Last week, President Trump outlined his proposed tax plan which has the potential both to jump-start economic growth and ease the burden on middle-class taxpayers. Coinciding with his first 100 days in office, Trump introduced the biggest tax cut ever, though understandably, it lacked details. Enormous debate and rancor are expected before all details are finalized.
As was expected, Senate Minority Leader Chuck Schumer hurled the usual class warfare demagoguery of the Democrats saying that the plan was a “massive break for the very wealthy”, and conveniently ignoring the fact that President Obama’s economic policies were a dismal failure for both low and middle-income citizens.
Trump’s plan lowering the corporate tax rate from the current 35 percent to 15 percent could boost an economy that grew at an anemic rate of 2 percent or less for Obama’s 8-year presidential term. Small businesses, which are huge job generators, would get similar cuts. The main thrust of the plan is to deliver the jobs the U.S. needs.
Trump’s tax plan would consolidate the current seven tax brackets into three – 10, 25, and 35 percent, lowering the top one from 40 percent. The important detail to be worked out is at what income levels would they hit taxpayers.
The plan would preserve mortgage and charitable deductions, but do away with dozens of others, including that for state and local taxes – something that would hurt big tax and spend states like New York and California, but not Tennessee which has no state income tax. But, why should Tennessee taxpayers be subsidizing high-tax states in the first place? The plan also lowers the capital gains tax, eliminates the alternative minimum tax and estate tax, but doubles the standard deduction – a break for a majority of Americans.
What Trump may be doing best is the politics of tax reform. Having learned how dysfunctional the Washington landscape is, partially through his own rocky first steps at governing, Trump is playing to win this one. Trump’s plan is substantive and clear: e.g., simplifying brackets, lowering rates, and killing off abused itemized deductions and corporate loopholes. In short, good policy makes for good politics. It is a proposal to inspire voters, since it offers relief to nearly every category of taxpayer.
By going big – e.g., a 15 percent tax on corporations, Trump now has room for negotiation, with an increased likelihood that even a compromise bill will still look like real tax reform.
The plan lacked most of the detail to make tax reform a reality, but that was likely deliberate and designed to ultimately win. Look for the media to spend the coming weeks trying to drag this debate into minutiae, ranting about every GOP disagreement over every teensy provision. However, the media’s over-emphasis on triviality will be over-shadowed by the plan’s broad principles designed to keep everyone focused on the ultimate prize, in addition to set markers for what counts as achievement.
Trump knows that Democrats are only going to whine and not work with him to reduce rates for both corporations and individuals. But, by pitching his plan broadly to attract all Republicans, Trump should get a unified GOP to win this one. The ultra conservatives and moderates of the GOP will more readily come together than they have done so far on healthcare.
Perhaps, the biggest stumbling block for some GOP members is fear that the plan will mushroom the budget deficit. However, the argument that giving people an incentive to work harder to make more money will generate the revenue needed to fund the plan, as well as stopping growth of the welfare state, will likely win out.