President Trump unveiled the broad strokes of his tax plan Wednesday, a package of tax cuts he hailed as “revolutionary change” that will boost wages and keep companies in America. “There’s never been tax cuts like we’re talking about,” he said at the Farm Bureau Building in Indianapolis.The proposals have more meat on them than earlier “unveilings” that proved little more than skimpy press releases. But there’s still nowhere near enough details in Trump’s plan to answer the most important question: how a typical middle class taxpayer would fare under it.
That said there is one thing that’s clear. The Trump’s tax overhaul would be extremely costly and drive the U.S. debt higher.Now according to Republican orthodoxy, tax cuts for the wealthy and corporations help juice the economy by creating jobs and higher wages. But it also highlights the Republican schizophrenia over the debt. When Democrats are in power the national debt is an ominous $20 trillion storm cloud hovering over America’s future, an all-purpose reason to stop the federal government from doing anything.But when there is a Republican in the White House, they could care less.This is an old story. Despite their reputation for fiscal conservatism, deficits — basically the amount of money the government has to borrow to cover the cost of the services it provides — have tended to grow under recent Republican administrations.
In the 1980s, deficits exploded under Ronald Reagan amid a binge of military spending and tax cutting. When Bill Clinton was elected, Republicans in Congress gave up their profligate ways and rediscovered their concern about the size of the national debt and fiscal prudence.When Republican George W. Bush was in the oval office, Republicans suddenly decided deficits didn’t matter again. They literally said so. Then-Vice President Dick Cheney told his Treasury secretary shortly after the 2002 midterm election that, “Reagan proved deficits don’t matter,” while pushing for a fresh set of tax cuts. Those tax cuts were eventually enacted in 2003, and an deficits operating promptly grew.
“Deficits don’t matter”
It’s worth keeping this history in mind, as President Donald Trump looks to tax reform as a legislative win he couldn’t achieve with healthcare. The details are going to be intentionally fuzzy — any change to taxes by definition creates winners and losers, and so it makes political sense not to be too clear about who those losers will be.That’s because it’s absolutely impossible to know whether this plan will result in your taxes going up or down due to the fact that the government does not spell out where it will draw the line on the three tax brackets it envisions. Nor does it clearly lay out which tax deductions it will eliminate in the future.
In fact, it’s generous to even call this a plan. It’s yet another iteration of same rough framework that the administration has repeatedly rolled out since April, the details TBD by the Republican-controlled congress. (See here, here and here for the nitty-gritty on consolidated tax brackets, corporate rates and the phase out of long-standing Republican targets such as the estate tax.)But one thing will is clear. These tax cuts will require the U.S. government to boost its already large debt load by trillions of additional dollars. Goldman Sachs analysts estimate that the rough outlines of the tax deal will translate into $4 trillion dollars less of government tax revenue over the last 10 years. The nonpartisan Committee for a Responsible Federal Budget estimates it will add about $2.7 trillion to the national debt over the next 10 years.
This is a very bad idea. For one thing, the U.S. already has a debt load that is large and increasingly difficult to manage. At $20.2 trillion — including the debt the government owes to itself in Social Security trust funds — the U.S. debt is already more than 100 percent of gross domestic product, a level that economists say can be worrying.It’s true that the U.S. debt ballooned under President Obama. But there was a good reason. Just before Obama took office the U.S. economy fell into one of the worst recessions since the Great Depression. The government stepped into the breach to taking a range of costly actions aimed at preventing the economy from being sucked into a very dark vortex. When the entire economy is cratering, it’s the government’s job to borrow and spend.
But there’s no real reason to take on a huge new load of debt right now. The U.S. economy continues to grow at a solid clip. Unemployment is at 4.4 percent, near the low levels that prevailed during the late 1990s and early 2000s. Median household incomes — a key gauge of how a “typical” American family is doing — have risen essentially back to their all-time peak back in 1999. Poverty has declined sharply. Even if you believe tax cuts can boost the economy, it’s illogical that the U.S. economy is in desperate need of a boost.But of course, this tax plan isn’t really about economics. It’s about politics. Cutting taxes, especially on the wealthy, rewards the Republican donor class — as well as plenty of rich liberals too — while simultaneously cutting off the flow of money needed for the Federal government to provide the services conservative Republicans find ideologically offensive.These included items such as social as social security payments for seniors, health care subsidies for the poor and regulatory efforts aimed at industry. Politically, it’s a win-win for Republicans.After all, growing deficits and a towering debt just makes it easier to turn around at some point in the future and argue the government can’t afford to continue to pay for such programs and the time has come for Washington to “tighten its belt.”In other words, by taking their deficits-be-damned position today, the Washington Republicans are setting themselves up to rediscover their deep concern about debt a Democrat gets back into power. The fun never stops.