There’s much to like about President Trump’s tax plan, including the fact that he’s going back to his campaign promises to do something big and beautiful – not build a wall, but slash rates Ronald Reagan-style for both individuals and corporations.
That will take an economy that even in its best quarters is growing well below average and transform it into something that will create jobs and decent wages – which the American people haven’t seen in about a decade.
That’s the good news, but there will be plenty of bad news in the days and weeks ahead, as business interest groups lobby Congress to keep their loopholes, Democrats argue that the White House and Republicans are throwing money at the rich – and more than a few Republicans demand that the whole thing not add a cent to the budget deficit, even if the evidence of the Reagan years is that lowering taxes on people and businesses can grow tax revenues and, with some budget restraint, pay for itself.
The question is: Does the Trump White House – a warring mix of ideological nationalists, moderate Democrats and a smattering of establishment types led by a political neophyte as president – have the intestinal fortitude to ignore the noise and make the pro-growth sale to the American people?
Wednesday’s unveiling of the plan by Gary Cohn, head of the White House’s National Economic Council, and Treasury Secretary Steve Mnuchin offered a pretty good start.
Mnuchin and Cohn billed the tax cuts as the biggest in US history. If the White House and the GOP Congress don’t chicken out, that’s probably right. The US corporate tax rate is among the highest in the world at 35 percent; it would shrink to a super-competitive 15 percent, meaning business could repatriate their corporate headquarters, and of course, jobs from countries like Ireland back to the US.
The plan cuts individual tax rates as well, reducing seven brackets to three. The top rate falls to 35 percent from nearly 40 percent. The lowest rate starts at 10 percent.
In other words, the federal government would finally be giving people an economic incentive to work more and harder to make more money because they won’t be handing their excess earnings back to the welfare state. That’s a pretty simple concept that went lost on the Obama economic team during their eight years.
Cohn was an odd guy to be making a supply-side case for lowering taxes (namely that it creates jobs and economic growth that will reduce deficits in the future), since during his long years as a top executive at Goldman Sachs, he was one of Wall Street’s most prominent Democrats.
Maybe Gary saw religion during the economic disaster of the slow-growth, falling-wages Obama years. Or maybe his boss, who himself once touted more progressive economic theories, has impressed upon him the obvious economic benefit to letting individuals and businesses keep more of their own money.
Either way, Cohn made a strong and (at least to me) compelling case for the plan, explaining how the administration has “a unique opportunity to do something major here” and get the economy growing strong again. “We are one of the least competitive countries in the world when it comes to corporate tax. So tax reform is long overdue,” Cohn said.
Mnuchin, meanwhile, explained something we haven’t heard from a White House in a long time – that people and private companies are the most efficient at creating jobs, not central planners in the federal government. He then took a shot at the defeatism of the Obama administration:
“We’ve been hearing from the last administration that 3 percent [economic growth] is hard to get to and they couldn’t get there,” but he added. “That’s why we got a new president.”
A few caveats. First, what took so long? This plan or one like it was handed to Trump during the campaign by supply-siders Art Laffer, Larry Kudlow and Steve Moore, none of whom made it into the White House.
Indeed, Trump barely spoke about the economic need for tax reform until recently, and only after his health care fumble, which makes you wonder whether he really agrees with what he’s proposing, or just looking for an easy win on something that most Republicans are supposed to agree on: cutting taxes. But there will be nothing quick or easy about getting this tax cut plan through Congress; market reaction wasn’t very positive. Stocks sold off a bit, but even more telling, bond prices just rose as Mnuchin and Cohn began their press conference, which means investors are betting the plan will be watered down, producing lower economic growth and lower inflation – both positives for bonds.
And here’s why: For starters, there are plenty of GOP deficit hawks who are weary of supply-side dogma and might not want to take the corporate tax rate down to 15 percent, or give upper-income people any tax break whatsoever. Meanwhile, I’m hearing from even prominent Republicans in high-tax states like New York that the closing of all those loopholes (minus, as stated, the mortgage and charitable deductions) will be a deal-killer.
The Democratic opposition will be even more vicious, so look for lots of commentary about those greedy 1 percenters getting rich thanks to the election of a president who himself is a 1 percenter.
There is, of course, a simple retort to that: Look at the Reagan years. Yes, the rich got richer, but the rest of us did pretty well, too. Team Trump will need to be making that argument a lot in the coming days and weeks.