President Trump and the Republican political establishment are certainly talking a good game when it comes to their proposed changes to the tax codes.
On paper, the new tax plan would cut onerously high rates for companies that force businesses to move overseas. Individuals and, most importantly, middle-class families get some much- needed tax relief. The whole messy tax system would also become less complicated if the president has his way. Now our fearless leaders need to translate words into action, and it won’t be easy. First, Trump deserves credit for at least crafting the outlines of a plan that is the most pro-growth fiscal agenda since the ones developed by Ronald Reagan in the 1980s. Headline unemployment numbers look great, but real economic growth has been lousy in recent years, thanks in large measure to Democratic-inspired tax-and-regulatory schemes cooked up during the Obama years. And wages have been flat for far too many Americans.
Trump intends to change that by reducing the number of tax brackets from seven to three. That means most people would get a tax cut and do with it something that would boost the economy: Either spend or invest it. On top of that, the basic standard deduction would be doubled, which again should flow to the bottom line of most families.
Trump vows not to compromise on a new corporate tax rate of 20 percent, which would make the US more competitive with such overseas tax havens as Ireland.
Many small businesses – who now file their taxes as individuals and are thus subject to the highest federal rates – would get a boost as well. Their taxes would fall to 25 percent on the upper end, which is a pretty strong incentive to expand and hire more.
All of which sounds great until you realize that Trump and GOP congressional leaders left out of their proposal the vast majority of the tax plan’s details. For one, we don’t know where each tax bracket begins; does Trump believe, like Obama, that a family of four living on Long Island on a combined annual income of $250,000 should be equated with the super wealthy and taxed at his plan’s highest rate of 35 percent?
GOP leaders say the proposal will include getting rid of the state and local tax deduction, which currently benefits New Yorkers because of our own onerously high state taxes. You can understand why: Closing the loophole will bring in around $1.3?trillion in revenue over 10 years, and why should the federal government incentivize New York to tax the hell out of its most productive citizens and businesses?
But getting rid of that deduction isn’t explicitly stated in Trump’s outline. The fatal flaw in the Trump plan is that he now expects Congress to translate a bunch of bullet points into law in a timely fashion and without some major modifications to his stated pro-growth goals.
What’s baffling is that Trump should have learned from the Reagan experience of the 1980s. Unlike Trump, the Gipper, I am told by people who were involved in the process, had the vast majority of the details of his tax-cut plan nailed down before the Congress got its hands on one of his great legislative successes. That paved the way for decades of economic growth, because he eliminated much of the meddling by staffers and lobbying by interest groups on key aspects of the overhaul and actually cut taxes. By leaving Congress to fill the blanks, Trump risks having pressure groups, not to mention “Nancy and Chuck,” decide who should get a tax cut and who shouldn’t.
Published in Daily Times, October 1st 2017.