Earlier this week, talk of the ever-elusive “middle income tax cut” started up again, as it’s wont to do whenever things get politically dicey for the White House.
Larry Kudlow is reportedly working with GOP lawmakers on a plan to cut the “middle class” tax rate to 15%, the Washington Post reported. Kudlow subsequently made it clear that this is little more than a pipe dream. Even if the administration wanted to forge ahead it wouldn’t matter – there is no chance of another tax cut passing the House ahead of the election.
The notion of a tax break for working families presents a rather vexing PR quandary for Trump. First, tailoring a tax cut specifically to the middle class is a tacit admission that the original tax cuts primarily benefited the wealthy and corporations. Second, discussing more fiscal stimulus suggests Trump’s characterization of the US economy as a kind of bulletproof locomotive may not be accurate. And third, there is no room for more fiscal stimulus unless Trump wants to balloon the deficit even wider.
The fact is, Trump only cares about tax cuts for the middle class when he feels like it’s politically expedient. Last October, for example, he teased a “a major tax cut for middle income people” just weeks ahead of the midterms. That never materialized.
The next time tax breaks for regular people made their way into the news was in August, around the time stocks were wobbling amid heightened trade tensions and the economy appeared to be cracking as uncertainty around the tariffs chipped away at consumer sentiment and business confidence.
Now, Trump is rolling out the middle class tax cut in an effort to woo voters who may be on the verge of becoming disaffected with his leadership amid the impeachment inquiry.
At an event convened to discuss healthcare pricing Friday, the president teased the non-existent tax plan. “We’re gonna be doing a major middle income tax cut, if we take back the House”, a visibly exhausted Trump attempted. “And we’ll be talking about that sometime later”.
He then endeavored to drive the point home just in case the peasantry didn’t hear him. “But, we’re gonna be doing a very major middle-income tax cut”, Trump repeated, verbatim. “Mostly, devoted to middle income”. Without skipping a beat, he claimed those same middle income earners have been “major beneficiaries” of the 2017 tax cuts.
“That’ll be subject to taking over the House because Democrats like tax hikes”, Trump went on to chide.
It’s tempting to get caught up in this narrative, even when it emanates from someone as objectively incompetent as Donald Trump. But you shouldn’t fall into the trap. For one thing, supply-side economics is actually about more than tax cuts, but without getting too far into the weeds, note that this never (ever) works as advertised. Tax cuts almost never “pay for themselves” with growth. That is one of the most debunked maxims in all of economics, and yet it survives in part because of its superficial appeal (who doesn’t want to pay less taxes?).
Here’s the problem, in a nutshell. Even if you assume companies and the owners of capital will be incentivized to invest more in workers and productive capacity in a system where taxes are lower (i.e., because the extra revenue they generate will be taxed at a lower rate), that can only get you so far. Eventually, in order to keep things steaming along, you need innovation, better technology and smarter workers. To encourage that, you need tax revenue (e.g., for schools and to fund research and to ensure would-be entrepreneurs have the economic opportunity to pursue their ambitions which can grow into new business, etc.).
In any event, to say Trump doesn’t understand that would be to largely miss the point. Trump doesn’t care. Especially not right now. As evidenced by the contentious exchanges he had with reporters during the remainder of Friday afternoon’s press event.