The Trump Tax Plan

When stripped down to the barest of bones, the business of government can be summed up as follows: to collect money and spend money. How much to collect, where from and how to spend it depends on political ideology and necessity. I believe those who can best afford to pay should contribute more heavily than others but those others should be seen to contribute fairly. Likewise, those least able to care for themselves should be important beneficiaries but others should benefit too in fair proportions. I admit I am a one nation Tory.

Barack Obama put it much better than me. In the 2012 election campaign, he said: “How do we create an economy where everybody from top to bottom, folks on Wall Street and folks on Main Street, have a shot at success? If they’re working hard and they’re acting responsibly, they should live out the American Dream…The reason this is relevant to the campaign is because my opponent, Governor Romney, his main calling card for why he thinks he should be President is his business expertise…He is saying ‘I’m a business guy and I know how to fix it’. When you’re President, your job is not simply to maximise profits. Your job is to figure out how everybody in the country has a fair shot.” (My italics.)

President Trump has not heeded his predecessor’s wise words. He has vaunted his skills as a deal-maker, although there is little evidence, thus far, of achievement. He regards governing as a business deal. It seems he thinks Puerto Rico should not receive much federal government help because they are in debt. Never mind that the island has been devastated by hurricanes, that there is still no power and no readily available drinking water.

Late last month, the Trump administration released its tax reform plan. Broadly speaking, The Unified Tax Reform Framework (“the Plan”) would reduce income tax rates, lowering the top rate to 35 percent. The Plan doubles standard deductions but eliminates personal exemptions, as well as lowering the corporate tax rate from 35 percent to 20 percent. It allows a one-time repatriation of corporate profits earned overseas.

The Republican spin is that Trump's tax reforms will boost economic growth by giving families and businesses more money to spend. However, it is significant that the Republican leadership is unable to guarantee tax cuts for all middle-class workers. House Speaker Paul Ryan and Treasury Secretary Steven Mnuchin defended the Plan as a boon to the middle class amid accusations from Democrats and interest groups representing the lower income families that it is primarily a ploy to cut taxes on corporations and the wealthy. It is the same old partisan politics lacking any analysis, just predictable ideology. Tax is bad/good depending on political persuasion.

I see the Plan as a broader attempt to pass a major legislative priority this year. The Republicans are under intense pressure from voters and President Trump to fulfil their pledge on taxes. After the dramatic failure to repeal and replace the Affordable Care Act, Congress seats are on the line.

Unless US government spending is reined in, the Plan will add $4.2 trillion to the current US debt of $20 trillion. Favouritism to the wealthy and lost revenue is why the US debt increases so much. However, it should be said that the wealthiest Americans contribute the lion's share of total tax revenues. So: not only will the debt slow growth in the long run but the assumption by the Trump administration is that the rest of the world will continue to buy American government bonds to finance both the rise in the US debt and pay for tax cuts benefiting the wealthiest in American society.

Also, the Plan eliminates the estate tax and the generation-skipping transfer tax. That would help the top 1 percent of the population who pay it. Some 5,000 tax payers will benefit, including the Trump family and other billionaires who have joined his government. Tax breaks improve at each income level but the top 1 percent would get an 8.5 per cent break.

The Plan reminds me of the 1980s Reagan experiment with taxation. The Republicans are once again relying on supply-side economics, giving tax cuts to business to create jobs. It worked for a while during the Reagan administration because the highest tax rate was 70 percent. According to some economists, when taxes are high enough, cuts boost economies out of debt. But today's tax rates are half that. That's why I doubt trickle-down economics will work. The Democrats will rightfully claim that in Trump’s America, those who need government help the most won’t get it because the uber-rich are paying much less tax. 

Of course, it is up to Congress to decide on the Plan. Under the ‘Senate Reconciliation Rule’, if it is proved that tax cuts will not increase the budget deficit, the Senate filibuster rules will not apply to a vote. The Bill would only require 50 votes because Vice-President Mike Pence has the tie-breaking vote. However, if the budget deficit increases, a 60-vote Senate majority is needed to defeat a filibuster. How would the $4.2 trillion deficit be offset? An interesting question. We have not seen the proposals for cuts in expenditure which will help defray tax cuts. We can be certain that entitlements for the poor and middle class will be hit but the savings Trump was looking for by abandoning Obamacare are not available.

Will budget-conscious Republican senators support the Plan? Trump’s track record in persuading Congress is as poor as can be. But in American politics, you should always allow for surprises.

 

 

Will the abomination in Las Vegas this week result in any changes in gun law? Readers of my blog will know I consider the Second Amendment’s “right to bear arms” is wrongly construed. I am certain that, despite Las Vegas, nothing will happen to end America’s gun slaughter unless and until the gun lobby, led by the NRA, is held in check. Congress is considering action, supported by the NRA, to limit the ability to fire multiple rounds of bullets in quick time. Talk about a Band-Aid when major surgery is needed. Sadly, the outrage of Las Vegas, like Orlando, Newtown, Connecticut and Washington Navy Yard, are soon set aside. On this issue, lily-livered members of Congress are too closely associated with their gun lobby funders to take action. The President campaigned on a platform of ‘hands off the guns.’ He played to the NRA and fellow travellers. The rebuttal ought to be found in election ballot boxes but will it?