Critics of President Trump have long suggested that his tax-reform plan would heavily benefit the rich. And indeed, the program that the Trump administration just unveiled does cut personal income-tax rates for everyone, including the top rate, which would drop to 35 percent from 39.6 percent. Trump's plan would also slash the rate on business income that gets reported on individual tax returns to just 15 percent. Currently, that income is subject to tax rates as high as 39.6 percent.
But to help pay for these cuts, Trump's plan imposes an expensive penalty on the wealthy. It would eliminate a set of deductions including, crucially, the deduction for state and local taxes, which currently generates as much as $100 billion a year in savings, largely for high-income taxpayers. Don't expect to hear Trump's critics in Congress praise the plan—many of them represent high-tax states whose wealthy residents largely benefit from the deduction. Eliminating it will only increase their tax pain and put further pressure on states like New York and California to reduce taxes.
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