Project 2025’s Tax Plan Would Raise Taxes on the Middle Class and Cut Taxes for the Wealthy

For state-specific data on how much Project 2025 would raise taxes on families, see Appendix.

Large majorities of Americans worry that the tax system is unfair, with the wealthy and corporations paying less than their fair share. Yet in the extremist Mandate for Leadership, dubbed “Project 2025: Presidential Transition Project,” far-right extremist plans are outlined that raise taxes on low- and middle-income households to finance tax cuts for the wealthy and large corporations. Project 2025’s tax plan includes an “intermediate tax reform” that includes changes to tax brackets and corporate tax cuts that would shift the tax burden toward middle-income households. And the “fundamental tax reform” it proposes would replace all individual income and corporate taxes with consumption taxes.

Specifically, Project 2025’s tax reform plan would:

• Enact a two-income tax bracket system that would raise taxes by $3,000 for the median family of four—which makes about $110,000 a year—and raise taxes by $950 for the typical single-person household, which makes about $40,000 a year. (see Appendix for state-specific data)
• Provide an average $1.5–2.4 million tax cut for the 45,000 U.S. households making more than $10 million annually from the combination of the “two-bracket” system and cuts to taxes on the wealthy’s investment income.
• Cut the corporate tax rate to 18 percent, which amounts to a $24 billion tax cut for the Fortune 100.
• Replace all individual and corporate income taxes with a consumption tax in the long term. This could take the form of a value-added tax well above 45 percent, which would produce an enormous one-time burst of inflation and raise prices.

The shift toward a flat consumption tax while eliminating income taxes would lead to an average $5,900 tax increase for the middle 20 percent of households and an average $2 million tax cut for the top 0.1 percent.

Project 2025’s immediate tax reform is a $3,000 tax increase for the typical family of four

The centerpiece of Project 2025’s “intermediate tax reform” plan consolidates seven individual income tax brackets, ranging from 10 to 37 percent, to just two brackets: 15 percent and 30 percent.

Project 2025 says this is a way to “to simplify the tax code,” but the number of tax brackets is already one of the simplest parts of the tax code, especially since tax-filing software instantly calculates how much tax families owe for income in each bracket. Moreover, 70 percent of tax filers only have enough income to be in the first two brackets, so they effectively are already in a two-bracket system.

Project 2025’s new tax bracket system, however, represents an enormous shift of the tax burden from wealthy tax filers to middle-income tax filers. This is because the two current bottom brackets (10 percent and 12 percent) are lower than the 15 percent tax bracket proposed by Project 2025. This effectively raises the tax rate on a married couple’s income between about $30,000 and $120,000 and on a single filer’s income between about $15,000 and $60,000. Higher-income tax filers, on the other hand, would get a tax cut, as the proposed 30 percent tax bracket is lower than the current 32 percent, 35 percent, and 37 percent brackets that much of their income falls into.*

The end result of these changes would be a tax increase for middle-class households. The median family of four made about $110,000 in 2022 and would experience about a $3,000 tax increase from this change. They would experience a tax increase in all 50 states outside of Washington, D.C., where the median family of four—making $195,000 in income—would experience a tax cut. In addition, the median one-person household made about $40,000 in 2022 and would experience a $950 tax increase under the plan. They would also experience a tax increase in all 50 states, as well as Washington, D.C. (see Appendix)

Project 2025 also “eliminates most deductions, credits and exclusions.” The calculations above do not include the effects of removing these tax provisions since it is not known which ones Project 2025 would eliminate and many middle-income households do not use many of them, such as the mortgage interest deduction, since they take the standard deduction. If Project 2025 were to eliminate the child tax credit and earned income tax credit, the tax increases on low- and middle-income families would be even larger.

Project 2025 would cut taxes for households making more than $10 million by $1.5–2.4 million

Project 2025 takes further steps to cut taxes for the wealthy. It says “capital gains and qualified dividends should be taxed at 15 percent,” which is exclusively a tax cut for the less than 2 percent of households making more than $500,000 a year, since taxpayers making below that amount already pay a 0 or 15 percent tax rate on that income. Project 2025 would also eliminate the net investment income tax, which is a 3.8 percent tax on capital gains, dividends, and other investment income received by households making more than $200,000.

Combining the changes to tax brackets, the cut in the tax rate on capital gains and dividends for the wealthy, and the elimination of the net investment income tax, this would deliver an average tax cut of up to $2.4 million for the 45,000 households making more than $10 million annually. If Project 2025 were to eliminate all itemized deductions—including the charitable deduction—and the deduction for pass-through business income for this group, their average tax cut would still be $1.5 million.

Project 2025’s immediate tax plan is a large corporate tax cut

Project 2025 does not stop at cutting taxes for wealthy individuals; it also proposes an array of tax cuts for corporations. This starts by doubling down on the staggering 14 percentage-point cut in the corporate tax rate that the majority of congressional Republicans enacted in 2017 by further cutting the rate from 21 percent to 18 percent.

This would amount to a $24 billion tax cut for the Fortune 100, the 100 largest companies in America, based on CAP analysis of their latest financial statements. This includes:

• A $1.3 billion tax cut to the five largest U.S. oil companies: Exxon Mobil, Chevron, Marathon Petroleum/ConocoPhillips, Phillips 66, and Valero Energy
• A $1.6 billion tax cut to the five largest drug makers: Johnson & Johnson, Merck, Pfizer, AbbVie, and Bristol Myers Squibb
• A $2.1 billion tax cut to the five largest Wall Street banks: JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, and Goldman Sachs
• A $800 million tax cut to the five largest grocery companies: Kroger, Costco, Albertsons, Target, and Walmart

And Project 2025 would further cut taxes for corporations by repealing the Inflation Reduction Act’s tax increases for corporations, including a 15 percent minimum corporate tax rate for the largest corporations and an excise tax on stock buyback.

