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To Stop the Trump Tax Plan in the Short Term, Divide and Conquer the GOP

We must steer the larger conversation toward progressive tax.

Donald Trump speaks at the 2017 Conservative Political Action Conference on February 24, 2017, in National Harbor, Maryland. (Photo: Gage Skidmore)

We’re now several months into the Trump administration, and activists have scored some important victories in those months. Yet, there is always more to be done, and for many people, the question of where to focus and how to help remains. In this ongoing “Interviews for Resistance” series, we talk with organizers, agitators and educators not only about how to resist but also about how to build a better world. Today’s interview is the 78th in the series. Click here for the most recent interview before this one.

Today we bring you a conversation with Marshall Steinbaum, research director and fellow at the Roosevelt Institute. Steinbaum discusses the Trump tax proposal, how activists might stop it from passing, and how the Trump administration is a continuation of Republican economic orthodoxy.

Sarah Jaffe: We are going to talk about Trump’s tax plan. This has been threatened since the election and we are finally seeing something. Give us a rundown on what is in it and what it would do.

Marshall Steinbaum: The basic thrust of the proposal is more of the same right-wing tax policy that we have been seeing play out over the last 40 years. I would say it’s a supercharged version of that, where you have sloughed off a few of the elements that weren’t core to previous proposals, like some tax cuts for middle-income people. Instead, they have just gone full bore straight toward huge tax cuts for people who rely on their wealth to make their living.

Dig into that a little bit more. Talk about what it means to mostly target tax cuts at people who are essentially living off of capital.

Capital is an economic concept, and it is a somewhat abstract and also imprecise one. There is a robust debate about whether capital reflects something that is economically productive that contributes to the national income versus just the fruits of past accumulation and future claims on wealth. So, are people who live off of their capital income deriving the benefits of productive investment, or are they basically leeching off of the rest of the economy? These are big questions and there is no one correct answer.

In the US tax system, there are a few different ways that we tax capital. What we have never really done in the US, except for a few specific instances, is what would be called a “wealth tax” — just look at the total amount of wealth that people own and tax some percentage of that big pile.

Instead, we tax various forms of capital income. The main ways that we have done that is through, first of all, taxing the profits of corporations. That is the corporate income tax or the corporate profits tax. Secondly, we tax the capital gains of people who own capital. Basically, if the value of your capital goes up, we tax some percentage of the increment of the wealth increase. A few other ways, inheritance — I should say estate taxes — that would also be considered a tax on capital. We also tax dividends. So that is a flow of income, quintessentially a dividend is an annual or quarterly payment that a company makes to a shareholder. That is part of the individual tax system, and we tax dividend income, as well.

So, all of these are different ways in which a concrete tax system taxes either the total amount or, more likely, the income generated by the amount of capital that exists in the economy. The right [wing] in this country has pursued, [for] over four decades or more, a single-minded policy of cutting taxes on all forms of capital income or capital itself. That is really the central thrust of this tax plan.

They have, as you said, sort of dropped all pretense that there was going to be anything for working people in this tax plan. What has the reaction been to that from different corners of the Trump-iverse?

I should say that that is my interpretation of their plan. They would give you a very different account of what, for instance, cutting effective tax rates on corporations would do. Specifically, there is this big debate about whether corporate taxes are actually paid by workers. Of course, the Trump people and their associated hangers-on and acolytes and quasi-academic economist community will tell you that corporate taxes are actually paid by workers. If you cut corporate taxes, you are actually increasing wages.

Nothing unifies the Republican caucus like huge tax cuts for rich people.

I think that the economic evidence on that question is very definitively against it. Anyone who says it can basically be assumed to not know what they are talking about or be ideologically motivated. But it plays a critical role in the debate, I would say, because they have made promises to the effect that their tax plan will not cause inequality to increase. That is just obviously wrong, but the role of assumptions — like cutting corporate taxes benefits workers — the role that that plays is in allowing them to come out and say, “This tax cut is not going to worsen inequality, because workers will benefit,” even though, in reality it will. There is no provision of the tax legislation that is going to say, “Well, if it does turn out that this does worsen inequality, then these tax cuts are retracted.”

This is all about the propaganda that is necessary to move the legislative proposal. The politics of this are basically that the Republicans control both houses of Congress and they are more or less ideologically unified behind extremely regressive tax cuts for capital income. But there are some people, some members of the caucus who have expressed red lines or lines in the sand to the effect that either they will not vote for tax cuts that increase the deficit, or they will not vote for tax cuts that worsen inequality, or both.

