A little over a year ago, just prior to the midterm elections, Donald Trump blindsided Republicans when, during remarks to reporters in Nevada, the president claimed to be hard at work on “a major tax cut for middle income people”. He suggested the plan could be unveiled within weeks.
It quickly became apparent that there was no such plan. Congress wasn’t in session, and nobody on the Hill had any conception whatsoever of what the president meant. But that didn’t stop Trump from doubling down.
“We’re putting in a resolution, sometime in the next week, week and a half, two weeks”, he told reporters on October 22, 2018. “A resolution, where?”, one inquisitive journalist asked. “We’re gonna put in … we’re giving a middle income tax reduction of about 10%, we’re doing it now”, Trump responded.
That never materialized, primarily because it didn’t exist in the first place.
Trump’s consternation at the time was due in part to an internal RNC poll that leaked the previous month. It showed voters overwhelmingly thought “large corporations and rich Americans” benefited more from the original tax cuts than middle class families. The margin was 2-to-1:
(Internal RNC poll – September, 2018)
Since then, Trump has defended his policies as beneficial to the middle class using a variety of metrics, while never completely denying the objective reality of the situation, which is that at the end of the day, corporate tax cuts are just corporate tax cuts.
Back in August, Trump instructed Larry Kudlow to start work on what the administration has variously dubbed “tax cuts 2.0”. The details were initially sketchy, and they remained so right up through the end of last month, when the Washington Post delivered what scant new information was available.
“White House officials and congressional Republicans have begun early talks on a new package of tax reductions and economic growth measures, under pressure from President Trump, who is agitating to announce a new tax cut proposal heading into the 2020 election”, the Post said, adding that Kudlow was spearheading the effort.
Fast forward a few weeks and the Post is out with a new piece. Now, there’s a number involved.
“President Trump’s economic advisers are exploring whether the president should campaign for reelection proposing a 15% tax rate for the American middle class, with some seeing the idea as a simple way of selling Republicans’ economic agenda as not merely beneficial to the rich”, the Post‘s Jeff Stein reports, citing multiple people involved in the internal discussions.
Kudlow is again leading the deliberations, and is said to be a “leading proponent” of the new 15% rate. It isn’t clear whether Trump endorses the idea, but the president is said to have pressured aides to devise a “simple tax message” he can campaign on.
Obviously, no new tax plan has any hope of making it through Congress ahead of the election, but unlike his haphazard approach to health care, Trump seems to see the utility in actually developing a tangible set of policy proposals to present to voters, as opposed to just making it up as he goes along.
“Reducing the tax rate to 15% for middle-class taxpayers could lower taxes by trillions of dollars over 10 years [freeing] up much more money for Americans to spend”, the Post writes, stating the obvious, before noting that “it would also dramatically add to the deficit unless the cuts were offset by major spending reductions throughout the federal government”.
Trump is already the proud owner of a $984 billion deficit. That’s 26% wider than 2018 and it’s projected to easily exceed $1 trillion next fiscal year. There is no fiscal breathing room. The US cannot afford more tax cuts – or at least not if you go by what used to be Republican budget orthodoxy.
But Trump is a populist first and a Republican second, and nobody is under any delusions that he really cares about fiscal rectitude.
This comes at a time when the economy is sending mixed signals, with a pretty clear bias to the downside. The advance read on third quarter GDP showed the US growing at the second-slowest pace in 15 quarters. Although consumption was strong, nonresidential fixed investment fell the most since Q4 2015, while final sales to private domestic purchasers rose just 2.0%, down sharply from Q2.
The manufacturing sector has been stuck in a rut for three months, and while the labor market turned in a much better than expected performance in October, the pace of job creation has slowed materially. Consumer sentiment has rebounded after sliding sharply over the summer.
Trump has also toyed with the idea of indexing capital gains to inflation, a move that would amount to a $100 billion windfall for the wealthy. It’s a legally dubious maneuver championed by the likes of Stephen Moore, and, were it implemented, would surely be seen for exactly what it is: Yet another boon to the rich, in whose hands a larger and larger percentage of financial assets are concentrated.
The top 1% now controls as much wealth (basically) as the 50-90th percentile combined.
You’ll note that was not the case 13 years ago, and you can thank surging stock prices in part for the shifting distribution of wealth.
Trump officials have also floated a payroll tax cut as a possibility. That would be easier to sell to Democrats and also to middle income voters, but it’s not clear how much support it would get from Republicans, especially given America’s worrisome fiscal trajectory.
As the Post goes on to write, “Democrats and other experts have dismissed talk of a second round of tax cuts as a way for Trump to deflect from controversial parts of the 2017 legislation, which permanently cut taxes for corporations but only temporarily cut taxes for individuals”.
The president on Tuesday told an audience in New York that the middle class was the biggest beneficiary of “everything we’ve been doing”. He called the 2017 tax cuts a “massive relief” for middle income families.
Suffice to say that’s a controversial way to characterize things…