Tax Credits for Bad Hairstyles?
The 2012 presidential campaign is already well underway, with pollsters crawling through Iowa like corn-flea beetles infesting a crop of the state's finest grain. Surprisingly, developer Donald Trump leads the Republican field in some of those polls, ahead of even "mainstream" candidates like former Massachusetts Governor Mitt Romney.
Trump has flirted with running twice before. And all the way way back in 1999, he announced a radical plan that he claimed would pay off the national debt, give the middle class a tax cut, and even keep Social Security afloat. That sort of grandiose talk is nothing new for Trump — but how would he actually deliver?
Trump floated his plan shortly after he formed an exploratory committee to run for the Reform Party's nomination. Specifically, he proposed hitting individuals and trusts worth more than $10 million with a onetime "net worth" tax of 14.25% of amounts above that threshold.
"No one has put forward a plan to make this country entirely debt free as we enter the next millenium," Trump said in a written statement. "The plan I am proposing today does not involve smoke and mirrors, phony numbers, financial gimmicks, or the usual economic chicanery you usually find in DisneylandonthePotomac," he claimed. "By my calculations, 1 percent of Americans, who control 90 percent of the wealth in this country, would be affected by my plan," he asserted. "The other 99 percent of the people would get deep reductions in their federal income taxes," he said.
Eliminating the national debt would have saved $200 billion per year in interest costs at that time. Trump proposed earmarking half of those savings for middle-class tax relief and half for Social Security. He also proposed eliminating the estate tax. "Personally, this plan would cost me hundreds of millions of dollars, but in all honesty, its worth it," he said. "It is a win-win for the American people, an idea no conventional politician would have the guts to put forward," he bragged.
And how would the IRS actually collect that sort of tax? Well, for starters, they'd have to create a new form to collect net-worth information. It would probably look like the current estate tax return, a deceptively simple three-page form requesting valuations on all real estate, securities, insurance proceeds, and other property owned at death. That sounds easy enough at first — but assets like real estate are a lot harder to value than income. Who's to say what Trump's own properties are worth in this market, for example? What about privately-held businesses, art collections, and other illiquid assets? High-net-worth individuals will have plenty of reason to understate them or hide them entirely!
It's worth mentioning that while the income tax audit rate is just 1%, the estate tax audit rate (which involves valuation questions just like Trump's proposal raises), is a staggering 24%. And right now there are fewer than two hundred estate tax auditors for the entire country!
Trump's 12-year-old proposal has as much chance of becoming law as his hair does of making the cover of GQ magazine. If anything, it may come back to bite him as he courts a more conservative audience in 2012. But we can promise you we'll keep a sharp eye out on the candidates' tax proposals, to better help you evaluate who you want to support. And what do you think of Trump's big idea?