There are two compelling narratives around President Donald Trump’s first 100 days. The first is his transformation from heterodox populist to orthodox Republican. Although he ran as a mold-breaking renegade, his economic policies come straight out of the conservative mold, from cutting business regulations to backing off threats to label China a currency manipulator and supporting plans to reduce health-insurance coverage for the poor.

The second story is that Trump has been more focused on optimizing for his own income and branding than for political victories. He has visited no foreign leaders, passed no major laws, given no major political addresses, and disappeared as the GOP effort to repeal Obamacare failed, all while doing little to refute accusations that he’s using the office to raise membership revenue at Mar-a-Lago and mixing business and politics in ways that are unprecedented for a sitting president.

So, it’s no surprise that his new tax plan—hailed by Treasury Secretary Steve Mnuchin as “the biggest tax cut and the largest tax reform in the history of our country”—is a blend of these two Trump narratives. First, it is Reagan on steroids, or Art Laffer on ayahuasca, a business-friendly plan that would likely cut taxes by trillions of dollars, with the vast majority of the benefits accruing to high-income households. Second, its most controversial provision would slash taxes on companies just like Trump’s, potentially saving the president many millions of dollars in taxes, even after his presidency is over.

Overall, it is hardly a serious attempt to notch a policy victory, especially considering how short it is on details. Due to its enormous tax cuts for the rich, the plan has little chance of garnering Democratic support. Since it increases the deficit after more than 10 years, it won’t pass a straight-party vote among Republicans, as it’d need to under current rules. It looks more like an attempt to appear presidential than an effort to accomplish things, as president.

A Brief Overview of the Plan

Trump’s tax plan is, for now, only about 100 words long. But as law, it would dramatically change the way individuals and businesses pay taxes.

For individuals, the plan would:

  • reduce the number of tax brackets from seven to three and cut the top marginal rate from 39.6 to 35 percent

  • double the standard deduction, while eliminating most tax breaks except for home ownership and charitable deductions

  • repeal several taxes, including the Alternative Minimum Tax, the estate tax, and the Obamacare tax on investment income

For businesses, the plan would:

  • reduce the corporate tax rate to 15 percent, paid for with unspecified cuts to “special interests” and a “one-time tax on trillions of dollars held overseas”

  • allow small-business owners to have their income taxed at 15 percent, as well (much more on this later)

  • move to a territorial tax system, in which businesses would only pay tax on income earned in the U.S. (so, Boeing wouldn’t pay taxes on planes sold to an Australian airline)

Although the White House hasn’t released many details, the Tax Policy Center (TPC) looked at a similar tax proposal from the campaign last fall. They concluded that Trump’s plan would cut taxes by $6 trillion over 10 years, with almost 50 percent of the savings going to the top 1 percent. To unpack the plan, I’m going to take a particularly close look at three of its most important components: (1) the expensive proposal to reduce the corporate tax rate to 15 percent; (2) a controversial “pass-through” provision that would allow many professionals to set up legal tax-shelters; and (3) the more straightforward changes to the individual tax code.

1) Cutting Taxes on Large Companies

The Plan: The centerpiece of Trump’s plan is to slash the corporate tax rate from 35 percent to 15 percent. The U.S. has one of the highest marginal corporate tax rates in the world, even though most companies take advantage of the law’s buffet of deductions and loopholes to bring their effective tax rate well under 35 percent. The average company pays a rate of about 19 percent, while some large multinationals, like GE and Google, pay close to nothing.

The Good: There has been bipartisan interest in reforming the corporate tax code for a long time, because it’s a complicated mess. The trouble is that the very thing that makes it complicated—the sheer number of deductions and loopholes for certain industries and companies—makes it extremely difficult to alter without angering loud and rich constituents. President Barack Obama proposed cutting the rate from 35 percent to 28 percent, but his plan went nowhere. This plan would go much further, taking the U.S. from having one of the highest rates in the world to having one of the lowest. In theory, a low corporate tax rate and a simple and straightforward tax code should attract more investment and discourage multinationals from shifting their profits around the world to avoid taxes.

The Bad: Corporate income taxes account for only 10 percent of federal revenues, but a cut this deep would still deprive the U.S. Treasury of $2 trillion or more in the next 10 years, according to the Center for a Responsible Federal Budget. The White House argues that it will stimulate enough growth to make up the difference, but this is probably wishful thinking.

Moreover, there is mixed evidence from abroad that cutting corporate taxes grows the economy, creates jobs, or improves wages. As the New Yorker’s John Cassidy wrote, in the last decade, the UK has cut its corporate rate from 30 percent to 19 percent. But wage growth in the UK is still sluggish and business spending on new buildings and technology is far below what it was in the 1970s, as a share of the economy. It’s hard to say how this might be different if the UK hadn’t cut corporate income taxes, but the point is that the rest of the world doesn’t provide slam-dunk evidence that corporate tax cuts lead to broadly shared, 1950s-style productivity and prosperity miracles.

The Upshot: Pro-business conservatives will argue that reforming the tax code will spur job growth and investments. Liberals would respond that the plan is essentially a multi-trillion-dollar transfer of money to large corporations that have already enjoyed record profits since the Great Recession. My personal feeling? A territorial system makes sense and a lower corporate rate with fewer carve-outs is probably a fine idea. But if Congress really wanted to help corporations and middle-class workers, I’d prefer a payroll tax cut financed by a millionaire tax bracket or a carbon tax.

2) Cutting Taxes on Small Businesses (and “Small Businesses”)

The Plan: The corporate tax code only covers large U.S. companies. But most companies are small, closely held, and don’t pay corporate income taxes at all. For owners of small firms, income passes through the company and is taxed only at the individual level as ordinary income. For this reason, these companies are sometimes called “pass-through” entities.

