Trump’s Tax Plan
I wasn’t going to mention it, but someone asked, so here’s what I think of Trump’s tax plan.
Well, I can’t write that here.
In broad terms the Trump tax plan is just another version of standard Republican dogma, with a twist here and there. It’s core is a massive tax cut: Trump would reduce the number of tax brackets to four; he would lower the top rate of tax 25%; he would create a very large zero tax bracket for lower paid people; he would reduce corporate taxes radically; he would eliminate the estate tax; and he would reduce the number of tax deductions available to higher paid taxpayers.
All of that is normal Republican speak. In this plan Trump is very far from being a maverick. No wonder a few of the usual suspects — Grover Norquist in particular — stood to attention and saluted him.
As an aside I can never quite understand the Republican ire over estate taxes. It only ever affects people with very large estates, so the middle class never gets hit much, and it’s original purpose was to keep the US from developing a class like system where the wealthy could accumulate vast estates through generations. Yes, that was one of the primary motivations for its implementation here: to stop the US becoming like Old Europe. Oh well.
There are a few wrinkles in Trump’s plan, however, that spread a little discord amongst the faithful. For instance, he wants to get rid of the egregious carried interest tax wheeze that hedge fund managers use. This loophole has allowed people earning billions of dollars a year to cap their top tax rate at 20%, leading to the absurdity of their total tax percentage being smaller than that of their administrative assistants, none of whom as far as I am aware earn more than a billion dollars a year. If they do, good for them!
When this loophole came up under attack in the early stages of the 2007/2008 crisis, and particularly in 2009 when Obama was trying to pass his stimulus package, one of its most ardent defenders was none other than Chuck Schumer, a Democrat who just so happens to represent New York — and therefore Wall Street — in the Senate. And who says money doesn’t influence legislation?
Oh, and Trump want to give companies like Apple and Google a tax break on all the cash they have hoarded abroad. They keep the cash offshore to avoid paying US corporate tax on it, but since they don’t repatriate it they cannot invest it here either. So Trump will give them a one time tax break: they can repatriate it and pay only 10% tax.
According to the very conservative Tax Foundation, an organization that has never met a tax cut it doesn’t appreciate, the Trump plan would add just under $12 trillion (yes trillion) to the Federal deficit. For those of you who can remember as far back as last year such a radical increase in the deficit would normally have caused a Republican to explode with fiscal rectitude fury. Not any more apparently. Trump’s plan adds more than the other’s do, but his, Jeb!’s, and Rubio’s are all the same budget busting duds. The Republicans may appear divided on a number of things, but sticking to supply side, tax cutting, magic based economics is something they all have in common.
Speaking of supply side: Trump hails his plan as being pro-growth. He argues that by cutting taxes his plan will stimulate the economy — torrent of new capital will appear from under the mattress, and an army of workers will suddenly appear for work because now they aren’t being taxed on their wages — with the result that GDP will surge towards growth of 6% a year. Consistently. This is fantasy only Jeb! can match. We haven’t seen consistent growth at that kind of pace for decades. And it’s certain that the Trump plan won’t get us back there.
You may have heard of an economic forecasting trick called “dynamic scoring”. This is a dodge that tax cutter use to try to mask the damage their plans will wreak on the Federal budget. It goes like this: cutting taxes does indeed reduce revenue to the budget, so, at first, the deficit rises; but, and this is a huge but, because lower taxes stimulates all that new capital and work to flood the economy, GDP subsequently rises above where it would have been otherwise. So. This rise in GDP produces new tax revenue, also over and above what it would have been otherwise, and so offsets the prior lost revenue. Got that? This dodge is why the Republicans have told the Congressional Budget Office to use dynamic scoring when evaluating legislation. Basically it allows Republicans to make up fantasy numbers and have a way of defending them.
So: what does the conservative Tax Foundation have to say about the Trump plan when they use dynamic scoring? It still increases the deficit. Not by that nearly $12 trillion, but only by $10 trillion.
I rest my case.
Trump’s tax plan is the usual toxic supply side Republican junk. It lowers taxes for the rich and big business. It clobbers the Federal deficit. And it does precious little else.