On the coming failure of Trump’s tax plan

Last Wednesday, I wrote about the failure of the Trump presidency, arguing that Donald Trump has failed to deliver any signs that tangible economic benefits are coming down the pike for his working class and blue collar base of support. In fact, this week, it seems more likely that Trump has ‘sold out’ and is turning to corporate tax cuts at the expense of middle class tax relief. Some comments below

Until recently, I believed there was some hope that middle class Americans could expect some boost to their take-home pay in the form of tax cuts as a result of fiscal changes in Washington. I no longer believe this. Two weeks ago, I was on CBC’s “On The Money” TV show talking to host Peter Armstrong with former Bush 43 adviser Douglas Holtz-Eakin. Here’s the clip, if your interested. At that time, we were both saying that there was a narrow path for a Trump tax overhaul bill to succeed. But that path was really, really narrow.

First, by and large, you can count out votes from Democrats because they are going to oppose Trump’s agenda on everything in the exact same way Republicans opposed Obama. You might have a few defections, but the White House is going to have to rely on Republican support to get a tax bill through.

Second, even within the Republican party, you don’t have ideological unanimity on what a tax bill should look like. Some Republicans in Congress want tax cuts, saying this will boost growth. But other Republicans like Senator Rand Paul want a tax overhaul to be revenue-neutral. That means that any tax cut in one place has to be ‘paid for’ by a tax increase or elimination of a tax break somewhere else.

But because the tax proposals being bandied about by Trump and his allies are said to reduce taxes by $3-$7 trillion, you have a big problem getting his plans through Congress because the plan is not revenue neutral.

More importantly, nothing I have heard about Trump’s tax plans points to net relief for middle class families – even if that meant closing loopholes like mortgage interest deductions or raising taxes elsewhere. Instead what I am hearing is talk about lowering corporate taxes and helping companies like Apple and Google repatriate money earned overseas back to the US at a reduced tax rate.

Conclusion: there is no economic relief coming for middle class American families.

But even so, I don’t think Trump can get any tax bill through Congress. Part of that is because he has alienated allies in the Republican party by criticizing them in tweets. How is he going to get them to do his bidding in Congress? It looks more like Trump is trying to make sure that when the tax plans do fail, Congress, and specifically Republicans in Congress, get the blame. It seems like the political calculation is that, after the failure of the Obamacare repeal, a tax overhaul failure would be seen – not as a Trump failure but – as a failure by the Republican-controlled Congress. And ostensibly this failure would put pressure on Republicans in the 2018 midterm primaries and general election, strengthening Trump’s hand. Cynical? Yes. A winning strategy? No.

The bottom line here, though, is that Trump does, indeed, look to be selling out. He’s going for the traditional Republican platform of tax cuts for corporations and ‘job creators’ that supposedly will trickle down to the working class. His plans even include a potential elimination of the inheritance tax – something geared toward wealthy households. Nothing concrete has been said about middle class tax relief. In the meantime, he hopes that by keeping up his attacks on the cultural war front, taking a hard line on immigration and blaming Republicans in Congress for failure, he can keep his base of support.

How long can Trump bamboozle his middle class base without them realizing that he is offering them nothing economically? How will his base react if all he is offering is corporate tax cuts? In time, we are going to find out. The first real test will come if Trump decides to shut down government over his Wall. This will be a test whether anti-immigrant fodder will be enough for his base to stay with him.

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