Trump’s Tax Plan Is Indefensible

When President Trump agreed with Democrats on a debt limit increase, there began talk about a new era of cooperation. For those foolish enough to fall for such claptrap, just wait until the tax reform train comes barreling in later this year. And make no mistake, Trump and the GOP have made it clear (for decades) that “reform” really means cuts for the wealthy. When it comes to making the super-rich super-richer, there is no negotiation.

And who exactly is advocating massive reduction in top-end marginal tax rates (MTR), a policy with dubious and arguably non-existent benefits? As for Trump, after years of attacking China over currency manipulation, early in his presidency he reportedly asked National Security Adviser Mike Flynn about the economic impact of a strong US dollar. Soon-to-be-fired Ex-General Flynn had no answer since, like Trump, he has no understanding of macro- or micro-economics. At least Flynn never claimed to have graduated at the top of his class from the greatest business school in the universe (Wharton undergraduate school of business) where, in Intro-Econ, they presumably outlined the trade implications of a strong versus weak greenback. Tragically, when it comes to understanding the impact of tax policy, most Republican politicians appear equally under-informed.

The GOP mantra is that all tax cuts — especially those that fall disproportionately on the wealthy — not only boost the economy, but more than pay for themselves by stimulating spending and greater levels of taxable income (a Reagan era discredited theory known as the Laffer Curve where, it was mistakenly argued, taxes may be reduced, government spending increased and the budget balanced). More remarkably, despite historically gigantic income disparity, they additionally swear the benefits of more wealth to the mega-rich will trickle down to other classes. Unfortunately for those living paycheck-to-paycheck, history suggests this is utter nonsense.

During the period from 1951 through 1963, with the highest marginal tax rates at a whopping 91 percent, the economy grew at the annual rate of 3.90 percent. In the 1990s, President Clinton raised the top MTR from 31 percent to 39.6 percent, and not only did the economy grow at 3.8 percent, but over 21 million jobs were created (and there was a budget surplus for the last time in forever). And while in the previous Reagan-Bush administration, lowering MTR from 70 percent to 28 percent resulted in a growth rate of 3.5 percent (additionally assisted by massive military expenditures), that was after President Reagan recoiled from gigantic deficits and de facto raised taxes in 1982 and 1984 (by closing loopholes and reducing tax breaks on the wealthy), in what tax historian Joseph Thorndike characterized as “the biggest tax increase ever enacted during peacetime.” Though not given his due by the Right, even Reagan understood the benefit of a flexible tax policy.

And then there is Kansas Gov. Sam Brownback’s 2012 grand tax overhaul where he sharply cut taxes and swore this would be a blueprint for the rest of the nation: lower taxes equals an economic boom that will balance the budget and lead to prosperity for all (trickle down proof that the Laffer Curve was financial gospel). In June of this year, with the Kansas state budget blown to bits amid cuts to schools and social services, the GOP-controlled state legislature repudiated Brownback and rolled back $1.2 billion in cuts over two years (some even swore the cuts were simply not large enough: the legislature did not agree).

However, tax policy is not a one-size-fits-all cause-and-effect. Conservatives are correct in suggesting that raising taxes on the middle class — especially in tough times — is foolish. These individuals spend nearly every penny they earn on necessities. If they receive more in the form of lower taxes, out of necessity they consume (a behavior that has a multiplier effect as vendors receiving these outlays will, in turn, spend receipts, generating additional economic benefit). In contrast, lowering taxes on the super-wealthy — as is a stated priority in the Trump/GOP plan — has minimal impact. A billionaire wind-falling another $10 million will be hard pressed to find new toys. That money is more likely to be passively socked away, feeding already loaded investment accounts. In other words, the money has little impact on helping the economy and will not trickle down to anyone other than billionaire heirs (who will pay zero inheritance tax under Trump’s rumored proposal).

And while arguably the government has a well-earned reputation for inefficiency, it does provide a powerful economic engine. Of all consumers, the government spends every tax dollar it collects. Outlays to defense contractors, armed forces, disaster relief, and ideally, much-needed infrastructure are stimulative and subject to the multiplier effect. Safety net expenditures — unemployment insurance, child care, health care subsidies, Meals on Wheels, Social Security, Medicare, Medicaid — also get recycled into the economy: after all, needy people pay out everything they have for needs.

Ergo, while targeted tax cuts are humane and beneficial, the assertion that all tax cuts — specifically in the upper income brackets — are economically justified is empirically indefensible and intellectually illogical. And to suggest — as is part of the conservative plan to dismantle FDR’s New Deal legacy — that it is wise to partially finance this largess with cuts to social safety nets and health care benefits to the needy is reprehensible. Did Trump skip the Wharton lecture on fiscal responsibility? He claims to be a Christian: did he not listen to the sermon on charity? Do Trump and his GOP brethren have no ability to absorb historical economic reality (a rhetorical question)? Even if it were not the case that tax cuts on the upper echelon of incomes does little more than bloat the deficit, the moral case for those at the economic pinnacle paying more is compelling. These Reverse-Robin Hood/Bible-thumping politicians and capitalists need be reminded of the passage in the Book of Luke where it is written: “For unto whomsoever much is given, of him shall be much required: and to whom men have committed much, of him they will ask the more.”

In an ideal world where compassion and logic prevail, something like the first $50,000 a year of income would pay no taxes, offset by a modest increase in the top marginal rate. Sadly, with moral directives ignored, a president confused over basic fiscal and monetary policy (as well as crowd sizes), and a GOP beholden to wealthy special interests, spiritual directive, logic and empiricism have little sway.

As for a new era of cooperation extending to his tax plan, New Yorker Trump would say, “Fuhgeddaboudit.”