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In this video (Donald Trump in St. Charles, MO - Youtube), Donald Trump says the Republican tax plan is going to "cost him a fortune, believe me" (1:30).
This is going to cost me a fortune, this thing. Believe me. Believe. This is not good for me.
But this video and article(CNBC) seem to point to Trump, and property developers in general, being one of a handful of major beneficiaries of the new tax code.
Is this new tax code going to cost Donald Trump (and his family) more or less in taxes?
tl;dr: it is impossible to know for sure if it will cost President Trump "a fortune" since he has not released his tax returns, but it is very unlikely that he will come out behind under either the House or Senate tax plans, and much more likely that both he and his company will come out ahead. The few areas where President Trump stands to have to pay more in taxes are more than counterbalanced by huge tax breaks in others.
Before I begin, I will preface this by saying that the tax plans passed by the House and Senate are different, and both houses need to come together in order to reconcile differences in their respective plans. This answer was last updated 7 December 2017, and may be inaccurate as changes to the bills go through. I will update further as we know more about what the final bill that passes to the President's desk is.
Since Donald Trump has not divested from his company holdings, we will make the assumption that he still benefits from tax code changes that involve his business dealings.
Also note that I am leaving parts of the tax code out that would have an obviously negligible or zero impact on his taxes (Medical expense deduction, Teacher Supply Deduction, Individual Mandate Repeal.)
There are a number of provisions in the tax bill that would change the way the US tax system would work. There are differences between the Senate and House plans, for the most part they are just a matter of numbers being different and differences on parts of the plan phasing out after a number of years.
Individual Tax Brackets
Except for very low income filers under the House plan, effective tax rates are expected to fall across the board under both plans. The two plans differ in how they achieve this, with the House plan leaning more towards making larger tax brackets and reducing the number of brackets from 7 to 4, while the Senate plan keeps the income ranges largely the same but reduces the rate on each bracket.
If we presume that President Trump is filing jointly, unless he is making less than $18,650, his effective income tax rate will fall.
Increasing the Standard Deduction
Both plans propose to approximately double the Standard Deduction. The Standard Deduction is only used if someone does not Itemize their deductions. Again, without knowledge of Trump's tax return, we can not confirm, but it is highly likely that Trump itemizes his tax return.
In 2013, 93.5% of filers making over $200,000 a year in income itemized. Since Mr. Trump is a billionaire real estate developer, it is very likely that he is well above this range and also itemizes. If he itemizes, this change has no impact on the amount of taxes that he pays. If he does not (and it is highly unlikely this is the case) this will reduce his tax burden.
Personal Exemptions
Under current tax law, filers are allowed to deduct $4,050 for themselves, their spouse, and each of their dependents. Under both proposed laws, this would be eliminated from the tax code. Donald Trump previously would have been able to claim this exemption for himself, his wife Melania, and his youngest son Barron. This repeal will slightly increase the tax burden for President Trump.
State And Local income Tax (SALT)
Both the House and Senate bills would cap exemptions on SALT deductions at $10,000. The Institute on Taxation and Economic Policy calculated that, while 71% of households that previously took advantage of the SALT tax deduction would no longer use it, higher income citizens would be the least likely to lose access to the deduction.
One reason for this decline is that the increased standard deduction (up from $13,000 to $24,400 for married couples) would make claiming itemized deductions of any type utterly worthless for many taxpayers. For some, the higher standard deduction amount could reduce taxes overall—though much of that impact would be blunted by the loss of personal exemptions under the plan.
But another significant reason for the surprisingly limited impact of retaining just the property tax deduction is that very few households will have sufficient amounts of the remaining itemized deductions (e.g., mortgage interest, property taxes, and charitable contributions) to make claiming any of these deductions worthwhile.
Note, however, that the SALT deduction will not map uniformly to all of Trump's properties. Properties in high-tax states like New York would be hit hard, whereas properties in low tax states would not be affected at all. With the diverse locations of Trump's holdings, it would be difficult to calculate which locations would have the largest effect.
Overall, this will most likely increase President Trump's tax burden, but it will still be useful to him.
Mortgage Interest Deduction
The House plan aims to cut in half the maximum possible deduction allowed for taxpayers, from $1 Million to $500,000. The Senate plan aims to keep the current tax plan as is.
In practice however, this would only be used by very wealthy Americans. Since many Americans who previously itemized are likely to switch to the new Standard deduction (see SALT deductions, above), only Americans with significant amounts of Mortgage interest are likely to benefit from keeping this deduction. The House plan would likely increase the tax burden of President Trump, but the Senate plan would leave it alone.
Alternative Minimum Tax
The AMT is a Tax that is used to require a minimum amount of taxes paid by Americans, regardless of the number of tax deductions they may have. The rules behind the AMT are complicated, and it is again impossible, without President Trump's tax returns, to determine if being affected by the AMT rules.
