You would think that the Trump administration, with so many emigres from the business world, could at least perform simple arithmetic. Judging by the president’s looney-tunes tax plan, you would be wrong.
As usual for President Trump, he has offered few details. But the outlines of his proposal, released Wednesday, are nothing short of hallucinatory. Next door to the White House, in the Treasury Department, there are actual economists who take seriously the responsibility of safeguarding the world’s biggest national economy. They must be deeply embarrassed at now having to pretend that two plus two equals seven.
In his desperate quest to do something yoooge, Trump proposes massive tax cuts for businesses and individuals, especially the wealthy. The impact, according to experts, would be to make federal budget deficits soar, adding as much as $4 trillion to the national debt over the next decade. I’ve never thought of myself as a deficit hawk, but this kind of profligacy is ridiculous.
You will recall that Trump also wants to spend $1 trillion on upgrading our sagging infrastructure, which is a good idea; and he wants to vastly boost defense spending, which is a bad idea. Meanwhile, he has pledged not to touch entitlements such as Social Security and Medicare. Although his promises typically don’t seem to mean much, all this would add up to fiscal insanity.
Trump’s plan is based on the idea that tax cuts stimulate the economy to grow, not a little but a lot: like a magic beanstalk that rises into the clouds, where we find a goose that lays golden eggs, allowing us to live happily ever after. I agree with the economists who find this scenario unlikely.
“The plan will pay for itself with growth,” Treasury Secretary Steven Mnuchin said. His rosy projection is that increased growth would produce $2 trillion in new revenue over 10 years. But the Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution, projects the tax cuts would cost $6.2 trillion in revenue during that same period, leaving a $4 trillion gap. Even the conservative Tax Foundation, which has rarely seen a tax cut it didn’t like, foresees a $2 trillion gap.
Leaving more money in the hands of middle-class and working-class consumers does stimulate the economy, because the money is quickly spent. But that’s not what Trump’s plan does. Instead, it gives massive tax relief to — I hope you’re sitting down — corporations and the rich.
The nominal corporate tax rate would be lowered from 35 percent to 15 percent. I say nominal because many, if not most, businesses find loopholes that allow them to pay less. Still, there is bipartisan agreement in Congress that the 35 percent rate is too high. If House Speaker Paul Ryan cared less about ideology and more about results, a bill cutting the rate to, say, 25 percent could be on Trump’s desk for signature within a week. But 15 percent is too low, and fiscal conservatives in the House are already balking.
As I read the outline, this would surely apply to The Trump Organization and its proprietor. What a coincidence.
Individual income taxes, meanwhile, would be simplified. Instead of the current seven tax brackets, there would be only three: 10 percent, 25 percent and 35 percent. It is hard to gauge the precise impact, since Trump did not specify the income levels that define the three brackets. But it is clear that he and other wealthy individuals would get a huge tax cut, because he proposes to eliminate the Alternative Minimum Tax — which basically ensures that rich people with lots of deductions pay at least something in taxes.
The plan would also allow many wealthy individuals who own businesses to pay income tax not at the 35 percent individual rate but at the new 15 percent corporate rate. As I read the outline, this would surely apply to The Trump Organization and its proprietor. What a coincidence.
Trump would keep the popular deductions for mortgage interest and charitable giving but eliminate many others, including the deduction for state and local taxes. The standard deduction, for those who do not itemize, would be doubled. Depending on how the brackets are structured, it looks to me as if many middle-class taxpayers might pay a little less while some pay a little more.
I don’t know whether this is the most cynical tax plan I’ve ever heard or the most ignorant. I guess those distinctions are not mutually exclusive. Anyone who supports this mess automatically forfeits the right to be a deficit scold ever again.
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