Just a couple guys. Photo by Bryan R. Smith/AFP/Getty ImagesA major factor in Donald Trump's victory was the much-discussed "Rust Belt revolt," where the white working class in crucial Midwestern counties backed him rather than Hillary Clinton, despite their past preference for Democrats. Trump's appeal to those people, according to Trump's economics advisor Stephen Moore, is that he's a populist who will protect manufacturing jobs and force companies to remain in the US. (The working class as a whole was less enthusiastic about Trump and largely supported Clinton.)Left-leaning commenters like Vox's Dylan Matthews remain skeptical of the idea that a billionaire TV star known for stiffing contractors will be a friend of the working man. Matthews recently wrote that thanks to Trump's plan to cut taxes and repeal the Affordable Care Act, the country is about about to suffer under "an economic agenda that will increase the ranks of the uninsured by tens of millions," will "eliminate crucial safety net programs," and will be "absolutely brutal for the poor and working class."To talk through some of the implications of a Trump presidency for the lower and middles classes, I got in touch with Aaron Klein, a fellow in economic studies at the Brookings Institution. He wasn't extremely optimistic about average-income Americans benefitting from the Trump tax cuts, but he is holding onto some hope for the great Trump infrastructure reboot.VICE: What's going to happen to people's pocketbooks under Trump?
Aaron Klein: If history is any guide, the Republican Party cuts taxes, and they do so in a way that disproportionally reduces taxes on the holders of capital. Particularly vulnerable—I think—is the estate tax, one of America's oldest taxes.That's the one that taxes the money that the children of millionaires inherit. If it were completely gone, would that have any impact on average-income Americans?
The effect of repealing the estate tax for average Americans would be that children and their grandchildren have to pay the [resulting national] debt, and the interest on that debt, so that the children for he uber wealthy can be even wealthier. Or there will be fewer services, so that the standard of living for middle-income Americans—whether it's lower healthcare or less federal support for their public schools, worse healthcare for themselves or their parents as they retire—goes down.What determines whether a tax cut will result in more debt or fewer services?
Is the tax cut deficit-financed—that's what I think is likely—or is it financed by cuts in services? You could say that more than half of discretionary [federal] spending is done in the Defense Department. But I don't think it's likely that tax cuts will be financed by reductions in military spending. That doesn't seem like part of the [Trump] platform.A hypothetical reduction in programs obviously hurts the working class, but wouldn't it see any upsides from the tax cuts?
Maybe there's some compromise where a middle-income person sees some sort of reduction in their actual income or payroll tax.How big of a reduction? Annually, let's say.
A couple hundred dollars maybe. It depends how you make your money.One of Trump's tax proposals is to cut taxes on investment income. Is that going to matter to ordinary people at all?
During the Bush tax cut of 2001, there was this mythical waitress who made something like $50,000 a year, but it was $40,000 in earned income, and $10,000 in capital gains, and she was a mother of two. And I kept trying to understand who this person was, because from my back-of-the-envelope calculations, to make $10,000 in capital gains a year, at a 5 percent nominal return, you would need to have $200,000 worth of assets invested in bonds, or high-dividend stocks, not a $200,000 house. What single mother of two, who makes $40,000 a year, has $200,000 in their E-Trade account? Who is this person?OK so working stiffs most likely get just the couple of hundred dollars in tax credits. What about Trump's infrastructure plan? Would that help us?
A large infrastructure package would be a very good thing for America. It could create jobs in the short run, particularly jobs in the construction and manufacturing industry. I've done research that shows that more than two out of every three jobs created by infrastructure is in construction and manufacturing. And America has a multitrillion-dollar infrastructure deficit.Can you spell out how infrastructure helps average-income Americans who aren't lucky enough to get jobs building it?
The average American spends $500 a year on car repair bills just because of bad roads. It's like a very silent tax. They also spend 42 hours a year sitting in traffic. You could get some of that time back if they [built] a smarter infrastructure system.And are you optimistic that Trump will?
I've seen the desire to go big, which I think is the right instinct on infrastructure. But I haven't seen a realistic plan, and ultimately, you get what you pay for. There are no free freeways.But in October, Trump released a paper explaining how he plans to fund it.
That paper doesn't make sense.Why?
You can't say, "I'm gonna build a road, someone is gonna work on that road, that person's gonna pay taxes, those taxes pay off the road." You don't do that with schools. You don't say, "I'm gonna hire teachers; those teachers pay taxes; thus I offset it." That's not how it works. Money goes into the general fund of the government from your taxes. There are special funds for infrastructure—the highway trust fund, the airport trust fund, the harbor maintenance trust fund, and those are paid for by user fees—usually fuel taxes. But the idea that contractors make profit, and the profit will be taxed, and that pays for this, is just not how the government is accounted for.That paper talked about a "private sector solution to the provision of public infrastructure." What's an example of private sector infrastructure work benefitting average people?
Amazon works because there's an infrastructure network for them to deliver the package to your door. If we could make that system better—make the delivery trucks faster, or allow drones and new technology to operate efficiently, and integrate it into our existing system—private enterprise can make things work better and faster.If you had your way, how would you direct government infrastructure spending?
