Let’s get back to the real work that has to be done in this country. Forget Charlottesville. Forget Hurricane Harvey. Forget Antifa. Forget North Korea. Let’s talk about Making America Great Again with tax reform. Enter President Donald Trump – cue the fanfare.
On Wednesday, President Trump will speak to yet another roaring crowd, this time in Springfield, Missouri, about his current proposed tax plan and how his administration has a fresh and vibrant vision for “unrigging” the American economy. Of course, the mainstream media and ruling Democrats will immediately prepare to frame Trump’s approach as “Trumped-up trickle-down economics” (thanks Hillary) only meant to support gains for America’s super-wealthy and fiscal one-percenters. Currently, Senior White House aide Stephen Miller, one of the “MAGA” types in the Trump Administration is drafting the speech with phrases like “Jump-start America” and “Win again,” according to news sources. One supporter for the President’s tax plan, Tim Philips, President of Americans for Prosperity, an arm of the Koch brothers brand, explained, “One of the keys to selling tax reform is the President making the point that tax reform will unrig this economy by stripping out the special-interest deductions and carve-outs that riddle this [tax] code,” according to Bloomberg.
As of now, the Trump administration has released only a one-page plan that was devoid of specific economic numbers and phases of the real tax plan on how the federal government would cope with the cutting of taxes for businesses and individuals. During his presidential campaign, Trump promised the largest tax cut in history, including a reduction the corporate tax rate from 35 to 15 percent. Moreover, he has also claimed that his administration supports a reduction in the number of individual tax rates to three from seven, and cutting the top individual tax rate from the current 39.6 percent to 35 percent. Thus far, the Koch brothers have spent just north of $2 million on getting the message out that the tax plan, as reported by Bloomberg, touts, “simplicity,” “efficiency,” “equality,” “predictability,” and “no additional burden on taxpayers.”
The Bureau of Labor Statistics (BLS) under the United States Department of Labor released its economic numbers earlier this month totaling that non-farm payroll employment increased by 209,000 in July, resulting in the unemployment rate decreasing slightly to 4.3 percent. The BLS report also shows that job gains for the month of July occurred in, “food services and drinking places, professional and business services, and health care.” Although this better-than-expected report shows job creation is holding at a steady, but fairly average 184,000 jobs per month, there has been no significant gains in the manufacturing, construction, wholesale and retail trade, transportation, and warehousing sectors.
Basic economic theory explains that as labor markets begin to tighten, wages must increase as to entice workers to join employers. However,the previous five decades of labor statistic data suggests that for most U.S. workers there is a continuing lack of meaningful wage growth – even after inflation rates are accounted for. Unfortunately, wage stagnation is something a significant portion of Americans have been dealing with for decades.
According to economic data from Pew Research, after adjusting for inflation, the average hourly wage in 2017 has nearly the same purchasing power as it did in 1979. After economic trends followed a long drift downwards in the 1980s and early 1990s, resulting in inconsistent growth since then. “In fact, in real terms the average wage peaked more than 40 years ago: The $4.03-an-hour rate recorded in January 1973 has the same purchasing power as $22.41 would today.”
Trump’s tax plan is working along the lines of Reagan-era supply-side economics. This means that economic growth can be most effectively created by investing in capital and downsizing governmental barriers on the production of goods and services. Furthermore, the investment and expansion of businesses will increase the demand for viable workers and create more and better paying jobs. The theory behind supply-side is the Laffer curve – simply explained, the effect of tax cuts on the federal budget are are on a 1-to-1 basis. Therefore, every dollar in individual tax cuts reduces government spending by exactly one dollar. With revenue maximization taking full force, companies will find that creating jobs will be more economically fruitful than simply buying back stock shares to raise revenue.
Trump’s four-part memo on his tax plan is: tax relief for middle class Americans, to simplify the tax code, grow the American economy, and to not add to the nation’s debt and deficit. The blueprint will reduce the current seven individual rates down to three: 10%, 20%, and 25% with the upper limits of those rates at $25,000, $50,000, and $150,000 for single filers, respectively. “Under the Trump plan, America will compete with the world and win by cutting the corporate tax rate to 15%, taking our rate from one of the worst to one of the best.” This comprehensive tax reform will make it more attractive for companies to come back to the United States and to stop hiding their gains from being taxed at an ultra-high rate like they were under the Obama Administration.
The Brookings Institution, the nation’s tax policy analyst claims that Trump’s tax plan would, “significantly reduce marginal tax rates, increase standard deduction amounts, repeal personal exemptions, cap itemized deductions, and allow businesses to elect to expense new investment and not deduct interest expense.” Moreover, Trump’s tax plan would require the federal government to take very large pay cut from taxpayers. Some studies show that federal revenue would fall by nearly $6.2 trillion over the next ten years. Though, including added interest costs, the federal debt would rise by $7.2 trillion over the same time period and amount to an added national debt of $20.9 trillion by 2036. However, Treasury Secretary Steve Mnuchin states the tax plan will pay for itself. As well, the growth of the nation’s GDP will cover for lost revenue by the federal government using the revised blueprint.
Nevertheless, Politco reports that the Trump administration has made clear in this week it will leave formal drafting of a tax bill to Republican leaders on the House Ways and Means and Senate Finance committees who have been part of the so-called Big Six negotiating group, which includes U.S. Treasury Secretary Steve Mnuchin and National Economic Council Director Gary Cohn.
One of the biggest obstacles in passing tax reform will be whether to use conventional legislative channels or to work on a partisan basis proceed by budget reconciliation. An article from Real Clear Markets explains, “The Big Six say they expect to use conventional legislation, which would require 60 votes in the Senate to prevent a filibuster. However, Republicans only have 52 votes and are unlikely to attract much Democratic support.” Therefore, unrigging the American economy may require reconciliation procedures.
The White House emphatically states that with Trump’s revised tax plan the American dream more accessible than it has ever been before. Slashing the business tax rate will make companies competitive again and introduce a bolstering workforce. President Trump needs a win in his books after a rocky few months on the Hill. Hopefully he can get back to his mission of Making America Great Again with the most revolutionary tax plan in a generation.
By Alex Lemieux