How not to cut taxes
Last week, keeping all details secret, President Trump tried to sell the public on the notion that a coming Republican plan to cut taxes and streamline the code will be a boon to middle- and working-class Americans. Yet based on what’s trickled out so far about the likely blueprint for change, it looks poised to be yet another package of GOP cuts that will rain goodies on the richest among us, while exploding the national debt to boot.
No can do. Over decades, those in the upper reaches of the economy have been consolidating almost all gains. The middle class has been struggling to find a foothold on a slippery rock wall.
Nearly half of U.S. aggregate income went to upper-income households in 2014, up from 29% in 1970, according to a Pew Research analysis. Meantime, the share going to middle-income households fell from 62% to 43%.
Trump knows well that the fantastically wealthy are getting fantastically wealthier while the average Jane and Joe is struggling. The notion that the economy is rigged was one of his animating campaign themes. But so far, he’s not governing that way. At all. Meantime, and relatedly, since the recession ended in 2009, the economy has barely reached 2% growth for a full year. The last quarter saw a rare jump up to 3%, but there’s no sign this will continue, never mind Trump snake-oil promises.
Done right, tax reform will get the economy firing on more cylinders while guarding against the powerful Republican desire to let wealth continue to get hoarded by those at the top.
Central to Trump’s push is likely to be cuts in the corporate tax rate. Well and good.
The United States’ 38.92% top marginal corporate income tax rate is the highest in the industrial world. That’s begging for companies to flee, or for them to use their armies of lawyers to evade paying.
Which is why even President Obama pushed for slashing the rate, in concert with other reforms.
Simultaneously, the nation must finally find a way to bring back trillions in corporate cash now held overseas. Repatriate it, taxed at a lower rate — and direct that money to infrastructure or some other productive end.
While corporate rates should be cut, individual income taxes are another matter entirely.
Top rates now stand at 39.6%. Protect that progressivity — lest Trump oversee a supercharging of the very trends he has decried.
And he must dare not eliminate the estate tax, which impacts just 0.2% of all estates and generates billions; that would be a brazen sop to dynastic wealth, including his own. Finally, Trump and the GOP must keep a careful eye on debt and deficits, about which they once claimed to care.
Washington, already bleeding red ink, needs revenue to pay out Medicaid and Medicare; rescue Texas after Hurricane Harvey; fund basic scientific research; build up the military, at least if Trump gets his way, and keep the safety net strong.
Cutting taxes intelligently is welcome. Eviscerating the code in a way that bankrupts the government is unacceptable.