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Project 2025 would overhaul the U.S. tax system. Here’s how it could impact you.
What are the objectives of “Project 2025”?
Project 2025, a 900-page blueprint for the next Republican president, is gaining attention for its proposals to reform the federal government. Among those changes: a major restructuring of the U.S. tax code.
President Biden and Democrats have been citing Project 2025 in recent weeks as they seek to highlight what could be in store if former President Donald Trump wins the election in November and retakes the White House in January. Many of the proposals in the project touch on economic issues that could impact millions of Americans, as well as social issues like abortion and diversity, equity and inclusion, or DEI, topics.
Project 2025overseen by the conservative Heritage Foundation, it is led by two former Trump administration officials: project director Paul Dans, who was chief of staff at the Office of Personnel Management, and Spencer Chretien, a former special assistant to Trump who is now the project’s associate director.
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The Project 2025 tax proposals, if passed, would likely affect all adults in the U.S. by eliminating the nation’s longstanding system of multiple tax brackets, which was designed to help low-income Americans pay a smaller share of their income in federal taxes compared to middle- and upper-income workers.
Currently, there are seven tax bands — 10%, 12%, 22%, 24%, 32%, 35% and 37% — each based on income thresholds. For example, a married couple pays 10% in federal income tax on their first $23,200 of income, then 12% on earnings from $23,201 to $94,300, and so on. Married couples need to earn more than $487,450 this year to hit the top tax rate of 37%.
Project 2025 argues that the current tax system is too complicated and expensive for taxpayers to navigate. To remedy these problems, it proposes just two tax rates: a flat 15% tax for people earning up to about $168,000, and a 30% income tax for people earning above that, according to the document. It also proposes eliminating “most deductions, credits and exclusions,” although the bill does not specify which would be eliminated and which would remain.
“The federal income tax system is progressive, and people who make more money pay a higher marginal tax rate than people who make less money,” Brendan Duke, senior director of economic policy at the left-leaning Center for American Progress, told CBS MoneyWatch. “Conservatives look at that and think it’s unfair to ask the wealthy to pay a larger share of their income in taxes than lower-income families.”
The Project 2025 proposal “is a dramatic reform of how we fund our government, where we ask the wealthy to contribute more than lower-income families,” he said. “It shifts taxes from the wealthy to the middle class, period.”
The Heritage Foundation and Project 2025 did not immediately respond to a request for comment.
Project 2025 Tax Rates
Millions of lower- and middle-class families would likely face significantly higher taxes under Project 2025’s proposals.
He estimated that a middle-class family with two children and an annual income of $100,000 would pay $2,600 in additional federal income tax if they faced a flat 15% tax on their income due to the loss of the 10% and 12% tax brackets. If the Child Tax Credit were also eliminated, they would pay an additional $6,600 compared to the current tax system, Duke said.
By comparison, he estimated that a couple with two children and income of $5 million a year would enjoy a tax cut of $325,000.
“That 15 percent bracket is a big deal in terms of raising taxes on middle-class families,” Duke said.
Millions of U.S. households earning less than $168,000 would likely face higher taxes at a 15% rate. Currently, the bottom half of American taxpayers, who earn less than $46,000 a year, pay a effective tax rate of 3.3% — which reflects your income taxes after deductions, tax credits, and other benefits.
Among other tax and economic changes proposed by Project 2025:
- Cut the corporate tax rate from 21% to 18%, which was enacted in the Tax Cuts and Jobs Act of 2017. Prior to the TCJA, the corporate tax rate was 35%.
- Reduce capital gains tax to 15%. Currently, high-income earners pay a 20% tax on their capital gains.
- Elimination of credits for green energy projects created by the Inflation Reduction Act.
- Considering the introduction of a consumption tax in the US, such as a national sales tax.
- Eliminate the Federal Reserve’s mandate to maintain full employment in the labor market.
To be sure, overhauling the tax system would require lawmakers to pass changes to the tax code, which could be difficult if the House or Senate were controlled by the opposite party. For example, Trump managed to get his Tax Cuts and Jobs Act passed by a Republican-led Congress, even though no Democrats voted in support of the measure.
What does Trump say about Project 2025?
Trump has distanced himself from Project 2025, with his campaign proposing his own plans through “Agenda 47. “While Trump has yet to propose any concrete tax plan, he has hinted at his proposal to create a 10% tariff on all imports and a 60 percent tariff on Chinese imports, which could raise enough money to eliminate the federal income tax.
But tax experts say the math doesn’t work because the money raised from the new tariffs would fall far short of replacing more than 2 trillion dollars in individual income taxes collected by the IRS each year. Consumers are also likely to pay more in higher costs for imported consumer goods and services with tariffs added to them, experts note.
“A tariff is a tax on consumption and there is a dividing line between [Project 2025’s] tax reform and what Trump talked about, getting rid of taxes in favor of a consumption tax,” Duke noted.
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