«Most if not all Trump policy proposals are dead on arrival.»
April 29th, as widely noted, was Donald Trump’s 100th day in office. The hundred-day mark is, of course, an arbitrary and meaningless political cutoff. It became a «thing» in American politics only because Franklin Delano Roosevelt, generally seen as an effective, activist president, referred to it in a 1933 fireside chat as an «opportunity [for] a little quiet thought to examine and assimilate in a mental picture the…events of the [first] hundred days» of his administration.
More revealing of the aspirations and limitations of the Trump Administration is the tax plan unveiled on its 97th day. To call that announcement a plan is, of course, to indulge in generously elastic terminology. The administration’s one-page proposal was just a set of bullet points. While proposing to collapse the existing seven individual income tax rates into three, the document failed to even specify what incomes that would be subject to each bracket. While asserting that the revenue loss from lower rates would be offset by the elimination of certain itemized deductions, like those for state and local taxes paid, it failed to clarify whether other key deductions, like those for contributions to retirement savings accounts, would be grandfathered in.
Similarly, in proposing to reduce the tax rate on corporate profits from 35 to 15 per cent, the proposal provided no information on how the reduction in government receipts would be financed. Indeed, there was no «scoring» whatsoever by the Treasury Department or other agencies of government of the revenue implications, although back-of-the-envelope calculations by private-sector entities like the Tax Foundation suggested that the increase in deficits and debt would, to put it in Trumpian terms, be «huge.»
Approach reveals everything
This approach to tax reform conveys everything one needs to know about the Trump Administration. First, it is a reminder that key decisions continue to be made by a temperamentally impatient, impulsive president. Treasury Department staff, who are routinely tasked with fleshing out tax proposals, thought they had until June to come up with a plan. Following his failure to successfully repeal and replace the Affordable Care Act (the ACA, or Obamacare), Trump blithely announced only days in advance that on April 26th he would reveal the details of «the biggest tax cut in U.S. history,» sending Treasury and National Economic Council staff scrambling. It’s now fashionable to suggest that President Trump, faced with the complexities of governing, is increasingly respectful of process. The tax-plan episode suggests otherwise.
Second, we are reminded that Trump Administration policy continues to be driven by headlines. The pressure Trump felt to make a quick announcement reflected not just the wish to divert attention from other failures, like his inability to repeal and replace the ACA, but also the artificial 100 day deadline to which so much attention is paid by the cable-news networks that are the president’s main source of information.
Third, that the tax plan was detail free is a reminder that this president has no interest in details. The fact that there were no details about what incomes would be taxed at different rates, or how the revenue loss from lower corporate taxation would be financed, was, from Trump’s point of view, a feature, not a bug.
Less a populist than a corporatist
Fourth, the tax plan is a reminder that this administration is as interested in punishing its political enemies as it is in making policy. Almost the only specific reform detailed in the April 26th release was that the deduction for state and local taxes would be revoked. State and local taxes are highest, as everyone knows, in so-called Blue States like California and New York where support for Candidate Trump was least.
Fifth, the tax plan is a clear signal that Trump is less a populist than a corporatist. The plan, particularly the reduction in corporate profits tax rates to 15 per cent, heavily favors a corporate sector that, as other developments also suggest, Trump views as his true constituency. In slowly staffing up his administration, Trump is relying disproportionately on fellow businessmen with whom he feels most comfortable. In soliciting private-sector views, it is mainly business leaders who he is inviting to break bread at the White House.
The consequences are not entirely baleful. For example, the best explanation for why Trump backed away from his earlier commitment to renounce the North American Free Trade Agreement is that business leaders reminded him of the value they attach to the arrangement. But the President’s obeisance to business also explains his other more unfortunate decisions, like his opposition to higher capital requirements and stricter regulation of banks, his elimination of environmental regulations, and his appointment of a chair of the Federal Communications Commission, Aijit Pai, who opposes net neutrality. And it explains why his tax plan is, first and foremost, a giveaway to corporations.
Republican Party is split
Sixth, the plan is an indication that neither the economic nationalists within the White House, led by Peter Navarro and Steve Bannon, nor the economic internationalists, led by Gary Cohn and Steve Mnuchin, have won the battle for the president’s ear. The real winners are extreme supply siders, at the Heritage Foundation and elsewhere, who believe that all tax cuts pay for themselves. The Committee for a Responsible Federal Budget estimates that for the tax cut to be self-financing U.S. GDP growth would have to more than double from its current rate of 2 per cent per annum to 4.5 per cent. »In your dreams» is all one can say in response.
Seventh and finally, we are reminded that most if not all Trump policy proposals are dead on arrival. The obstacle to health care reform was that the Trump Administration made no effort to reach out to the Democratic opposition or to recognize the existence of divisions within the Republican majority. Each time it proposed more draconian limitations on the ACA in order to bring on board the hard-right-wing Freedom Caucus, whose members oppose any and all government action, it lost additional Republican moderates who understand that their constituents benefit from the ACA – and that those constituents would be furious at their representatives if they lost their government-supported health coverage.
In this case too, every step the administration takes to cut taxes more deeply in order to gain the support of hardline supply siders and true believers in the need to «starve the beast» that is big government, the more support it will lose among deficit hawks on the Republican side of the Congressional aisle. As in the case of health-care reform, there is no purely partisan winning formula.
A thoughtful president seeking to actually simplify a complex tax system would take a bipartisan approach. Unfortunately, there is no reason to think that America has a thoughtful president.