Trump’s tax plan is full of goodies for wealthy real estate investors

The Trumps and Kushners of the country will love it.

President Donald Trump holds an example of what a new tax form may look like during a meeting on tax policy with Republican lawmakers in the Cabinet Room of the White House, Thursday, Nov. 2, 2017, in Washington. From left, Speaker of the House Rep. Paul Ryan, R-Wis., Trump, and Chairman of the House Ways and Means Committee Rep. Kevin Brady, R-Texas. (AP Photo/Evan Vucci)
President Donald Trump holds an example of what a new tax form may look like during a meeting on tax policy with Republican lawmakers in the Cabinet Room of the White House, Thursday, Nov. 2, 2017, in Washington. From left, Speaker of the House Rep. Paul Ryan, R-Wis., Trump, and Chairman of the House Ways and Means Committee Rep. Kevin Brady, R-Texas. (AP Photo/Evan Vucci)

House Republicans’ Tax Cuts and Jobs Act was unveiled last week, and with it came a flurry of criticism from tax experts who say it doesn’t deliver on President Trump’s promise of the “biggest tax cut in U.S. history.

Despite the push-back, House Republicans continue to run with this narrative. House Speaker Paul Ryan (R-WI) insists that a family of four earning the national median income (roughly $59,000) will receive a tax cut worth $1,182 under the bill, but analysis of the plan finds that this would only be the case for the first year, diminishing each year thereafter until it virtually vanishes by the sixth year out. By the tenth year, this hypothetical family of four would actually be subject to a permanent tax hike that would grow over time because of the inflation indexing of tax brackets.

At the same time, the national debt would grow by about $18,500 for that same family of four. As Vox points out, running a budget deficit isn’t all bad, but when it results in such a minuscule tax cut for working families, it just isn’t worth it.

The country’s wealthiest families and individuals would, by contrast, benefit from the GOP tax plan considerably — especially those who are real estate developers.

The pass-through loophole

There are a number of provisions in the proposed tax plan that would ensure that the Trumps and Kushners of the country would reap the biggest benefits.

The Kushner and Trump families together own a combined total of over 500 “pass-through” businesses, which include entities like partnerships and LLCs.

Pass-throughs don’t pay the corporate tax rate, but rather are taxed according to their individual rate. Under the GOP plan, profits from these businesses would be taxed at a new, lower rate of 25 percent.

As it stands, over 70 percent of pass-through businesses don’t pay a tax rate higher than 15 percent. This is because, under the current income tax brackets, the cutoff for the 15 percent rate is $37,950 for an individual and $75,900 for a married couple. The new GOP plan would lower the rate for that couple or individual to 12 percent. So nearly three-fourths of pass-through owners wouldn’t see any benefit to the 25 percent rate.

However, the top 1 percent of pass-through earners would benefit. These earners make at least $10 million a year and account for 69 percent of the income earned by pass-through businesses in the United States. Their individual tax rate is much higher than the 25 percent pass-through rate, at 35 or 39.6 percent, depending on whether a fourth bracket for individuals with income over a million dollars is added in the final plan. This effectively creates a loophole for these individuals to potentially re-characterize their income to receive this special, extremely low rate.

House Republicans have attempted to fix this loophole by adding complicated rules regulating that if an individual is actively working for the company they claim as a pass-through business, 70 percent of their income will still be taxed under the normal income tax brackets. This leaves passive investors, people who have enough money to invest in businesses they don’t actually work for, to gain the most from the 25 percent pass-through rate. Working class families, like the American truckers Trump pitched the tax plan to in October, likely won’t see any huge changes to taxes on their small businesses.

Meanwhile, analysis from the Center For American Progress (CAP) estimates that Trump could get an annual tax cut worth $23 million. (ThinkProgress is an editorially independent news site housed at CAP.) White House adviser Jared Kushner could see a cut of up to $17 million.

All told, this plan constitutes a $450 billion dollar tax cut for the nation’s wealthiest — and that’s just from one tax provision.

Like-kind exchanges

“Like-kind exchanges” are repealed in the House GOP plan as well, yet are undoubtedly another boon to real estate developers like the Trump family. Like-kind exchanges allow individuals and companies to swap assets out without paying capital gains taxes. Forbes describes them as a gimmick “favored by [real estate] developers.”

Here’s how they work: a like-kind exchange means that a real estate developer who sells one of their properties and gains from it is able to escape any sort of tax on that surplus so long as they reinvest it into a “similar” property, according to the IRS.

In other words, this, in combination with a provision related to repealing the estate tax, could potentially allow developers to avoid paying capital gains taxes on their properties indefinitely.

Limiting deductions on interest payments

The real estate business gets an additional carve-out in the tax plan when it comes to limiting the deductions businesses can claim for interest payments.

Effectively, this is the industry handout that made Trump wealthy. Only those in the commercial real estate business can deduct interest expenses from taxable profits, all the while, Trump’s plan undermines the mortgage tax credit, a measure many middle-class Americans rely on.

In short, under this provision, the self-proclaimed “King of Debt,” Trump, can continue to write off interest on his massive debt. So too can Kushner, who is also deeply in debt from failed real estate ventures.