Project 2025’s “fundamental tax reform” is an even bigger shift of tax burden to middle-class and poor Americans

Project 2025 is explicit that the tax reforms detailed above are simply a starting point. In addition, it proposes replacing income and corporate taxes with a flat consumption tax as part of a “fundamental tax reform”:

The federal income tax system heavily taxes capital and corporate income and discourages work, savings, and investment. The public finance literature is clear that a consumption tax would minimize government’s distortion of private economic decisions and thus be the least economically harmful way to raise federal tax revenues. There are several forms that a consumption tax could take, including a national sales tax, a business transfer tax, a Hall–Rabushka flat tax, or a cash flow tax.

Under the current tax system, individual income and corporate income taxes are projected to raise about $2.9 trillion in 2025—net of refundable tax credits such as the earned income tax credit. Meanwhile, the Congressional Budget Office estimates that a broad-based 5 percent value-added tax (VAT)—which functions similarly to a sales tax but would apply to goods commonly exempt from sales taxes, such as groceries, as well as services outside of the scope of sales taxes, such as private health care and new home purchases—would raise $330 billion in 2025.

A VAT upward of 45 percent, therefore, would be required to replace the individual income and corporate taxes.** This VAT would cause prices for items subject to the VAT—including health care, food, and new home purchases—to spike. International evidence from previous increases in the headline VAT rate shows prices rise one for one, suggesting that a 45 percent VAT increase would result in a 45 percent increase in the prices of goods and services subject to the VAT. The experience of Japan is instructive: The country was experiencing zero or negative inflation, but an increase in its VAT from 5 percent to 8 percent caused inflation to surge in 2013 and 2014 before settling back down again. Depending on how the increase is implemented, one would expect a similar pattern from Project 2025’s VAT proposal: a one-time surge in inflation that dissipates over time, but the higher prices would remain.

Of course, the elimination of all income taxes would increase households’ purchasing power, but the net effect of the VAT price increases and income tax cuts would only benefit the top 10 percent.*** The U.S. income tax code, while imperfect, is generally progressive, requiring higher-income households to pay more money than lower-income households. Flat consumption taxes such as the ones outlined in Project 2025, on the other hand, are not progressive. Moreover, replacing the income tax code with a consumption tax would eliminate refundable tax credits, such as the child tax credit and earned income tax credit, unless Congress were to replace them with cash assistance programs unconnected to the tax code.

The end result is a staggering redistribution of taxes from the wealthy and corporations to low- and middle-income households. The lowest-income households (the bottom 20 percent) would pay $4,100 more in taxes, and middle-income households (the middle 20 percent) would pay $5,900 more. The top 1 percent, meanwhile, would see a $360,000 tax cut, and the top 0.1 percent would see a $2 million tax cut.

Importantly, most Americans would be worse off even assuming a modest increase in economic growth from these policies consistent with the academic literature. As Harvard economist Jason Furman has pointed out:

[A] proportional consumption tax can increase output by 9 percent in the long run. However, this increase is generated by what is effectively a one-time tax on existing wealth at the time of the reform combined with a sharply regressive redistribution of the tax burden. When transition relief is provided for old capital and a standard deduction is provided in computing the tax, the long-run growth effect is reduced to 2 percent. (Moreover, even with this positive growth effect, the majority of families are made worse off by this reform in the long run.)

Conclusion

Project 2025’s tax plans—both their intermediate changes to tax rates or fundamental restructuring of the tax system—would raise taxes on low- and middle-income households while cutting taxes for the wealthy.

Appendix

* Project 2025 states: “The 30 percent bracket should begin at or near the Social Security wage base to ensure the combined income and payroll tax structure acts as a nearly flat tax on wage income beyond the standard deduction.” While this is straightforward for single filers—amounting to $168,600 in income after taking into account the standard deduction—it is unclear how this would work for married filers since the limit on Social Security taxable earnings applies to individuals, not couples. This analysis therefore assumes that the 30 percent bracket begins at $337,200 in income after taking into account the standard deduction, which is double the Social Security taxable earnings limit. This is because beginning at the same $168,600 as single filers would be an enormous marriage penalty, and the tax increases for couples making less than $200,000 would also be higher.

** The required roughly 45 percent VAT is a lower bound for two reasons. First, the Congressional Budget Office assumes that avoidance and substitution from taxed to nontaxed products is low at a 5 percent rate but significant at a higher rate. Second, political constraints would likely result in carve-outs, including for small businesses and certain types of products. Accounting for the revenue loss from avoidance, substitution, and exemptions would require a higher tax rate.

*** It is possible to design a more progressive consumption tax, such as Sen. Ben Cardin’s (D-MD) Progressive Consumption Tax Act or economist David Bradford’s “X Tax.” Critically, these proposals feature rebates or graduated tax rates on wages as opposed to a single flat tax rate, such as a national retail sales tax or the Hall-Rabushka flat tax mentioned in Project 2025. Indeed, the entire goal of the “intermediate” two-bracket tax reform is to essentially move to a flat tax on wage income after accounting for Social Security payroll taxes.