By Chuma Megafu

This is the biggest hoax cast upon the American people ever…. so declared Republican Sen. Bob Corker of Tennessee the Chairman of Senate foreign committee.

The plan is a typical Republican tax plan, in that it advocates deep tax cut to the wealthiest of Americans, with the belief that the wealthy will then somehow trickle down the gains to the general population called THE TRICKLE DOWN THEORY. A term coined after the massive Reagan tax cuts of the early eighties. President Trump has likened his tax plan to that of President

Reagan’s and at a recent rally at Indiana state Park said, “we want a tax reform that is pro-growth, pro-jobs, pro-worker, pro-family, and yes, tax reform that is pro-American.” Are there any similarities of Trump tax plans and Reagan’s? Though Trump is currently heaping praise on Reagan’s tax plan it should be noted that in its wake he called it “an absolute catastrophe for the country” and “one of the worst ideas in recent history”.
Is Trump currently sincere in praising the Reagan tax cuts or maybe is he simply confused.

The Reagan tax cut of the eighties was a bipartisan effort the Trump tax cut has no democrats in support. More importantly the eighties was a different era with economic stagnation, inflation at an all time high, unemployment was hovering around 11% and the marginal tax rate was believe it or not 70%. Though the economy grew robustly in the years that followed the Reagan tax cut, most economists including Martin Feldstein Reagan’s Chief Economist attributed this growth to the expansive monetary policy that slashed interest rate massively. The tax cut on the other hand tripled the then deficit and ushered in the explosive deficit that has followed ever since, so the Republican party once known for fiscal disciple and balanced budget is now the party of tax cuts and explosive budget deficits with the Darth Vader himself “Big Dick” Chenney once declared “Budget deficient’s don’t matter, Reagan proved it”.

Subsequent Republican’s attempts on tax cuts i.e., the Bush tax cuts did not grow the economy or create jobs as it promised and most recently Kansas Governor Sam Brownback attempts at massive tax cuts have left Kansas economy in tatters. Why then will The Trickle Down Fairy work this time? Well, let’s take a look at Trum’s tax cut proposal.

The frame work lays out the following changes to the federal tax code…


  • Collapse the current seven tax brackets into three, paying marginal rates of 12%, 25% and 35%.
  • Raise the standard deduction to $24,000 for married couples filing jointly (from $12,700 in 2017 under current law) and to $12,000 for single filers (from $6,350).
  •  Eliminate the personal exemption, currently at $4,050 per person and also scrape the additional deduction of 1550 for single filers who are over 65 years and or disable.
  • Eliminate most itemized deductions, with the exception of those for mortgage interest and charitable contributions.
  • Increase the child tax credit, leaving the first $1,000 refundable as under current law, and increase the income levels at which the credit begins to phase out.
  • Repeal the alternative minimum tax, a device intended to curb tax avoidance among high earners.
  • Repeal the estate tax and the generation-skipping transfer (GST) tax.


  • Lower the top corporate tax rate to 20% from the current 35%.
  • Allow businesses capital investments (excluding structures) to be immediately expensed, rather than depreciating the value of these assets over time as under current law. The provision would sunset 1n 2022.
  • Eliminate the domestic production (section 199) deduction.
  • Eliminate the deduction of interest expense by C- Corporation
  • Introduce a “territorial” tax system that will not tax income that business earn in foreign countries and allow a one-time tax holiday on past income earned overseas.
  • Eliminate the corporate alternative minimum tax.
  • Establish a top pass-through rate of 25% for Owners of pass-through businesses, which include sole proprietorships, partnerships and S-corporations.
  • The frame work retains deduction for research for research and developments and low income housing.

What does this all mean? Is it a hoax? Will it work? As with everything Donald Trump there seems to be a lot of chaos and confusion and this tax plan is no exception. Take the proposal to scrape the personal exemption of $4050,
which is available for all taxpayers and their dependent with the proposal to double the standard deduction for single filers from $6300.00 to $12000.00 and married filers from $12000 to $24000, while this will help single filers with one or no dependent or a married filer with three or less dependent it will hurt singles with more than one dependent or married filers with more than three dependents, so you basically have an Even Stevens situation.
Also, the elimination of itemized deduction with the exception of Mortgage interest and charitable deduction then becomes an oxymoron, because by themselves will not qualify taxpayers who wish to itemize their expenses, but will need the cumulative sum of all of your deductible expenses to qualify.

Also in the framework is the repeal of the estate tax. This tax applies to estates of individuals with combined gross assets and prior taxable gifts exceeding $5.45 million (double that for estates of married couples)
Of the 2.6million death reported in 2013 about 11,300 estate tax returns were filed of which only 4,700 were taxable generating $17 billion in taxes. Clearly repeal of this tax is self serving in that it benefits trump and his family directly.

Also on the chopping block is the Alternative minimum tax. This is a tax that kicks in when high income earners have a disproportional tax write off and it ensures they pay their fair share. It is not worthy to state though Trump has yet to release his tax return, snippets that have leaked show in 2005 he paid of $38,000,000 of taxes on $150,000,000 of income of which $31,000,000 of tax paid was attributed to the Alternative minimum tax. Guess he’s still mad about that.

Though President Trump is touting his tax plan as a massive tax cut for the middle class, evidence suggest otherwise. The tax policy Center says the wealthiest of Americans, the top 1% would get over half of the benefit with a millionaire getting an average tax cut of $317,000. A single taxpayer earning $75000 with 2 or more dependents will actually see a tax increase of $2400 and a married couple with 3 or more dependents will get a tax increase of $150. Most other taxpayer will get a tax cut of $240 to $600 all other things being equal.

Congressional Republicans have allowed for a deficit of $1.5 trillion to be added to the deficits to finance this tax plan, but The Tax Policy center estimates the government would lose $6.2 trillion in revenue producing huge budget deficits that could hurt the economy. Most economists are in agreement that this tax plan will not work and will most certainly add to an already ballooning deficient. But, you have Donald Trump’s word that it will work and create jobs.

Who do you believe? Mind you Trump has filed for bankruptcy four times already and arguably the only person to ever bankrupt a casino.

Chuma Megafu is a Senior Tax Consultant with Prime Financial & Tax Service and writes out of Los Angeles California.

Check out our analysis of the business framework at Coming out shortly.