Trump plan mortgages our kids’ future to pay for government now

The most important thing to know about the Republican tax plan that President Trump is now trying to sell is that it doesn’t cut taxes. It shifts them, from wealthy taxpayers today to all of our children.

The big winners in the Trump plan are clear: Taxes on corporate income would fall from 35 to 20 percent, and the rate on corporate income from abroad would fall to zero. High-income taxpayers (those earning more than $418,000), who indirectly benefit the most from the near-elimination of the corporate tax because they typically are investors, would see their tax rate fall from 39.6 to 35 percent. Some middle-income taxpayers would get a smaller bone, in the form of an increased standard deduction.

There is only one revenue raiser: The deduction for state and local taxes is eliminated. This move, widely seen as aimed at high-tax blue states such as California, doesn’t come close to ensuring that the proposal would neither increase nor decrease federal tax revenues. The bipartisan Committee for a Responsible Federal Budget estimates the proposal would produce a net shortfall of more than $2 trillion. This would increase the government debt, which means higher interest payments by tomorrow’s taxpayers — our children.

The economics of borrowing to pay taxes can be understood by a simple example. Suppose we each mortgaged our family business and used the proceeds to pay this year’s taxes. Or charged our taxes on our credit card, and decided to ignore the debt for as long as possible. We’d have more money to spend right now. That would (perhaps) make us happier, and benefit merchants.

Eventually, however, we’d face huge monthly payments on our credit card or loan. We’d have to cut consumption, and that would hurt merchants and shrink the economy. There are lots of terms we might use to describe this plan. Short-sighted and reckless come to mind. One term we wouldn’t use, though, is tax cut.

A true tax cut comes from a reduction of spending. The Trump administration has proposed significant increases in military spending. Draconian cuts to the Environmental Protection Agency and other agencies wouldn’t offset those costs. The tax proposal isn’t tied to any meaningful cut in spending. It is solely a plan to borrow the cost of government.

There is one difference between the Trump proposal and the mortgage-thefamily-business plan. When we run up the government debt, the distribution of the burden among our children is unknown.

It is likely that today’s borrowing, which would fuel consumption of the wealthy, would be paid off by Americans more broadly through a national sales tax. Our children would pay higher rates, and by the same logic that today’s cut stimulates the economy, tomorrow’s increase would shrink the economy. (Of course, if the market anticipates all of this, the economy wouldn’t increase. Instead, interest rates would rise, ).

Trump, of course, has a long history of borrowing to fuel his own conspicuous consumption, and skipping out on repayment. In this proposal, he invites us to join in that practice.