Trump Doubles Down on Tax Reform—Sort of

On Wednesday, the president introduced his push for tax reform. It was heavy on promises, but light on specifics.
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On Wednesday, the president introduced his push for tax reform. It was heavy on promises, but light on specifics.
President Donald Trump arrives to give remarks on August 30th, 2017, in Springfield, Missouri.

President Donald Trump arrives to give remarks on August 30th, 2017, in Springfield, Missouri.

Amid reports that the White House and congressional leaders have yet to agree on the specifics of tax reform, President Donald Trump traveled to Springfield, Missouri, on Wednesday to launch a campaign in favor of, well, whatever legislation the GOP ultimately settles on. The choice of location was strategic—Claire McCaskill (D-Missouri) is viewed as one of the most vulnerable senators up for re-election in 2018, and the GOP hopes that, by applying a bit of pressure, some Democrat politicians might be persuaded to support tax reform.

Trump's speech is expected to be the first of many; the White House has said the president will stump publicly and vigorously for tax reform. In advance of the speech, White House officials told reporters that, echoing the populist rhetoric he relied on during the 2016 campaign, Trump planned to argue that his plan would "un-rig" the economy, eliminate "the special interest loopholes that have only benefited the wealthy and powerful few," and restore prosperity to "Main Street" (i.e. middle-class America).

"We're here today to launch our plans to bring back Main Street by reducing the crumbling burden on our companies and on our workers," Trump said during his speech. "The foundation of our job creation agenda is to fundamentally reform our tax code for the first time in more than 30 years."

Convincing working- and middle-class voters that the GOP's tax reform plan will "un-rig" the economy would certainly be an impressive political feat. The president didn't lay out any additional specifics of his plan—in fact, the White House is reportedly leaving the details to Republicans in the House of Representatives and Senate—so it's hard to determine how the plan will affect middle-class Americans. The broad outlines, as well as past versions of Trump's tax reform plans, however, have mostly echoed standard GOP doctrine: calls for lower corporate and individual tax rates, a simplification of the individual tax code, a repeal of the estate tax, and the curbing of deductions and "special interest" loopholes.

Convincing working- and middle-class voters that the GOP's tax reform plan will "un-rig" the economy would certainly be an impressive political feat.

None of these reforms are particularly beneficial for the middle class. In an analysis of Trump's most recent tax plan, the non-partisan Tax Policy Center concluded it would reduce government revenues by $3.4-$3.9 trillion in the first decade after it was enacted (assuming some revenue-increasing changes were also implemented). The analysis also found that almost 40 percent of the tax cuts would go to households in the top 1 percent of the income distribution, who would enjoy an average annual tax cut of approximately $270,000. Households in the middle quintile of the distribution, meanwhile, would see their taxes go do down by about $1,920 a year, on average.

The GOP argument for tax cuts that are so heavily tilted toward corporations and the wealthy—that the cuts will unleash economic growth and result in more jobs and higher wages—isn't particularly new. And, as I've written before, the evidence for this theory is pretty weak; economists aren't even sure if tax cuts do, in fact, spur economic growth, and few believe that they spur enough growth to pay for themselves. And while there's some evidence that corporations may pass higher tax rates onto workers in the form of lower wages, the effect appears to be small and many corporations actually pay fairly low effective tax rates already (thanks to all those special interest loopholes).

And there's another huge reason why big corporate tax cuts might not help middle-class Americans this time around: The GOP is attempting to pass tax reform through the reconciliation process, which means that any reforms cannot increase the long-term budget deficit (over 10 years). This means that, in the absence of the kinds of reforms that generate revenue (which are always politically difficult), most of the tax cuts would have to be temporary. Very temporary.

Here's how George Callas, senior tax counsel to Speaker of the House Paul Ryan, put it at a tax policy summit for the Institute of International Finance back in April:

Here's a data point for folks: A corporate rate cut that is sunset after three years will increase the deficit in the second decade. We know this. Not 10 years. Three years. You could not do a straight-up un-offset three-year corporate rate cut in reconciliation. The rules prohibit it. You might be able to do two years. A two-year corporate rate cut ... would have virtually no growth effect. ... It would just be dropping cash out of helicopters on corporate headquarters for a couple of years.

Republicans are reportedly already looking at which tax cuts to make permanent and which to make temporary, but one thing's for sure: Even those who support corporate tax cuts don't think that temporary cuts will do much for the average American.

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