NEW YORK (MainStreet) -- Donald Trump can’t seem to figure out which generation of Americans he wants to govern.
In his tax plan released on Monday, Trump appealed at various points to America circa 1980, 1940 and even 1861. The real estate magnate takes unselfconscious pride in his efforts to set back the clock to pre-World War II era finances, in a piece of paper so substance-light that it would get laughed out of any modern board room.
Cutting to the chase, Trump’s plan is a debt-financed boondoggle that lavishes tax cuts on corporations and the rich. It promises to simplify the tax code but does more to reveal why financing the world’s largest economy maybe should be a little complicated after all. There’s a little bit of good in here, but the rest slides quickly from bad to worse to downright ugly.
In a surprisingly populist nod, Trump’s plan would benefit some small-earners while at the same time jacking up rates on capital gains and invested income.
This proposal would condense the personal income tax into four brackets, with anyone earning $25,000 individually or married couples earning $50,000 jointly paying 0%. Capital gains would kick in at $50,001 and up, with two brackets at 15 and 20% respectively.
“They get a new one page form to send the IRS saying, ‘I Win,’” Trump’s plan promises for bottom earners, presumably with an appendix dedicated to payroll tax “crushing it” to Tweet at your local Internal Revenue Bro. (Swipe right for the standard deduction.)
By Trump’s estimate, over 50% of U.S. households would owe nothing in personal income taxes under his plan, compared to roughly 43% today.
And it’s worth giving The Donald credit. These cuts would actually help many Americans and goose the economy more than pure the supply side plans favored by his competition.
Of course, low-income tax cuts tend to have the most significant effect in boosting the economy. The rich, after all, can only spend so much after which extra income tends to become little more than stale money. On the other hand, tax breaks focused on low-income earners have an outsized impact for the inverse reason. Those are households with consumers who still want or need things they don’t yet have, and who will spend that extra money.
How powerful this effect is remains subject to debate, but the impact is measurable and real.
So getting back to giving credit where it’s due, Trump’s plan would help some people and actually is more generous to the average American than his competitors’ plans. Most of the Americans who would pay nothing under Trumponomics already pay no income tax, but lower- and middle-class taxpayers really would be better off under this plan than anything else the Republicans have put forward this season.
On the other hand, that’s not saying a whole lot.
The other shoe had to drop sometime.
Being the most populist Republican on stage is a little like being the most successful business in Atlantic City. Although Trump gives more to low-income Americans than other conservatives, he still saves the bulk off his goodies for the very top.
The plan’s four-tier approach caps taxes at 25% for everyone earning $150,001 and up, compared to the current top-tax bracket of 40%. This would mean a staggering cut for high earners, contrary to Trump’s rhetoric about how the wealthy and “hedge fund guys are getting away with murder.”
Specifically, according to an analysis by Citizens for Tax Justice, the top 1% of earners would collect 34% of the cuts under this plan (compared to over 50% under Jeb Bush’s). Two-thirds would go to the top 15% who earn $148,100 and up. The bottom half of Americans would net less than 10% of the tax cuts, because most of them already earn too little to pay federal income tax and this plan expands on that only a little.
Don’t be fooled. This is anything but a populist document.
Trump also takes this opportunity to eliminate the estate tax, a policy which applies only to inheritances above $10 million and exists specifically to break up dynastic wealth. For those too busy being free to remember we fought a war specifically to get rid of generational dynasties, of exactly the kind that form when billion dollar fortunes can trickle down family trees forever and ever.
Calling it the Death Tax doesn’t help, nor does conjuring up images of lonely family farms. If there has ever been a fairer subject for taxation than unearned piles of wealth and property handed off in excess of $10 million, we haven’t heard of it.
The Magic Asterisk Award Goes To…
Along with cutting taxes deeply on rich people Trump also plans to slash the corporate tax rate to a maximum 15%, down from its current 39.1% (although the actual rate is closer to 27.9% after companies deduct expenses like payroll, benefits, business expenses and more).
