President Trump plans to begin talking about his tax overhaul today. It will, not surprisingly, be a giveaway to the wealthy. Based on what we know:
There is no upside to this. And the sales pitch which will try to make you believe otherwise is a scam.
The centerpiece of the plan is to slash the corporate tax rate from 35% to 15%. This despite the fact that corporate profits are soaring, corporate tax revenues are at record lows and workers are seeing little if any of the benefit. This unnecessary giveaway to businesses is estimated to cost two trillion dollars. This at a time when the federal deficit is already over $500 billion a year.
Trump and the Republicans will claim that the tax cuts will pay for themselves by stimulating economic growth. This is a lie, pure and simple. An old one, actually, as Republicans have been promising such things from tax cuts for decades as part of their "trickle-down" economic theory. It's a theory, however, which has been consistently refuted by experience.
There is zero correlation between tax cuts and economic growth. Indeed, economic growth in the United States since World War II has been greater in times with relatively high top marginal tax rates, such as in the 1950s and 1990s, which we all know and remember as boom times. This does not mean that higher tax rates lead to economic growth, of course, but it does mean that they do not impede it. In reality, there is no strong relationship between the two things at all, no matter what Republicans tell you.
Trump and Republicans in Congress will likewise claim that the tax cuts will cause businesses to use their savings to hire more workers. While, theoretically, yes, companies with more cash on hand could use it to hire more workers or invest in new facilities in the United States, we have seen that, in practice, they are far more likely to hold on to the money as cash reserves, benefitting no one, or to distribute it to their wealthy stockholders. As is the case with overall economic growth, low tax rates for the wealthy and for corporations have rarely correlated with employment growth.
The plan will also call for a massive cut in the top tax rate on “pass-through” companies, such as sole proprietorships, S corporations, and partnerships which pay their taxes through the individual income tax code rather than through the corporate code. While this will be sold as a break for mom-and-pop businesses, the benefits of such a plan will not be realized by the guy who owns the corner store.
Pass-through businesses are often huge, sophisticated and wealthy companies. They generate over half of all business income in the country and employ more than half of the private sector workforce. A great example of a pass-through business: The Bechtel Corporation, the largest engineering company in the country, which has over $30 billion in annual revenues. Other examples: hedge fund managers, doctors and lawyers who own their own practices and people who earn income from motivational and promotional speaking. Another example of a pass-through business: The Trump Organization. Indeed, Donald Trump personally stands to save tens of millions of dollars a year under his tax plan. The pass-through tax cut will be portrayed as a benefit for businessmen who struggle to get by. In reality, it's little more than a gift to the wealthy.
No matter what specific part you look at, Trump's tax plan and similar tax plans proposed by Republicans in Congress have one unifying theory: cuts to the tax rates paid by the wealthy and pain inflicted on the poor and the middle class.
An analysis of Paul Ryan’s proposed tax plan found that a whopping 99.6 percent of the tax-cut money would go to the top 1 percent of income earners. In turn, budget proposals floated by Republicans contain massive cuts to infrastructure spending, education, medical and scientific research, child care, job training, the arts, our national parks and public lands and a host of safety net programs that help families make ends meet in tough times. This is not just theoretical: the two states which have rolled out tax plans like Trump's -- Kansas and Louisiana -- have been thrown into economic and budgetary chaos.
The priorities of Donald Trump and Republicans in Congress are exactly backwards.
To the extent Donald Trump had any mandate, it was a mandate to help working people and ordinary Americans who have been left behind by a quickly-evolving global economy. That's what people who voted for him desperately wanted and desperately need. His tax plan is a slap in the face to those people and a windfall for him and his wealthy friends. It should be rejected out of hand.