Saturday, October 21, 2017

Trump Tax Plan

President Donald Trump and his team of economic advisers recently released their plan for tax "reform". You can read some of the highlights here


On September 27, 2017, the Trump administration released its tax reform plan. The Unified Tax Reform Framework would cut income tax rates, lowering the top rate to 35 percent. It doubles the standard deduction but eliminates personal exemptions. The plan would reduce the corporate tax rate from 35 percent to 20 percent. It allows a one-time repatriation of corporate profits earned overseas.

The Framework would lower the maximum corporate tax rate from 35 percent to 20 percent. The United States has one of the highest corporate tax rates in the world. But that doesn't hurt large corporations. Most of them don't pay more than 15 percent. That's because they can afford tax attorneys who help them avoid paying higher taxes.

Trump's plan lowers the maximum tax rate for small businesses to 25 percent. That includes sole proprietorships, partnerships, and S corporations. Many of those are real estate companies, hedge funds, and private equity funds. As a result, 85 percent of the tax cut benefits the top 1 percent of earners. Most mom-and-pop small business won't benefit from the reduction. They don't earn enough to qualify for the top tax rate. The Framework does not mention increasing the tax on some profits, called carried interest. That's taxed at 15 percent instead of the income rate. It benefits private equity funds. Trump campaigned on making them pay their fair share.

Trump's plan would almost exclusively benefit the extremely well off. The people that Trump sent out to defend this plan couldn't speak with a straight face about the plan's benefits to the middle class or working class. There are few benefits to the working class or middle class.This plan is warmed over supply side trickle down economics, which is the discredited but never truly dead idea that if we would only reduce taxes on our "betters" then they would be inspired to open more businesses and hire more workers, and not instead buy another vacation home or more stocks or bonds.

In short we should all bend over, take it good and hard, and later on something wonderful will magically happen. It's the Chip Diller school of economics. Nobel Prize winning economist Paul Krugman eviscerates the tax plan along with those venal enough to sell it here. The piece is long, but it's worthwhile reading.

Modern conservatives have been lying about taxes pretty much from the beginning of their movement. Made-up sob stories about family farms broken up to pay inheritance taxes, magical claims about self-financing tax cuts, and so on go all the way back to the 1970s. But the selling of tax cuts under Trump has taken things to a whole new level, both in terms of the brazenness of the lies and their sheer number.

Both the depth and the breadth of the dishonesty make it hard even for those of us who do this for a living to keep track. In fact, when I set out to make a list of the bigger lies, I thought there would be six or seven, and was surprised to come up with ten. So I thought it might be useful, both for myself and for others, to put together a crib sheet: a fairly long-form description of ten big lies Trump and allies are telling, what they’ve said, and how we know that they are lies. I’m probably missing some stuff, and for all I know some new big lie will have been tweeted out by the time this is posted. But we do what we can. So here we go.

Lie #1: America is the most highly-taxed country in the world
Lie #2: The estate tax is destroying farmers and truckers
Lie #3: Taxation of pass-through entities is a burden on small business
Lie #4: Cutting profits taxes really benefits workers
Lie #5: Repatriating overseas profits will create jobs
Lie #6: This is not a tax cut for the rich
Lie #7: It’s a big tax cut for the middle class
Lie #8: It won’t increase the deficit
Lie #9: Cutting taxes will jump-start rapid growth
Lie #10: Tax cuts will pay for themselves



Krugman's frustration with dealing with people who are not invested in empirical evidence shines through in his writing even more than usual. That said it's also important to consider that (1) a disdain for empiricism is not a flaw solely evinced by one side of the political spectrum even though the right seems to be getting pretty comfortable with it and (2) empirical evidence doesn't automatically imply what ought to be, something that philosophers at least as far back as David Hume have pointed out. Still there is plenty of evidence that the supply side tax solution will not solve the problems which the US economy and its residents are experiencing.  

The question then is not necessarily why people who benefit from supply side economic theory push these theories as a cure for everything the way some grandmothers swore by Castor oil and Robitussin. The real question is why so many people who will see little if any benefit from a generic Republican plan to cut taxes on the 1% will support it. From what I've previously read from him Krugman and some other noted liberals usually point to lack of education and effective conservative propaganda as reasons for Republican support among those earning less than say $500K. That definitely plays a part. I can't deny that. However, surprisingly, it turns out that calling people who disagree with you credulous morons, accurate though that might be, is not an effective way of getting them to listen to you, review your evidence, or change their mind. Because Trump voters disliked massive portions of the liberal cultural message or just as important the messaging, they were thus inoculated against Democratic liberal ideas about halting or reversing the increasing concentration of wealth and opportunity in the United States. This is a problem. I think it's akin to a person who was poisoned taking the medical advice of the poisoner and not the responding doctor, because they don't like how the doctor speaks to them. 

I will write more on this later but the Democrats will have to change both their approach and their substance if they want people to listen to them. Because the Democratic Party is almost as beholden to big money as the Republicans are, it's unclear as to why many people would believe them when they decry Trump's tax plan. Both parties can come across as wings of the same establishment. 
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