Trump's Irs Law: Did He Break The Rules?

Former US President Donald Trump's tax history has been a subject of much speculation and controversy. In December 2022, the House Ways and Means Committee released six years of Trump's federal income tax returns, revealing that he had actively pursued legal but creative accounting strategies to minimise his federal tax contributions. While Trump paid $641,931 in federal income tax in 2015, he paid just $750 in 2016 and 2017 and nothing in 2020. In 2018 and 2019, he paid almost $1 million and $133,445, respectively, but these amounts were still small in proportion to his earnings.

Trump's complex business empire includes foreign bank accounts in China, the UK, Ireland, and St Maarten. Notably, in 2017, the first year of his presidency, he paid more tax abroad than in the US.

Trump's tax history has raised questions about potential IRS negligence and the sufficiency of its resources. During his presidential campaigns, Trump has made controversial statements about taxation, such as claiming that not paying income tax makes me smart. He has also proposed various tax policies, some well-designed for promoting economic growth, while others are criticised for worsening the structure of the tax code.

Did Trump's tax cuts disproportionately benefit the wealthy?

The 2017 Trump Tax Law, also known as the Tax Cuts and Jobs Act (TCJA), was skewed to benefit the wealthy. The law included large, permanent corporate tax cuts, a 20% deduction for pass-through income, and cuts to individual income tax rates for those at the top.

The Tax Policy Center (TPC) estimated that in 2025, households with incomes in the top 1% would receive an average tax cut of over $60,000, compared to an average tax cut of less than $500 for households in the bottom 60%. As a share of after-tax income, tax cuts for the top 1% were more than triple the total value of tax cuts received by those in the bottom 60%. The TPC also estimated that the law would boost the after-tax incomes of households in the top 1% by 2.9% in 2025, compared to a gain of 0.9% for households in the bottom 60%.

The law also doubled the estate tax exemption, allowing the wealthiest households to pass on twice as much of their wealth tax-free to their heirs.

The corporate tax cuts were particularly beneficial to the wealthy, as they own most of the stocks. A study by the Federal Reserve Bank of New York found that the corporate tax cuts resulted in stock buybacks and higher dividends, rather than increased investment or higher wages for workers.

The tax cuts disproportionately benefited the wealthy, and failed to deliver on their promise of boosting economic growth.

Did Trump's tax policies worsen the structure of the tax code?

While it is difficult to say whether Trump's tax policies worsened the structure of the tax code, some of his proposals have been criticised as poorly designed and likely to worsen the structure of the tax code.

Trump's tax proposals include a mix of well-designed policies that could promote long-run economic growth, and poorly designed policies that would only create a muted impact on long-run economic growth. The poorly designed policies include exemptions for tips and Social Security income, which would worsen the structure of the tax code.

Trump's tax policies have also been criticised for benefitting high-income households far more than low- and middle-income households. For instance, the 2017 Trump Tax Law was skewed towards the rich, with households in the top 1% receiving an average tax cut of over $60,000 in 2025, compared to an average tax cut of less than $500 for households in the bottom 60%.

Trump's tax policies have also been described as expensive, eroding the US revenue base, and failing to deliver promised economic benefits. The 2017 Trump Tax Law, for example, was estimated to cost $1.9 trillion over ten years, and failed to deliver on its promise of boosting household income by $4,000. Instead, it resulted in no change in earnings for workers earning less than about $114,000, while top executive salaries increased sharply.

Overall, while Trump's tax policies may not have worsened the structure of the tax code, they have been criticised for being regressive, costly, and failing to deliver on their promised economic benefits.

Did Trump's tax proposals benefit lower- and middle-income taxpayers?

There are conflicting opinions on whether Trump's tax proposals benefit lower- and middle-income taxpayers.

Some sources argue that Trump's tax proposals will increase after-tax income for all income groups in the long run, with higher income earners seeing a larger increase. However, in the short term, the bottom 40% of households will see tax increases, with after-tax income falling by 0.6% for the bottom quintile and by 0.4% for taxpayers in the 20th to 40th percentile. Middle-income taxpayers will see a slight tax cut, with after-tax income increasing by 0.3% in 2034.

