Voodoo!

Plenty of stuff to say on Trump’s horrible, no good, very bad tax plan.  In many ways, what’s most exasperating is the voodoo economic pitch, ignoring the fact that we now have incontrovertible empirical data that tax cuts (within the range of American tax policy) absolutely, postively don’t pay for themselves.  Even serious Republican economists will tell you as much.  Nice Times article:

But what the president has called a tax reform plan is looking more like a tax cut plan, showering taxpayers with rate reductions without offsetting the full cost by closing loopholes or raising taxes elsewhere. In the short run, such a plan would add many billions of dollars to the national deficit. Mr. Trump contends that it will be worth it in the long run.

“The tax plan will pay for itself with economic growth,” Steven Mnuchin, the Treasury secretary and main architect of the plan, told reporters this week…

“Under dynamic scoring, this will pay for itself,” Mr. Mnuchin said at a public forum last weekend. “Under static scoring, there will be short-term issues.”

Critics scoffed at the math. “There is not a shred of evidence to support the secretary’s pay-for-itself claim,” said Jared Bernstein, a top White House economics adviser under Mr. Obama. “Sure, significantly faster growth would spin off more revenues. But there’s simply no empirical linkage between tax cuts and growth that’s both a lot faster and sustained.”

Douglas Holtz-Eakin, a former Congressional Budget Office director who advised Senator John McCain’s Republican presidential campaign in 2008, was equally skeptical. “I can imagine cutting the rate to 15 percent,” he said. “I can imagine growing a percentage point faster. I can imagine raising $2 trillion in revenue. I can’t imagine them being one and the same policy.”

N. Gregory Mankiw, a Harvard University economist who was chairman of the President’s Council of Economic Advisers under the younger Mr. Bush, said tax cut supporters exaggerate the possible growth benefits while opponents overemphasize the budgetary cost. “A reasonable rule of thumb, in my judgment, is that about one-third of the cost of tax cuts is recouped via faster economic growth,” he said.

Got that.  Even  Mankiw– not exactly a Krugman-esque liberal– gives it a 1/3 offset.  And more centrist economists would dispute that.  Thus, to be clear, the idea of tax cuts paying for themselves is unicorns and rainbows preposterous.  Holz-Eakin even takes to the pages of the Post to refer to the plan as a fairy tale.

Meanwhile, Drum with a nice chart that puts the Trump team economic assumptions into a proper perspective:

That’s the 3.8% productivity growth that Trump’s numbers are counting on.  Suuuuure.

Of course, there’s the debt angle:

“We’ve only done the rough numbers, but this looks like a tax cut of a magnitude of about $5 trillion,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a bipartisan advocacy organization for fiscal responsibility. “That is simply unimaginable given our fiscal situation and the size of the deficit, which is already the worst since World War II.” …

Tax cuts, as opposed to tax reform, are easy, Ms. MacGuineas agreed: “Who doesn’t love a tax cut, especially if no one has to pay for it? This is a free-lunch mentality.”

That Mr. Trump would embrace such a cut-now, pay-later approach probably shouldn’t be too much of a surprise, considering the Trump Organization’s reliance on borrowed money. “I’m the king of debt,” Mr. Trump said last year on CNN. “I love debt.”

Just how much Mr. Trump’s plan would cost the government is hard to determine, given the sketchy details. But the conservative-leaning Tax Foundation estimates that two prospective elements — reducing individual rates to three brackets of 35, 25 and 10 percent, and cutting the tax rate for corporations and pass-through entities (businesses that pay taxes at individual rates) to 15 percent — would cost the Treasury $4 trillion to $6 trillion over 10 years, said Alan Cole, an economist at the foundation.

The Urban-Brookings Tax Center estimated the cost of the cuts Mr. Trump proposed during the campaign at $6.2 trillion, assuming no additional growth, and just under $6 trillion when growth is factored in.

And, of course, we know what this is really about.  Tax cuts for rich people.  NYT with a nicely honest headline, “Trump Tax Plan Would Shift Trillions From U.S. Coffers to the Richest.”

President Trump’s proposal to slash individual and business taxes and erase a surtax that funds the Affordable Care Act would amount to a multitrillion-dollar shift from federal coffers to America’s richest families and their heirs, setting up a politically fraught battle over how best to use the government’s already strained resources.

The outline that Mr. Trump offered on Wednesday — less a tax overhaul plan than a list of costly cuts with no price tags attached, rushed out by a president staring down his 100-day mark in office — calls for tax reductions for individuals of every income level as well as businesses large and small.

But the vast majority of benefits would accrue to the highest earners and largest holders of wealth, according to economists and analysts, accounting for a lopsided portion of the proposal’s costs.

“The only Americans who are very clear winners under the new system are the wealthiest,” [emphasis mine] said Edward D. Kleinbard, a law professor at the University of Southern California and former chief of staff of Congress’s Joint Committee on Taxation, which estimates the revenue effects of tax proposals.

And, lastly, count on CBPP to put this monstrous giveaway to the wealthy in chart form:

Trump Campaign Tax Plan Gives Big Tax Cut to the Top

Of course, who knows what we’ll exactly see.  What we do know is Republican priorities: budgets be damned– cut rich people’s taxes a lot!

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About Steve Greene
Professor of Political Science at NC State http://faculty.chass.ncsu.edu/shgreene

3 Responses to Voodoo!

  1. ohwilleke says:

    Remember Kansas.

  2. R. Jenrette says:

    Democrats have to stop blaming Trump. Letting the Republican Party off the hook is not a winning strategy.
    Instead criticize Trump for turning out to be a regular Republican, following all the Republican ideas: tax cuts are the solution for most of our problems, Americans have no right to health care or even old age insurance, tax rolls of full of fake and illegal voters, politicians should make health care decision for women and families, Supreme Court nominees should be like Justice Scalia, unions are bad, etc., etc.

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