After all the noise about Obamacare and football players on bended knee, after the obsession with a border wall and promises to wipe North Korea off the map, after all the bluster and bravado that has marked his improbable tenure in public office, Donald Trump gets down to the real business today, unveiling a tax cut plan that might be the signature achievement of his tenure as President.
This is not to suggest Trump and Republican legislators do not really care about all those other issues. But as I have written before, the real reason the GOP Circus rolls into town is to cut taxes, especially on the affluent and corporations. Wall Street hasn’t been booming of late because of Trump’s attacks on undocumented immigrants; it’s the prospect of windfall tax cuts that whets the appetite of the plutocrats with whom Trump feels most empathetic.
There has already been much speculation about this Republican-only tax plan – and the partisan nature of the proposal is more than sufficient reason to regard it with alarm and skepticism. But Mitch McConnell and Paul Ryan will use their remaining get-out-of-responsible-legislating-free card – the 2018 reconciliation bill – to try to slam through an irresponsible and debt-generating tax cut without any regard for (a) regular order, (b) the normal bipartisan tax-writing process, or (c) the all-but-certain ballooning of the deficit that will result from this ill-conceived plan.
Trump and his minions will try to sell this tax turkey based on several well-worn GOP promises: Everyone will get a tax cut. The cuts, especially to business and the affluent, will stimulate investment and hiring, boosting the economy. The deficit will shrink as a result of cutting taxes.
And it is true, everyone will get a tax cut, just as they did under Ronald Reagan and George W. Bush (and Barack Obama, for that matter, as part of the stimulus of 2009). But the key to tax policy isn’t the breadth of the cut, but rather the distribution, that is, what proportion of the cuts each quintile of the tax-paying public receives. While giving an across the board cut ensures that the gross amount going to the large middle class is sizable, it obscures the hugely disproportionate amount that will go to the extremely wealthy thanks to a lowering of the top rate and likely changes to the treatment of capital gains and estate taxes. And wait to see if Trump follows through on his campaign promise to rescind the obscene carried interest loophole that benefits no one but hedge fund multi-millionaires.
The other key point to watch will be the Congressional Budget Office score. CBO has been the bane of the Republicans’ plotting on health care because it has predicted massive benefit losses when reviewing each of their misbegotten plans. But Speaker Ryan was careful to include instructions in the House rules adopted in January that skew the scoring for tax policy, directing CBO to accept the disproven concept of “dynamic scoring” that assumes that tax cuts will generate growth rather than cause deficits. This perverse misrepresentation is based on Ronald Reagan’s “supply side economics” model that has been demonstrated to be worth barely the napkin the theory was sketched out on in the 1970s.
Indeed, the continued Republican reliance on the mythical impact of tax cuts is the major reason why deficits have been significantly higher under supposedly fiscally conscious Republican Administrations. Under Reagan, the national debt grew by 189 percent. George H.W. Bush was better; the debt rose by just 54 percent (but of course, he fatefully raised taxes to slow down the debt explosion). In between, during Bill Clinton’s Administration, the debt rose by just 32 percent and the annual budget was actually balanced; twice. Returning to the tax cutting model under George W. Bush, the debt soared by 101 percent. Barack Obama weighed in at 68 percent, but he, of course, inherited not only all of W’s irresponsible tax cuts but the worst recession in three-quarters of a century which necessitated massive countercyclical spending. Indeed, every Democratic president since Kennedy has produced a lower debt increase than his Republican predecessor.
There is, of course, a downside to this Democratic diligence. Confronted with the serious debt momentum set in place by their predecessors, most Democrats have acted responsibly and raised taxes, slowing the pace of the debt increase. Predictably, such action has provided grist for the Republican campaign machine to castigate Democrats as profligate “tax and spend” proponents, even though, for the most part, the tax raising was needed to clean up the mess left by the tax cutters.
While one might assume the Republican tax mantra was little more than smoke to obscure the real goal of fattening the wallets of the fat cats, there is a strategy behind their irresponsible behavior. Increased debt is a very convenient straw man to use to justify the other Republican obsession: cutting spending, and specifically domestic discretionary spending that benefits lower and middle income Americans. Reagan’s genius, in fact, was employing this indirect method for attacking Democratic policies without necessarily opposing the programs or their beneficiaries directly (as did Barry Goldwater, for example, when he called for elimination of Social Security and opposed Medicare). By pumping up deficits, Republicans create the rationale for spending cuts, even though those domestic programs have little to do with creating deficits and the cuts will have no significant impact on staunching the red ink. Reagan’s budget director, David Stockman, so much as admitted the deception once he left office.
So watch the distribution curve and the debt projections to determine the real winners and loser from Trump Tax. And don’t be surprised if it looks like the same old bait and switch, because it will be.