NextGen. We should devote significant resources to next generation air traffic control. Our air traffic system is using 1950s technology. A modern air traffic system could make planes faster, safer, and more fuel efficient. It would be unequivocally good. It's one of those things that would be good for everybody. It makes the airlines save a lot of fuel, so it's good for the environment. It makes the plane safer.Trump has just picked Steven Mnuchin, a former Goldman Sachs banker, to be treasury secretary. What should we assume from that?
We shouldn't assume anything! There's a desire for more clarity than exists in reality. The reality is that the Trump platform and team is a mix of traditional Republicans, and then unorthodox thinkers, and I suspect that his administration will be similarly situated. But you don't know until you know.This conversation has been edited for length and clarity.Follow Mike Pearl on Twitter.
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Aaron Klein: If history is any guide, the Republican Party cuts taxes, and they do so in a way that disproportionally reduces taxes on the holders of capital. Particularly vulnerable—I think—is the estate tax, one of America's oldest taxes.That's the one that taxes the money that the children of millionaires inherit. If it were completely gone, would that have any impact on average-income Americans?
The effect of repealing the estate tax for average Americans would be that children and their grandchildren have to pay the [resulting national] debt, and the interest on that debt, so that the children for he uber wealthy can be even wealthier. Or there will be fewer services, so that the standard of living for middle-income Americans—whether it's lower healthcare or less federal support for their public schools, worse healthcare for themselves or their parents as they retire—goes down.
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Is the tax cut deficit-financed—that's what I think is likely—or is it financed by cuts in services? You could say that more than half of discretionary [federal] spending is done in the Defense Department. But I don't think it's likely that tax cuts will be financed by reductions in military spending. That doesn't seem like part of the [Trump] platform.A hypothetical reduction in programs obviously hurts the working class, but wouldn't it see any upsides from the tax cuts?
Maybe there's some compromise where a middle-income person sees some sort of reduction in their actual income or payroll tax.How big of a reduction? Annually, let's say.
A couple hundred dollars maybe. It depends how you make your money.One of Trump's tax proposals is to cut taxes on investment income. Is that going to matter to ordinary people at all?
During the Bush tax cut of 2001, there was this mythical waitress who made something like $50,000 a year, but it was $40,000 in earned income, and $10,000 in capital gains, and she was a mother of two. And I kept trying to understand who this person was, because from my back-of-the-envelope calculations, to make $10,000 in capital gains a year, at a 5 percent nominal return, you would need to have $200,000 worth of assets invested in bonds, or high-dividend stocks, not a $200,000 house. What single mother of two, who makes $40,000 a year, has $200,000 in their E-Trade account? Who is this person?
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A large infrastructure package would be a very good thing for America. It could create jobs in the short run, particularly jobs in the construction and manufacturing industry. I've done research that shows that more than two out of every three jobs created by infrastructure is in construction and manufacturing. And America has a multitrillion-dollar infrastructure deficit.Can you spell out how infrastructure helps average-income Americans who aren't lucky enough to get jobs building it?
The average American spends $500 a year on car repair bills just because of bad roads. It's like a very silent tax. They also spend 42 hours a year sitting in traffic. You could get some of that time back if they [built] a smarter infrastructure system.And are you optimistic that Trump will?
I've seen the desire to go big, which I think is the right instinct on infrastructure. But I haven't seen a realistic plan, and ultimately, you get what you pay for. There are no free freeways.But in October, Trump released a paper explaining how he plans to fund it.
That paper doesn't make sense.Why?
You can't say, "I'm gonna build a road, someone is gonna work on that road, that person's gonna pay taxes, those taxes pay off the road." You don't do that with schools. You don't say, "I'm gonna hire teachers; those teachers pay taxes; thus I offset it." That's not how it works. Money goes into the general fund of the government from your taxes. There are special funds for infrastructure—the highway trust fund, the airport trust fund, the harbor maintenance trust fund, and those are paid for by user fees—usually fuel taxes. But the idea that contractors make profit, and the profit will be taxed, and that pays for this, is just not how the government is accounted for.
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Amazon works because there's an infrastructure network for them to deliver the package to your door. If we could make that system better—make the delivery trucks faster, or allow drones and new technology to operate efficiently, and integrate it into our existing system—private enterprise can make things work better and faster.If you had your way, how would you direct government infrastructure spending?
NextGen. We should devote significant resources to next generation air traffic control. Our air traffic system is using 1950s technology. A modern air traffic system could make planes faster, safer, and more fuel efficient. It would be unequivocally good. It's one of those things that would be good for everybody. It makes the airlines save a lot of fuel, so it's good for the environment. It makes the plane safer.Trump has just picked Steven Mnuchin, a former Goldman Sachs banker, to be treasury secretary. What should we assume from that?
We shouldn't assume anything! There's a desire for more clarity than exists in reality. The reality is that the Trump platform and team is a mix of traditional Republicans, and then unorthodox thinkers, and I suspect that his administration will be similarly situated. But you don't know until you know.This conversation has been edited for length and clarity.Follow Mike Pearl on Twitter.