On Sunday, Republican presidential candidate Donald Trump struck a populist tone when talking about hedge funds and the taxes they pay. “They’re paying nothing and it’s ridiculous,” he told John Dickerson on Face the Nation. “They make a fortune, they pay no tax, it’s ridiculous okay.”
He went on to say they “are getting away with murder” and that “they have to pay tax.” Without specifying exactly how he would change that, he added that he wants to lower tax rates for middle-class Americans. “The middle class is the one, they’re getting absolutely destroyed.”
The money made by hedge fund managers is taxed at significantly lower rates than ordinary income made through wages: capital gains, or investment returns, are subject to a top tax rate of 23.8 percent, compared to a 39.6 percent payroll tax. The benefit of the lower tax rate accrues almost entirely to the wealthy — nearly 70 percent of the money goes to the top 1 percent of income earners, but just 7 percent goes to the bottom 80 percent. Economists have said that the lower tax rate for capital gains income is “by far” the greatest contributor to growing income inequality, which harms the middle class.
But Trump has not always stuck up for the less well off in his tax reform proposals.
As recently as 2011, in his book Time to Get Tough, he actually called for lowering the tax rate on capital gains income as well as dividends. He also called for eliminating the estate tax — which is already a massive giveaway to the wealthiest Americans — and getting rid of the corporate tax rate altogether.
He also proposed changing income taxes so that income over $1 million would only ever be subject to a 15 percent rate, while taxing lower incomes at 1, 5 or 10 percent, depending on the bracket. As Richard Phillips of Citizens for Tax Justice has written of the plan, “the lower tax rate structure would provide the wealthy with huge tax cuts.” Those plus the changes to the corporate tax rate, capital gains and dividends, and the estate tax would create a “multi-trillion dollar hole” in tax revenues, he added.
More recently, Trump has floated other tax reform ideas that could constitute a big benefit for the best off. In an interview with Time Magazine, he voiced support for a flat tax or fair tax. Different details of a flat tax would produce different results, but an analysis of one such plan put forward by Texas Governor Rick Perry (R) found it would raise taxes for Americans at the bottom of the income scale by $102 to $462, while reducing the tax burden for those making more than $1 million a year by about a half million dollars.
In the same interview, he said that he wants to take on corporate tax inversions, where American companies merge with foreign-based ones in countries with lower tax rates so they can move their headquarters to avoid paying higher taxes. But he said he wants to bring companies back by letting them return to the U.S. by either paying nothing or something like a 10 percent tax rate on their overseas profits. Such a move, called a repatriation tax holiday, has already been tried in 2004. At that time, firms mostly used the repatriated profits not to invest in American jobs but to inflate their own stock prices while laying off large numbers of workers.