Thursday, April 27, 2017

Merry tax cut? Not so fast -- April 27, 2017 column


It’s beginning to look a lot like Christmas, but don’t spend your shiny new Trump tax cut just yet.

To update an old saying: There’s many a slip ‘twixt the lip and the cut.

President Donald “Santa” Trump promises “the biggest individual and business tax cut in American history.” So far he doesn’t have a plan or even a bill in Congress.  

The one-page outline the White House handed out Wednesday read more like a campaign flyer than a legislative blueprint. It’s hard to argue with any of these goals: 

“Grow the economy and create millions of jobs. Simplify our burdensome tax code. Provide tax relief to American families – especially middle income families. Lower the business tax rate from one of the highest in the world to one of the lowest.”

Briefing reporters, Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn were short on details but long on -- irony alert -- hope and change.

“We have a once-in-a-generation opportunity to do something really big,” Cohn told reporters.

“Under the Trump plan, we will have a massive tax cut for businesses and massive tax reform and simplification,” Mnuchin said.

The lack of details gives Trump room to negotiate with reluctant members of Congress. Democrats predictably blasted Trump’s proposal for mostly helping himself and other wealthy taxpayers,

although he won’t release his tax returns so we’ll never know how much. He’ll need support of Republicans in Congress who traditionally have been wary of inflating the federal debt.

One provision left off the outline was a “border adjustment” tax on imports pushed by House Speaker Paul Ryan, R-Wis., to help pay for tax cuts. Putting the best face on the situation, Ryan said the White House was “basically along the same lines that we want to go,” and Congress and the White House were “moving and getting on the same page.”

Trump’s big idea is to cut the corporate rate more than 50 percent to 15 percent, reduce the number of individual tax rates from seven to three, raise the personal deduction and eliminate most other deductions -- and pay for it all through accelerated economic growth of 3 percent.

As Popeye’s friend Wimpy would say: “I’d gladly pay you Tuesday for a hamburger today.”

We’ve seen this movie before. Presidential candidate Ronald Reagan endorsed supply side economics and big tax cuts in 1980, promising economic growth would pay for them. His rival George H.W. Bush mocked Reagan’s plan as “voodoo economics.”

President Reagan got his tax cuts and the economy did boom for a while, although economists still argue whether Reagan’s tax policies were responsible. Eventually Reagan raised taxes several times.

After President George W. Bush cut taxes in 2001 and 2003, the economy never achieved liftoff, bumping along at an average growth of 2.1 percent annually for eight years. The 9/11 terrorist attacks were partly to blame for the sluggish economic growth.

Estimates of the cost of Trump’s tax cuts range from $3 trillion to $5 trillion over five years and up to $7 trillion over a decade. Maya MacGuineas, president of the Committee for a Responsible Federal Budget made the first estimate, The New York Times the second.

While tax reform is a worthy goal, said Robert Bixby, executive director of the Concord Coalition, a nonpartisan group dedicated to fiscal responsibility, “it is inconceivable that a tax cut of this magnitude could pay for itself through economic growth.”

The White House predicts “trillions” of dollars in new revenue through growth. It’s worth remembering that Trump is unencumbered by fear of more debt.

“I’m the king of debt. I love debt,” he said during the campaign.

No doubt Republicans and Democrats alike would love to redo the huge, complicated tax code with its Swiss cheese loopholes, and many people would love to file their taxes on a “large postcard,” as Mnuchin put it.

But getting there won’t be easy.

Trump’s goal of eliminating deductions except for mortgage interest and charitable donations faces stiff opposition from Democratic members of Congress from high-tax states like New York, New Jersey and California.

Plus, it’s too early to know how Trump’s tax plan will affect most Americans.  

“We will be back to you with very firm details,” Cohn told reporters. He didn’t say when.

©2017 Marsha Mercer. All rights reserved.


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