployment, etc.

therover's picture

The complexity insures LOTS of people get paid and the ultra rich the ability to leverage loopholes the average worker can only dream of.

It will only get more complex, never simpler.

JRobby's picture


Are they going to buy H&R & JH too! Corner the market on shitty tax advice?

Ghordius's picture

last time I looked there were 250'000 US Tax Lawyers, and they were not working for the average worker's salary

JRobby's picture

Flat tax of 19%? How much income is exempt from the flat 19%? The masses pay 0% to 15%

HooRAY4rSIDE's picture

All anyone needs to do if they're confused with Trump's "plan" is flip it over and see what's on the other side.


That's how he does it anyway.

Parabolic Sine's picture

Its quite simple, the ultra rich and their corporations will pay no taxes and the dwindling middle class will pick up the slack and have their taxes increased. Now get back to work and make your CEO some damn money you grubber. Middle class motherfuckers think they deserve things like new cars and to own property, fuck you slobs, you deserve nothing but the shit the people in power scrape off of their shoes. Its the republican way!! Why hasnt anyone learned this yet? Trickle down is their religion, and the only reason it hasnt worked in all these years is because the rich dont have enough yet.

JRobby's picture

"Now get back to work and make your CEO a damn bomb for his trash can under the his desk you grubber. Middle class motherfuckers think they deserve things like new cars and to own property, fuck you slobs, you deserve nothing but the heads of the people in power piked in the city squares."

(small edit)

Stuck on Zero's picture

How about a VAT tax and nothing else. No more tax forms.

exi1ed0ne's picture

Trouble with a sales or a VAT is that it compensates too well for actual inflation (as opposed to the bullshit inflation numbers the gov't puts out).  It gives no downside to revenue collection if they decide to juice inflation by printing.

SumTing Wong's picture

19% my ass. The government needs to tighten its belt and make it on 15%. I'd even say 10%. Get back t othe business of doing what the government is Constitutionally supposed to do and let people decide what to do with the rest of the money that Govco. doesn't steal. 

I know. It will never work.

oldguyonBMXbike's picture

Can you produce the contract with my signature?

Bill of Rights's picture

Like watching paint dry....

new game's picture

swamp tax reform. goldmanites covering for corps, few scraps for plebs...

where is the bugets cuts, spending, spending til the eye can see no further.

keynsian bullshit, growth baby growth. the promiss that never gets paid back...

NihilistZerO___'s picture

I wouldn't even call it scraps if you're in a high tax blue state. Not being able to deduct state and local taxes could make it a tax INCREASE for middle class in CA and New York.

exi1ed0ne's picture

Why is that bad?  Fuck people who live in a high tax state.  Maybe people will fix thier broken authoritarian thieving shit State with some incentive.  That or move somewhere that isn't skimming the till so hard.

NihilistZerO___'s picture

We can't outvote the Mexican invaders, and some of us have things called families and roots that are hard to just walk away from...

exi1ed0ne's picture

Hey, I've got family too, but life sucks.  Just because your state is fiscally retarded doesn't mean they are entitled to put the burden on the rest of the 49.  Clean up your shit, move, or sit there and take the ass reaming from your owners like a good serf.

If productive people left the socialist shitholes in this country they would collapse in short order - and we would all be better for it.

rosiescenario's picture

Absolutely a CA resident, my largest single deduction from my Fed taxes is my CA income tax.


One unintended (or perhaps NOT) consequence will be to drive more workers out of CA. Soon the state will be left with more people taking from the government than paying it.....Detroit on steroids.

overmedicatedundersexed's picture

I am not confused...I still owe the vig to DC or they send the debt thugs to beat it outta me..while the irs judge says guilty..can't even own my own home out right, cause the state still sends a bill every year ..freedom ain't is wonderful??

Colonel's picture

"Since at its core, yesterday's 1-page "tax plan" was a Goldman creation"

Geesh "Government Sachs" is right.

jet20's picture

Goldman explains:

We get rich.

We get rich.

We get rich.

BigFatUglyBubble's picture

At least they done a toto and pulled back the curtain a bit.  They are not even really trying to hide who's pulling the levers.  Trump is always pictured with 2 or more ((())) with that signature Goldman Smile™

ElTerco's picture

You mean the schaudenfreude smile?

tmosley's picture



LawsofPhysics's picture

LOL!!!  Good to see another optimist.

Get back to us in a year.

tmosley's picture

People on here are complaining about the source of this tax bill when every single plan on the board has across the board cuts for everyone. When this is pointed out to the whiners, one of them pops up and implies the tax deal isn't going to happen.

The doublethink in the peanut gallery has surpassed Orwellian levels. No matter what he does or accomplishes, Trump is DOUBLEPLUSUNGOOD.

Helix6's picture

Maybe that's because what we really want is responsible government.  Tax cuts when the government is already running a trillion-dollar deficit?  The fact that people here don't get the sheer absurdity of this policy makes me think we deserve to end up exactly where we're going.

tmosley's picture

Would be a real shame if the mafia went bankrupt from not extorting enough protection money from us.

LawsofPhysics's picture

Thanks for the demonstration.

ElTerco's picture

Goldman's patented 3-point plan for its employees.

JRobby's picture

Fuck the client

Fuck the client

Get a bonus

MK13's picture

Net revenue neutral - shifting chairs in the swamp, nothing else. If federal governments is to be controlled, it needs to be cut down in size - and the one sure way to do that is less money spend.

And flat tax would have been nice - not expanding CPA/IRS industrial complex.

BigFatUglyBubble's picture

Herman Cain was talking about flat tax in 2012 (I think).  Dirt (perhaps true, perhaps false) was quickly dug up on him and he was elbowed out.

oldguyonBMXbike's picture

When you realize that a lot of industries are built upon nothing more than labryinthine government policy, systemic fraud and Vaporware, then you start to see the truth.

exi1ed0ne's picture

+1 as long as the flat tax is 0%.  We ran this country just fine for 100 fucking years without one.

Gohigher's picture

Is Hillary in jail yet ?

Lostinfortwalton's picture

Has Jared Kuchner featured in one of those spots of veterans with artificial legs playing with their children? No and no.

oldguyonBMXbike's picture

I will continue NOT being a taxpayer.

L_Conquistador's picture

One thing popped out at me as a great move - the elimination of the state and local income tax deduction.    I always thought it was b.s. that people whose states run amock with taxes and spending get a bigger benefit.

Donald J. Trump's picture

Yeah but it's not the people's fault.  Eliminating it is a double tax, you'll be taxed on taxes.  We still need more details, but I get the feeling this is a huge tax increase on the middle class and big giant gift to corporations.

Helix6's picture

The real news in here is the 15% top rate on "businesses".  I notice this article remained curiously silent on this point.  So if I read the one-pager right, peope like Trump who can declare "profits" rather than "income" will fall into the 15% tax bracket.  His crane operator driver who makes $75K per year will be taxed 25% plus 15.3% payroll tax.  And go on the hook for another $6 trillion over the next ten yers.

What's not to love?

Deja Doh's picture

Charitable contributions would get the shaft.  Most of middle would not itemize.