Donald Trump was elected president because he spoke to a working class upset with politics as usual, says Ed McCaffery
McCaffery: So instead of the standard GOP trickle-down plan, why not vastly reduce the number of people who owe tax?
Editor’s Note: Edward J. McCaffery is Robert C. Packard trustee chair in law and a professor of law, economics and political science at the University of Southern California. He is the author of “Fair Not Flat: How to Make the Tax System Better and Simpler.” The opinions expressed in this commentary are solely those of the author.
Donald Trump was elected president because he spoke to a working class upset with elites, politics as usual, and its own lack of economic progress. Fair enough.
But now, in the critically important area of tax, we may be about to get a bait and switch. Trump appears ready to follow the as-usual Republican tax policy by proposing a massive trickle-down cut that will save the richest people lots of money. Trump even bragged on this to diners at the fancy 21 Club in New York, as he sneaked out for a steak this week.
Ronald Reagan wrote this script, at a time when tax rates were indeed too high even for most elites to stomach; the highest rate when Reagan took office was 70%. George W. Bush went back to this playbook in 2001 and again in 2003, slashing tax rates again from the top down. That worked well for a bit but helped to leave the economy in shambles by 2008, leading to the Great Recession and ushering in Barack Obama’s presidency. Trickle down has been done.
Trump wants his policies big and bold. And, one would think, different, because Trump and his movement are different from the same-old same-old.
So how about this? If Trump wants to be both really bold and to answer to his own base of loyal supporters, he could try something new – he could cut taxes from the bottom up. That is, he could take all the trillions he is willing to spend on reducing the income tax and put them all into a single item – raising the threshold for even paying the tax.
Right now, the top 25% of income-tax payers pay some 87% of the income tax. How about if we just set the rate bracket levels to get the other 75% – three out of four taxpayers – out of the need to pay anything? That’s basically a 13% cut in income tax revenues, higher when one considers that the elimination of the lower brackets would also save taxes for the top quarter – every taxpayer would see some benefit, but three out of four of them would stop having to pay any income taxes at all. Bush’s tax cuts were 15% across the board; this would be huger.
The bottom-up plan would save money for all individuals and families now paying income taxes. It would get tens of millions of Americans – many in the core of Trump’s base – out of the need to even complete tax returns or deal directly with the IRS. And, perhaps most important of all, it would leave the income tax applying to fewer Americans – because roughly half of all Americans pay no income taxes, the top 25% of taxpayers are just about 12.5% of the population.
If Trump pulled off such a big bold move, he could then begin what would have to be a longer term project of fixing the income tax – closing all those loopholes he talked about closing during the election, but which are curiously absent from his actual proposals.
Hope springs eternal. Steven Mnuchin, Donald Trump’s campaign finance chairman and now his nominee to serve as secretary of the treasury, made headlines Wednesday by claiming that there would be no “absolute” tax cut for the wealthy.