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Fact-checking Trump and his team on taxes

Jon Greenberg
By Jon Greenberg October 18, 2017
Angie Drobnic Holan
By Angie Drobnic Holan October 18, 2017
Louis Jacobson
By Louis Jacobson October 18, 2017
Tom Kertscher
By Tom Kertscher October 18, 2017

Our partners at E.W. Scripps recently interviewed President Donald Trump and members of his administration about the tax plan Trump is supporting.

Here are the facts behind some of their comments.

President Donald Trump, when asked why he continues to inaccurately say the United States is the highest taxed nation in the world: "Some people say it differently, they say we're the highest developed nation taxed in the world. …  As far as I'm concerned I think we're really essentially the highest, but if you want to add the ‘developed nation,’ you can say that, too."

This statement continues to be False, even if you only count developed nations. Looking at tax collections relative to the size of the U.S. economy and the number of people, the numbers tell a different story. The United States ranks 28th in tax revenues as a percentage of GDP and 13th on a per-capita basis in a ranking of developed nations around the world.

Mick Mulvaney, director of the White House Office of Management and Budget: "We are the highest corporate taxed nation out of any developed country."

Mulvaney is speaking more precisely than Trump; his specific reference to corporate taxes rates Mostly True. The top corporate tax in the United States is 35 percent, highest among the world’s industrialized nations. But five smaller nations and territories have the same rate, and two smaller ones, United Arab Emirates and Puerto Rico, have rates above 35 percent.

Also, the 35 percent U.S. rate is only the starting point, given that corporations can use exemptions and deductions to effectively reduce that rate and pay lower taxes.

Mulvaney: "It's been more than 10 years now since we had a sustained period of economic growth above 3 percent."

It’s accurate that annual economic growth hasn’t exceeded 3 percent over the past 10 years, but that doesn’t mean tax cuts alone will automatically spur 3 percent growth.

We’ve checked in with several economists on the left, right and center. The most bullish among them were merely skeptical about the chances of reaching 3 percent on a consistent basis. The majority were downright pessimistic.

One big hindrance: the number of people who are in their working years isn’t growing as fast as it used to -- and that’s something largely out of the reach of policymakers.

Labor Secretary Alexander Acosta: "Back when I was a kid, Ronald Reagan was president, and he enacted tax reform in 1986, and the economy took off and jobs were created, and we had a decade of growth."

Acosta’s comments oversimplify former President Ronald Reagan’s record on taxes. Reagan did cut taxes, but his most significant tax cuts were in 1981, earlier than what Acosta mentioned. And, Reagan agreed to raise taxes several times, and that included a mix of tax cuts and tax increases in 1986. (Read more about the many tax cuts and tax increases Reagan approved.)

Tax revenues were lower as a share of GDP in Reagan’s last year in office (17.6 percent of GDP in 1988) compared with the year before he took office (18.5 percent of GDP in 1980), according government figures.

But the bottom line is that Reagan agreed to raise taxes to deal with budget deficits several times, even if he wasn’t enthusiastic about it.

Also, while the U.S. economy did grow between 1986 and 1996, that growth was not continuous. The country went into recession between July 1990 to March 1991; in that time period 1.2 million jobs were lost.

Kellyanne Conway, counselor to the president: "94 percent of Americans and 91 percent of small business owners in America say they either pay someone else to help them prepare their taxes, or they buy a software package, so we're just wasting billions of dollars and billions of hours complying with this code."

The large fraction of Americans using software or a tax preparation service comes from a 2014 report by the government’s Taxpayer Advocate Service. It said "individual taxpayers find return preparation so overwhelming that about 94 percent of them used a preparer or tax software."

A 2013 survey from the National Federation of Independent Businesses, a trade group, reported that 91 percent of its members hire a professional tax-preparer to do their taxes.

Now, the federation’s membership is a slice of all small business owners, so Conway is pushing things to say that the group’s findings apply across the country.

The main caveat to her remark is that reducing the number of tax brackets and eliminating certain deductions won’t necessarily make taxes that much easier to fill out. For businesses in particular, they will still need to track their costs and report those accurately.

Conway: "We are only one of 6 nations that taxes the profits again when you try to return them back."

There’s no debate that the United States is one of few remaining countries with a tax on the worldwide income of its multinational corporations. In 2014, the Tax Foundation, a group that favors a free-market approach, said only six out of the 34 industrialized economies tracked by the Organization for Economic Cooperation and Development tax worldwide income.

Most of the others use some sort of territorial system that exempts most foreign income. But an analysis from the Tax Policy Center, an academic program based in Washington, cautions that this is about taxes, and nothing is cut and dried.

"In practice, the difference in corporate tax policy between the United States and its trading partners is nowhere near as stark as the labels ‘worldwide’ and ‘territorial’ suggest," the report said.

The Tax Policy Center noted that every country has a mix of approaches that aim to limit companies’ ability to shift profits to low-income, low-tax countries. So at the end of the day, even in nations with a different tax system, some foreign income is subject to domestic taxes.

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Fact-checking Trump and his team on taxes