The Trump plan would cut taxes on pass-through income to 15 percent, just like the corporate rate. This would reduce the tax burden on many small-business owners of all kinds, including little hardware stores, law firms, consulting groups, lobbying groups, and large family-owned businesses, like the Trump Organization.

The Good: Let’s imagine that Congress cuts corporate income taxes for large multinationals to 15 percent. Would it still be fair to force small business owners to pay ordinary income taxes, for which rates currently go up to 39.6 percent? Probably not. That would give large companies yet another edge on their smaller competitors, arguably hurting business formation and competition. So, in theory, it’s wise for tax reformers to change pass-through laws if they’re going to reform corporate taxes.

The Bad: Economists think this change could lead to a tax-sheltering bonanza.

Professional workers of all stripes—particularly consultants, lawyers, architects, and other white-collar workers who take on many different clients—would rush to set up companies in their name and ask to be paid exclusively through these entities. This would reduce their tax burden by tens of thousands, if not millions, of dollars. Right now, pass-through entities are mostly for richer workers and entrepreneurs. According to the TPC, 60 percent of such business income reported on individual income tax returns goes to households making more than $500,000. Under Trump, that number would probably rise, as more high-income professionals sought to classify their individual earnings as “business income.”

Take a real world example. The state of Kansas does not tax pass-through income, and its highest-paid public employee, Bill Self, the coach of the University of Kansas basketball team, is paid $4.8 million per year through an LLC. Under current federal law, a typical head of household earning $4.8 million might have to give more than a third of his income, or about $1.8 million, to the IRS. Under Trump's plan, somebody like Bill Self could save about $1 million in taxes by setting up a pass-through business, thus paying the same marginal rate as a household making about $50,000.

Theoretically, cutting business taxes is good for job creation and economic growth. But, once again, hard evidence in the real world is hard to find. After Kansas ended taxes on pass-through businesses, self-employment increased, as more professionals re-classified themselves as one-person companies. But Kansas’s economic growth and state employment remained behind its neighbors.

The Upshot: It’s right and fair to ensure that small businesses are competing on an equal playing field with large corporations. But changing the laws on pass-through income in this way all but ensures that organizations like Trump’s will save millions in taxes and that many professionals will rush to shelter their income in pass-through entities that will reduce their tax burden.

3) Cutting Taxes on Individuals

The Plan: This is pretty much a standard conservative tax plan when it comes to individual income. The brackets are condensed, the rates are lowered, the standard deduction is increased and offset by the elimination of itemized deductions, and the estate tax and Alternative Minimum Tax are gone.

Who wins? Clearly, the very wealthy. Who loses? It’s awfully complicated. For example, the elimination of the state and local tax deduction should raise effective tax rates on urban dwellers (it’s the most common deduction for New York City residents), but repealing the AMT would benefit rich taxpayers with large families who live in rich areas, too.

The Good: This plan clearly makes the tax code simpler. Many middle- and lower-income households who currently pay federal income taxes would see their tax burdens go to zero. Many more would be able to do their taxes faster, since the larger standard deduction would wipe out the need for itemizing for most taxpayers.

The Bad: Like the rest of the plan, the changes to the individual tax code are too regressive, reserving the vast majority of their benefits for the rich. Reducing the top marginal rate would allow households to save about 15 cents on the dollar for all earned income over $500,000, compared with current law. Repealing the estate tax would let extremely rich families keep $174 billion over the next 10 years. The alternative minimum tax cost Trump, a billionaire, $31 million in federal income taxes in 2005; he now proposes eliminating it.

The Upshot: Trump and other conservatives have made it the raison d’etre of the Republican Party to cut taxes on the rich. This plan succeeds marvelously along that metric. Based on TPC data, here’s a graph of how the Trump campaign’s tax plan would affect low-income and high-income households. It speaks for itself.


How Much Individual Taxpayers Would Save Under Trump's Tax Plan in 2017, by Income Bracket

Data: Tax Policy Center

What is the point of this tax plan? Is it...

… to pander to the public? Eh: Americans are more and more likely to say they want to raise taxes on the rich to expand government efforts to protect the vulnerable and make health care universal. There is no evidence that reforming the corporate income-tax code is a public priority, no evidence that enriching already-rich professionals is a public priority, and no evidence that blowing open the deficit with regressive tax cuts is a public priority.

… to improve the country? At a time when stock prices are at all-time highs and corporate profits are soaring, while regional inequality remains one of the U.S.’s chief challenges, it’s a little backward to begin the healing by ensuring that the richest companies and workers have better opportunities to shield their income from taxation.

… to pass a law—any law—so that Trump can notch an elusive legislative win? This might be the weakest explanation of all. Democrats will not vote for a regressive tax plan that not-so-subtly would enrich the president. Republicans can try to pass permanent tax reform with a straight-party vote under a budgetary rule known as reconciliation. But there’s a catch: Reconciliation rules dictate that no law shall increase the deficit after 10 years by a single dollar. This proposal would increase the deficit after 10 years … by $10 trillion in the following decade. Even the most watered-down version of this bill—no individual tax changes, just a short-term corporate rate cut—would still raise the deficit after the 10-year window, according to the Joint Committee on Taxation.

So, after all the talk about rates, deductions, and pass-throughs, there are two real choices left. Either this White House proposal is pure pageantry, or the Republican Party, having proclaimed the sacred virtues of balanced budgets throughout Obama’s eight years, is poised one of the largest deficit-busting tax cuts of all time. It’s political theater, or it’s hypocrisy.