The House plan aims to completely repeal the AMT, while the Senate plan raises the limit on how much income is exempt. CNN reported that Trump had to pay an extra $31 Million in 2005 due to the AMT. It is unclear if he still has to pay that money, but it is certainly possible. If President Trump is required to pay taxes through the AMT, both tax plans would reduce his overall tax burden, although it is impossible to tell by how much.
Estate Tax
The Estate Tax is a tax paid upon the transfer of an Estate of a deceased person. For 99.8% of deaths in the United States, this tax has no effect, and the tax only hits the very top earners. Both plans aim to double the amount exempt, moving from approx. $5.5 Million for single persons and $11 Million for married couples. The House bill goes a step further, repealing the Estate Tax entirely by 2024. This change will not directly benefit President Trump, but would greatly benefit his children.
If the Senate Tax plan rules take effect, it would benefit Trump's children to the tune of ($22.98 Mil - $11.49 Mil) * 40% = $4.59 Million
If the House Tax plan rules take effect, and Trump remains alive beyond 2024, it is hard to tell exactly the benefit, since we do not know Trump's exact net worth. Forbes estimates his wealth at $3.1 Billion dollars, which would benefit Trump's children to the tune of ($3.1 Bil - $11.49 Mil) * 40% = $1.24 Billion
Corporate Tax Rate
Both plans would reduce the Corporate Tax Rate from 35% to 20%, although the Senate plan delays this reduction until 2019. For business, this is a major boon, although (as the next section will detail) it is unlikely that most of Trump's businesses will be impacted by this, although for the ones that do, this will substantially decrease their tax burden.
Pass-Through Business Tax
A Pass-Through Business is a business structure where, instead of paying corporate tax rates, the profits of the business are passed through to the owners of the business, who then pay tax on these profits. The House plan proposes to lower this rate from 39.6% to 25%, while the Senate plan intends to allow filers to have an increase (23% from 17.4%) in the amount that is tax exempt.
According to Donald Trump's own lawyers, most of his 500 companies he holds are sole proprietorships, and are pass-through companies. The Center on Budget and Policy Priorities described this tax break as the "Trump Loophole".
Under the September Republican tax plan, pass-through income would be taxed at no more than 25 percent — far below the 39.6 percent top individual income tax rate that now applies to pass-through income, or the 35 percent top rate that would apply to individual income under the GOP plan. This would provide a massive windfall to the very wealthy and has sometimes been referred to as the “Trump loophole” because Donald Trump exemplifies the type of business owner whom it would most benefit. (See Box 1.)=
“Commercial real estate came out essentially unscathed,” said Douglas Holtz-Eakin, president of the American Action Forum, a conservative advocacy group. Real estate developers “didn’t lose anything they care about,” and they got even more breaks, like a shorter depreciation schedule in the Senate tax bill, Mr. Holtz-Eakin pointed out.
“Lower pass-through rates and the repeal of the alternative minimum tax — those two alone are so hugely beneficial to Trump that I have trouble imagining any way that he wouldn’t come out ahead,” said Steve Wamhoff, senior fellow for federal tax policy at the nonpartisan Institute on Taxation and Economic Policy.
“Trump will make out like a bandit on all the big items,” said Steven M. Rosenthal, a senior fellow at the nonpartisan Tax Policy Center.
Forbes, in it's "Winners and Losers" article after the Senate bill passed, included the President in its winners section as well.
Winner: Rental Real Estate Owners
It is a great time, however, to be a landlord. For starters, the life over which you can depreciate your property has been reduced -- from 27.5 years to 25 years for residential property and from 39 years to 25 years for nonresidential property. In addition, while most other businesses will find their interest deduction limited under the Senate bill, that limitation doesn't apply to landlords, who can continue to deduct their mortgage interest in full.
Real estate owners will really enjoy a windfall, however, if the final bill adopts the House version of "pass-through" taxation. Under the House bill, all rental income will be subject to a top rate of 25%, as opposed to 39.6% under current law. Under the Senate bill, however, it appears that for those large landlords earning more than $700,000 annually, unless the rental properties or a management company pays out significant W-2 wages, the owners would be stuck paying a top rate of 38.5% on the income, a rate 13.5% higher than under the House bill.
Winner: the Current President
On a day when President Trump desperately needed some good news (see: Flynn, Michael), a major step towards his first legislative victory was achieved. And then, of course, there's the little matter of how much money the President will save under the plan; as discussed above, it is a great time to own a real estate empire.
In conclusion, it is very difficult to see how either of the current tax plans would cost Donald Trump and his family "a fortune". Loss of tax deductions for SALT and (possibly) Mortgage Interest will be more than offset by a potential repeal of the AMT (which we know Mr. Trump has paid in the past) and the Pass-Through Business Tax (which represents a massive tax cut to owners of these types of companies.) In addition, depending on which bill is adopted for the Estate tax, Mr. Trumps children would stand to make anywhere from several million to over a billion dollars upon his passing.
