“Voodoo economics” is back, and who better to champion a policy based on fantasy and bad science than Donald Trump? It makes no difference to Trump that he pledged on the campaign trail last year that he would reduce the deficit and cut the national debt in the first year, or that he was a vocal critic of President Obama for deficit spending to bail out the economic disaster left by Republican President George W. Bush in 2008. No, what matters for Trump is following through on a campaign promise to cut taxes on a grand scale — he wants to grab attention, not propose realistic policy.
And that he did.
Trump’s plan would not just cut corporate taxes from 35 percent to 15 percent, but also cut them on pass-through entities such as his own real estate business, hedge funds and other large partnerships, which currently pay the same rate as the highest individual income tax payers (39 percent). He also announced cuts to individual income, creating three tax tiers instead of the current seven — 10 percent, 25 percent and 35 percent — and he would double the standard deductions to the first $24,000 of a couple’s income. There is a tax cut in this plan for everyone.
And that is part of Trump’s strategy: this announcement is so big, with so few details, that it’s just a tease for a longer conversation that will be going on all year, but he created a buzz with the promise of sparking economic growth — despite not having a way to pay for it.
Details of how much the plan would cost, in fact, were not available, but earlier calculations of just the business tax reductions had pegged costs at $2.4 trillion over the first decade. The broader plan would increase those costs significantly, and send the national deficit through the roof.
It was during the 1980 presidential campaign, that Republican candidate George H.W. Bush jumped all over Republican candidate Ronald Reagan for what Bush termed Reagan’s “voodoo” economics — suggesting that tax cuts to the rich would create economic growth and everyone would prosper. It was “trickle-down” magic. Only it didn’t work.
It’s not that tax cuts don’t spur growth, of course they do. It’s that they don’t spur enough growth to pay for the loss of revenue, therefore spurring the deficit and national debt and hurting the economy a few years down the road.
Which is precisely the Republican game plan. Cut taxes now, ride the wave up, bail when the piper comes calling and make Democrats be the responsible party that pays the bill — and pays the price at the next election.
According to a report in Wednesday’s New York Times, N. Gregory Mankiw, a Harvard University economist who was chairman of the President’s Council of Economic Advisers under President George W. Bush, says 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.” And that’s the best-case scenario of a conservative economist who worked for a Republican president, and that’s if the economy is faltering and a stimulus will effectively spur the economy.
Even so, do the math on the increased deficit of just the business side of the equation.
Under an optimistic scenario, one-third of $2.4 trillion still leaves a deficit of $1.6 trillion during the first decade—and that’s on top of the costs of the wars started under Bush, the increased military spending proposed by Trump, and the typical costs of operating government and its entitlements. Currently, the U.S. has an annual deficit of $559 billion — and Trump keeps talking of adding cost to government spending — mainly in the military.
“That’s not tax reform,” said Senate Minority Leader Chuck Schumer, D-NY, said of Trump’s plan. “That’s just a tax giveaway to the very, very wealthy that will explode the deficit.”
Trump’s tax plan, of course, is more theater than reality — part of Trump’s grab-bag of “voodoo” policies.
It’s easy, after all, to declare cuts to individual and corporate taxes, but not worry about how to pay for it. The messy part comes when you have to be responsible and fund the policies you advocate.
Angelo Lynn