For all his anti-establishment posturing, Donald Trump’s tax plans are standard Republican fare: big tax cuts that favor the wealthy by lowering top marginal rates (on individual, corporate, and pass-through income) and eliminating the estate tax.
While it hardly seems newsworthy to point out that a Republican presidential candidate introduced yet another supply-side, trickle-down tax plan, in this unique election-cycle, it raises a few questions. First, why are we still arguing about the viability of this failed approach to tax policy, and second, why is Trump, a candidate who’s trying to appeal to working-class voters hurt by a “rigged” system and surely not helped by eliminating the estate tax, going there, too? (Note: the estate tax hits 0.2 percent of estates; for couples, estates worth less than $11 million are exempt; the average beneficiary from this cut gets $3 million.) Finally, is there an alternative conservative vision on taxes that’s less untethered from reality?
If facts could kill the trickle-down myth, I’d be giving its eulogy at its gravesite. Instead, part of what’s going on here is that these candidates are doing the bidding of their wealthy donors, if not themselves. Trump’s new version of his plan hasn’t been fully evaluated yet, but 35 percent of the benefits of his first plan went to the richest 1 percent, and one analysis suggests that his proposal to repeal the estate tax would save his family billions.
But the real target of these plans is the size of government itself. Since large tax cuts don’t come close to paying for themselves and Republicans won’t countenance any tax increases, the only way to truly offset the cuts is to reduce spending (or to dramatically increase the budget deficit, something Republicans typically say they oppose).
Consider the distributional outcomes from this scenario: the tax cuts benefit the wealthy while the spending cuts invariably whack the poor. Paul Ryan’s trickle-down tax plans, for example, have consistently offset part of their costs — most recently, 60 percent — by cutting spending on Medicaid, food stamps, education and housing programs.
What’s so misguided about all of this is that, based on just demographics alone — not to mention climate change, geopolitics, and inequality — meeting our future challenges will demand more, not less, tax revenue.
But today’s conservatives won’t go there. Their view was efficiently summarized by columnist Robert Novak years ago: “God put the Republican Party on earth to cut taxes. If they don’t do that, they have no useful function.” And if there’s a theory, like supply-side growth effects, that gives these tax cuts a patina of academic credibility, they’ll tightly embrace it. Regardless of the evidence, they’ll build it into their models, as did the conservative Tax Foundation in a recent analysis that found growth effects to offset 92 percent of $2.4 trillion in lost revenue from the latest House GOP tax plan.
Importantly, some conservative thinkers are urging their party to get outside this old box. James Pethokoukis agrees with the needed revenues point, noting that it will be “exceedingly difficult for the U.S. to maintain the average post–World War II tax burden given the aging of American society.” A recent Times piece featured ideas by “reformocon” policy types rejecting tax cuts on the wealthy in favor of tax credits to boost the incomes of low- and middle-class working families. Oren Cass, a former Mitt Romney adviser, went so far as to predict that future conservatives would be more open “to raising taxes when justified.”
Unfortunately, these “reformers” have been at this for years and have gotten nowhere. They pack intellectual heft, but the coin of this realm is actual coin.
One also might suspect that the trickle-down-touting establishment wing of the party would recognize that the voters they need to attract aren’t moved by estate and corporate tax cuts. President Reagan may have made the supply-side sale, but it didn’t work for Mitt Romney, and recently, in what I consider a promising development, a bunch of state elected officials in Kansas lost their jobs for supporting supply-side tax cuts that are starving their budget and stressing government services, most notably education. There’s a lot of money at the top of the wealth scale, but not a ton of votes. But such electoral math hasn’t broken through the supply-side tax orthodoxy.
I thus conclude that as long as big money remains in politics and de-Nile isn’t just a river, the GOP, including alleged renegades like Trump, will continue to insist that evidence be damned: tax cuts pay for themselves, the rich will create jobs for the rest of us if we just let them pass on their estates tax free, and multinational corporations will come back home if we just halve their tax rates.
I wish I had a happy ending to this story. I wish I could stop wasting time arguing against the junk economics that claims trickle-down works. But this dark fantasy goes deep, and it’s blocking needed changes in tax policy, fomenting gridlock, and promoting fact-free policy analysis in a crucial area of political economy.