Editor’s Note: Edward J. McCaffery is Robert C. Packard trustee chair in law and a professor of law, economics and political science at the University of Southern California. He is the author of “Fair Not Flat: How to Make the Tax System Better and Simpler.” The opinions expressed in this commentary are solely those of the author.
Trump's tax reform plans make it clear that he is serving as a baron for billionaires, Edward McCaffery writes
That comes despite the President being elected as a man of the people, he contends
What we have learned about Donald Trump’s leanings on tax policy make them Exhibit A in his bait-and-switch presidency. Although he was elected as a man of the people, Trump’s tax reform plans make it clear that he is serving as a baron for billionaires.
The tea leaves that pass for a coherent legislative policy suggest that Trump’s Plan A had pulled a page or two from House Speaker Paul Ryan’s playbook, long on the shelves. Ryan had a wonky, but nifty, three-step:
– One, repeal, but don’t quite replace Obamacare;
– Two, enact a corporate tax reform featuring a brand new “border adjustment” tax, also known as tariffs; and
– Three, enact sweeping income tax cuts and repeal the estate tax.
All in, and roughly, this would be a $2 trillion loss (over 10 years) for the lower classes, 24 million of whom would lose health care coverage and all of whom would pay higher prices for basic goods under the “border adjustment” tax. It would also be roughly a $2 trillion win for the upper classes, who would benefit from repeal of the Obamacare taxes, the lowering of corporate tax rates, the slashing of income tax rates and the elimination of the estate tax.
Alas, Plan A didn’t quite work. Turns out that the people paid attention to details, like the devilish one about the 24 million who stand to lose health insurance coverage.
No worries: Trump is now hinting at Plan B, another tried and true Republican trick for getting the country to go along with yet more tax cuts for the rich. Treasury Secretary Steven Mnuchin says the Trump tax plan will rely on economic growth to pay for itself, such that we can get to Step Three, where the real goodies for the billionaire class lie. Voodoo economics, welcome back!
Unfortunately, real tax policy ought to be more than a Vegas-style magic show. There are two painfully serious sets of problems with the return of supply-side witchcraft.
First, this is risky fiscal business. The nonpartisan Committee for a Responsible Federal Budget reports that America has not seen sustained growth rates of 4% (a rate optimistic Trumpians target), since the early 1960s, when our population was younger and growing.
Even if growth were to spike up quickly to these rosy-hued levels, interest rates, still historically low, would certainly rise. This would doubly hurt the federal government, because it would have more debt to finance, due to the tax cuts, and at higher interest rates.
As is, the federal government spends more on interest payments on its debt than on education, energy and the environment, international affairs, and science – combined. An increase in both debt levels and the interest rate would be devastating for domestic discretionary spending for decades to come.
Second, even if we were to plunge into more debt on a risky gambit for greater growth, why should tax cuts for the rich get the first (and maybe only) priority for the corresponding goodies?
The rich already get away with paying little if any taxes, as the President himself knows perfectly well. Is the best way to make America great again, to get more jobs for more Americans, really to eliminate the estate tax? So Sheldon Adelson’s heirs won’t have to ever pay tax?
Couldn’t the trillions for billionaires be better spent, say, on middle-class tax cuts, infrastructure investments, and/or education, with perhaps a little left over for science, the environment and international affairs?
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Donald Trump got elected president promising to be a man of the people, a ruler for the forgotten. Now it is he who seems to have forgotten. His Plan A on tax reform was to take from the bottom to give to the top. Thwarted in that effort by the people, who turn out to like having health care, Trump turned to Plan B: take from the future to give to the top.
Let us hope that the people rise up again and stop the latest attempt at a billionaire money grab.
Then maybe, just maybe, Trump could live up to his promise to be a new kind of politician, one for the American middle class. He could give us Plan C: a tax reform that, instead of giving more breaks to the billionaire class, actually asks them to share more with the rest of us. Unfortunately, it is exactly such a sensible reaction to rising economic inequality and mounting associated political concerns that sounds like voodoo these days.