What the administration and its allies in Congress are doing right now is trying to assemble together the necessarily rhetorical weaponry in order to get those votes on their side when they need them to get the thing over the finish line.

There is, obviously, a lot here to unpack, but the basics are things we are sort of familiar with. Trump ran on this sort of break from theoretical Republican orthodoxy and this tendency to talk about actual working people with real needs. Now, we see this. We have seen it at the end of a summer where they have been repeatedly trying to take away health care from millions of people. What are the odds of this thing actually getting passed in some version?

I am not your go-to source for vote counts on Capitol Hill, but I would say they are high. There is a real possibility of defeating it, but nothing unifies the Republican caucus like huge tax cuts for rich people, and that is all they need to do: unify the Republican caucus. The only way to have it not be passed is more or less the same way that health care was blocked, which is to say, peel off a couple of critical Republican votes who would be convinced through some combination of public pressure, shaming and a press campaign and town halls and so on, that the tax plan violates some red line that they had previously stated.

For instance, I want to check on this, but I believe Senator [Bob] Corker (R-Tenn.) said that he would not vote for a plan that increases the deficit. Okay, so that is one vote. They are probably going to trot out all manner of nonsense prognostications that say that the tax cut won’t increase the deficit, or will do so in a small way, because by unleashing economic growth, it will cause federal revenues to increase, and therefore it won’t be deficit-increasing. All of this is, again, part of the rhetorical weaponry that they need to assemble in order to get the votes they need to get the thing over the finish line. The only way to stop it, given that the Republicans have a majority in the Senate, is to prevent it from getting those votes.

I want to talk a little bit about chained CPI [Consumer Price Index], which may be returning in this proposal. Can you explain to people what that is?

Back when there was this whole debt ceiling/”Grand Bargain” debate in the summer of 2011, there was this idea that we needed to both cut government spending over the long-term because entitlement programs were growing too quickly and the federal revenue wasn’t sufficient to pay for them, and also increase taxes. The Grand Bargain was going to be some combination of those two things.

Chained CPI is basically a way of reducing what are currently legislated automatic cost-of-living increases under Social Security and possibly under some other programs. The way Social Security is currently “indexed to inflation” — that as earnings increase on average over time — Social Security benefits increase over time. The idea is that Social Security is supposed to be basically wage insurance for after you retire. So, after you are not working, you should still get some labor income. That is to say, you are deferring labor income from your working life to your retirement.

The premise behind the current system of indexing the increases in those benefits to changes in earnings is that if the overall rate of increase of earnings in the economy goes up, then beneficiaries of Social Security should, in some sense, be cut into that deal. Chained CPI, on the other hand, is saying, “Instead of indexing the cost-of-living increases to changes in earnings, we will index them to changes in the cost of consumption and, in general, that is less than earnings inflation.” This is why including that in this proposal for the Grand Bargain was going to reduce the cost of paying Social Security benefits in the long-term.

I guess in a very actuarial sense … Social Security revenues are increasing along with the rate of earnings inflation because Social Security taxes are just a percentage of earnings. If you put a payment on a different track, that is increasing their cost-of-living changes according to consumption, then the long-term inflation will be at a lower rate and that will cause the system to become more solvent over the long-term.

So, one thing that should be said right off the bat is that going from the current system to chained CPI would be a cut in Social Security benefits. I feel like there was a lot of kicking up dust around that, whether it would count as a cut versus not, but the whole point of the policy is to reduce the cost of Social Security. It is a cut. The idea is that people don’t tune into the fact that their benefits have been cut, so they don’t fight against them as hard, but that is what it is.

Secondly, it is kind of interesting because, first of all, since 2011 and the whole Grand Bargain … we were saying that earnings inflation — which we thought would be high and therefore we go to some lower rate of inflation — that will reduce the cost of Social Security benefits. Now we have been in years of debate about wage stagnation, which kind of puts the lie to whether this is even an issue.

There is no gap whatsoever on economic issues between Donald Trump, Mitch McConnell and Paul Ryan.

I haven’t actually pored over the Social Security Trustees’ Report in a couple of years now, since this has been a little bit off the public radar screens. I don’t know exactly what they are projecting for the rate of growth of earnings over the long-term versus the rate of growth of consumption. I am guessing their long-term forecasts have not changed all that much since 2011. Whereas I would say wage stagnation really is a great threat, not just in the immediate term, but for the long term, and therefore it is time to shift the focus of what is wrong with the economy to, “Why are people underemployed? Why are wages stagnant? Why have normal people not been able to enjoy the benefits of the economic recovery that have gone almost exclusively to the top?”