Other sources claim that Trump's tax proposals will result in tax cuts for the richest 5% of Americans and tax increases for all other income groups. The richest 1% will receive an average tax cut of about $36,300, while the next richest 4% will receive an average tax cut of about $7,200. The middle 20% will face a tax increase of about $1,500, and the lowest-income 20% will see an increase of about $800.

Trump's tax proposals include extending the expiring 2017 Tax Cuts and Jobs Act (TCJA) changes, bringing back the deduction for state and local taxes (SALT), reducing the corporate tax rate for domestic production, exempting various types of income from the income tax, repealing green energy tax credits, and imposing steep new tariffs. The impact of these proposals will depend on which combination of policies are pursued and how they are structured. Some of Trump's proposals are well-designed and could promote long-run economic growth, such as permanent expensing for machinery, equipment, and research and development (R&D). However, other proposals, such as exemptions for tips and Social Security income, are poorly designed and would worsen the structure of the tax code while only having a muted impact on long-run economic growth.

Trump's reliance on import tariffs to offset the cost of tax cuts is also controversial. Tariffs are a distortive way to raise revenue and invite foreign retaliation. It is estimated that Trump's proposed tariffs would offset more than two-thirds of the long-run economic benefit of his proposed tax cuts. Overall, while Trump's tax proposals may provide some benefits to lower- and middle-income taxpayers, they are generally seen as favouring higher-income taxpayers and contributing to income inequality.

Did Trump's tax policies increase the deficit?

While it is difficult to attribute the increase in the deficit to any one policy, Trump's tax policies likely contributed to the growing national debt.

Trump approved $8.4 trillion of new ten-year borrowing during his full term in office, or $4.8 trillion excluding the CARES Act and other COVID relief. This included $5.9 trillion of net spending increases and $2.5 trillion of net tax cuts.

Trump's 2017 Tax Cuts and Jobs Act (TCJA) was estimated to cost $1.9 trillion over ten years. The Congressional Budget Office (CBO) estimated in 2018 that the 2017 law would cost $1.9 trillion over ten years, and recent estimates show that making the law’s temporary individual income and estate tax cuts permanent would cost another $400 billion a year beginning in 2027.

Trump's tax policies were also regressive, benefiting high-income households far more than low- and middle-income households. For example, households with incomes in the top 1% received an average tax cut of over $60,000 in 2025, compared to an average tax cut of less than $500 for households in the bottom 60%.

Trump's proposed second-term tax policies also included significant tax cuts, such as cutting the corporate income tax rate from 21% to 15% for corporations that manufacture products in the US, and imposing steep new tariffs. These policies were projected to increase the budget deficit by $3 trillion over ten years.

In summary, Trump's tax policies likely contributed to the increase in the deficit through a combination of increased spending and tax cuts, particularly those benefiting high-income households.

Did Trump's tax policies reduce revenue?

In 2017, Donald Trump signed the Tax Cuts and Jobs Act (TCJA) into law. The law was criticised for being skewed to benefit the rich and for eroding the US revenue base.

The Congressional Budget Office (CBO) estimated in 2018 that the law would cost $1.9 trillion over ten years. The CBO also estimated that making the law's temporary individual income and estate tax cuts permanent would cost roughly $400 billion a year beginning in 2027.

The Tax Policy Center (TPC) found that, in 2025, households with incomes in the top 1% would receive an average tax cut of more than $60,000, compared to an average tax cut of less than $500 for households in the bottom 60%.

Trump's tax policies were also criticised for failing to deliver promised economic benefits. For example, Trump Administration officials claimed that their corporate tax rate cut would "very conservatively" lead to a $4,000 boost in household income. However, research has shown that workers who earned less than about $114,000 in 2016 saw "no change in earnings" from the corporate tax rate cut.

In addition, Trump's proposed tariffs threatened to offset much of the economic benefits of his proposed tax policy changes.

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