Now, this plan relies on enough magic asterisks to censor a "South Park" episode, and it’s hard to pick from among the most egregious. Still, the winner has to be Trump’s promise that this corporate tax cut “will provide a tremendous stimulus for the economy – significant GDP growth, a huge number of new jobs and an increase in after-tax wages for workers.”
It’s a good opening, if only he’d finished the thought.
It’s an article of faith in supply side economics that when given the opportunity, corporations will spend money on investment, infrastructure and American workers. The holdup to growth is simply figuring out how to give them this opportunity, then stand back and watch as the market blooms.
What we don’t yet know, however, is when Americans started confusing businessmen with spendthrift teenagers. Giving out a corporate tax break isn’t like handing out fake ID’s and twenty dollar bills to college freshmen. It doesn’t automatically lead to an orgy of kneejerk spending. Companies invest when they have clear, growth-oriented reasons for doing so, not simply because the money burns a hole in their pockets.
To support his claim Trump would need widespread evidence of businesses that want to expand but can’t because of tight access to capital. Maybe that was true in 2010, but it’s hard to find any today and this document doesn’t even try. It simply takes as an article of faith that companies will buy new equipment and give workers raises.
$10.8 trillion. This plan will cost an estimated $10.8 trillion over ten years according to the early analysis by Citizens for Tax Justice.
It’s admittedly par for the course for politicians to make sweeping promises of budget-neutral tax cuts that somehow end up never quite making the grade. Trump’s plan is no different, promising to “fully” pay for these cuts with the usual elimination of unspecified deductions and loopholes that will determined later.
Math says no.
Even if Trump eliminated every deduction and loophole in the tax code (which he specifically disclaims), there isn’t enough money there to pay for these tax cuts. Loopholes just aren’t worth as much as his tax cuts, not even close.
To shore up those numbers Trump includes a gimmick, a “one-time deemed repatriation of corporate cash held overseas at a significantly discounted 10% tax rate.”
It’s a cash grab, an attempt to cook the books with the roughly $2.1 trillion that U.S. companies keep parked out of the country to avoid paying American taxes. Trump argues that this repatriation scheme would encourage companies to bring their money home and spend it, but history disagrees.
The Bush administration tried this play in 2004, offering a tax holiday for companies to bring money back from overseas tax free. It didn’t just fail, it failed spectacularly. In the words of the U.S. Treasury, “there is no evidence that it increased U.S. investment or jobs, and it cost taxpayers billions.”
The giveaway to this is a profoundly ridiculous document comes shortly into its “Details” section, when Trump proudly announces a reduction to “the lowest tax rates since before World War II.”
Let’s go over a few things that the government does now that it didn’t in 1941:
- Operate the largest, most powerful military the world has ever seen.
- Guarantee health care for everyone over 65, and subsidize it for millions of others.
- Build and maintain a national system of highways.
- Discover the potential origins of extraterrestrial life.
- Combat personal and industrial pollutants.
- Spy on just… everybody.
- Produce important zombie safety training guides.
In other words, the idea of rolling back taxes to pre-World War II levels is patently absurd, because the government does so much more than it used to do. It’s not 1940 anymore, you can tell by a conspicuous lack of swing dancing among the youth, and modern Americans both expect and need more from their government than they did in an era when most people still thought of France as a super power.
Nor is it the 1980’s anymore, as when Trump proudly Reagans us back to “the best corporate tax rate in the industrialized world.”
It isn’t even 1861, the Golden Age Trump appeals to “[w]hen the income tax was first introduced [and] just 1% of Americans had to pay it.” Of course, those Americans still rode horses everywhere and generally died in poverty too, so perhaps we've made some valuable gains since then.
With this tax proposal Trump seems to be a man out of time, drawing his policies from a pinwheel of history, stump speeches and supply-side wish lists (the plan's few benefits notwithstanding). Unfortunately the only era he seems not to have accounted for is the 21st Century, a glaring oversight forgotten somewhere along with basic arithmetic.
But maybe all of this is a feature, not a bug. Maybe the goal is simply to try and string together enough happy sounding buzzwords to get through the election, hoping that voters won’t bother to look at the price tag until he’s redecorated the Oval Office.