We are looking at this coming at the end of a year of various Trump proposals and various Trump appointees — R.I.P. the career of Tom Price. Trump ran and essentially won by pretending to be different from regular Republicans. As far as we have seen on economic policy issues, he has not been particularly different. I am wondering if you, over the last year, see any places where he has actually done anything that a Mitch McConnell or Paul Ryan Republican wouldn’t have done?

No, absolutely not. There is none because there is no gap whatsoever on economic issues between Donald Trump, Mitch McConnell and Paul Ryan.

Even on trade, which was the place rhetorically where he got furthest away from Republican orthodoxy, the so-called promise to renegotiate NAFTA has just become a promise to take all of the pro-corporate provisions that were in the cancelled [Trans-Pacific Partnership] and shove them into NAFTA. All that reflects is the burgeoning agenda of the corporate sector when it comes to trade negotiations, as developed in the 25 years it has been since NAFTA was passed. That constitutes a huge growth of corporate priorities in trade. [Trump] wants to take that from the most recent trade negotiation and shove that into one that is 25 years old.

So, his promise to renegotiate NAFTA is making NAFTA more pro-corporate. It is the exact opposite of what he ostensibly promised on the campaign trail. Everywhere else, it has just been not even a question that this administration is more of the same Republican policies, except in some sense … even more pared down from the window dressing that had been part of past policy agendas.

On that front, what are the best arguments, if people are doing a full-court campaign against these tax proposals? What is the best way to rally the opposition to this?

I would answer that question very frankly at two registers. If all you want to do is block this proposal, all that matters is rallying the same few Senate votes that were rallied on health care to block it…. It is a task, but what you have to do is point out and hammer home the idea that this is, one: increasing the federal debt when the Republicans have been promising for decades, especially during the Obama administration, that the federal debt was a big problem. And two: that all it was going to do was make the rich richer.

That is what you have to do. Find the red lines that these Senators have put forward in their past statements and on the campaign train in the past, stack their town meetings with people saying, “Why are you going back on your promise to not increase the deficit?” Get that hammered home in the media. That is how you get the votes that would be necessary if you wanted to block this.

The effect of nearly eliminating progressive taxation has been to increase the incentives rich and powerful people have to dominate the economy to their own benefit.

I don’t think that alone is a sufficient strategy, however, and it worries me a bit that the opposition will take too much of a laser focus on that one question and miss the larger significance of this debate, which is to say that we need to have a conversation about how the economy works and specifically about the role of tax policy — and especially progressive tax policy — in structuring how the economy works.

This debate has been just about, “Do we give a lot of money to people who are already inheriting a lot of money by eliminating the estate tax?” or, “Do we increase the after-tax profit rates of companies that are already extremely profitable thanks to corporate giveaways and captive markets and consolidation and anti-competitive behavior?” That is how you structure the economy in order to reward the powerful at the expense of everybody else, in order to increase the incentives that shareholders of large and profitable corporations and the executives that those corporations — who are often the same people as the shareholders — that is how you create the incentive for them to suck the economy dry, which is what they have been doing for the past 40 years.

We have eliminated progressive taxation in this country, or vastly reduced it, and the effect of that has been to increase the incentives that rich people and powerful people have to dominate the economy to their own benefit. We used to have a statutory maximum individual income tax rate of 90 percent over a very high income, and what that is is basically making it illegal to be rich. Not surprisingly, if you make it illegal to be rich, people don’t want to be as rich as they used to be.

I was having this debate about the history of progressive taxation in the United States. There were no rich people by today’s standards in 1960. Like, none. Now we have tons of them and they are richer than they ever were before, and that is because we stopped taxing them, so it became more worthwhile to earn more. If you are wondering why the owners of one gigantic profitable corporation would want to merge with another gigantic profitable corporation and cut tens of thousands of workers and chop off their supply chain and raise prices to consumers because you have no other place to go, that is exactly why. If their tax rates were still 90 percent, it would be illegal to increase their income from where it currently is, more or less, and there would be no incentive to do that.

How can people keep up with you and your ongoing work on the subject?

I tweet quite a bit. I am @Econ_Marshall if you want to follow me on Twitter. I also write a lot both for the Roosevelt Institute, its website, and other locations. I look forward to hearing from people.

Interviews for Resistance is a project of Sarah Jaffe, with assistance from Laura Feuillebois and support from the Nation Institute. It is also available as a podcast on iTunes. Not to be reprinted without permission.

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