On Cutting Taxes and Trust

Terry H. Schwadron

Aug. 31, 2017

President Trump opened the tax-cut season with a bipartisan call for what he presented as common sense changes and, at the same time, a public backslap for Sen. Claire McCaskill, the Democrat from Missouri, where he was making his remarks.

Mr. Trump made across-the-aisle congressional agreement on tax cuts feel like a litmus test on patriotism. That’s pretty cheeky for a guy who is going to need Democratic votes to make tax cuts work.

He cited principles rather than actual plans, things like making tax forms simple to understand, and getting American companies to return to the United States to add jobs with any corporate tax savings they may collect. He self-deprecatingly suggested that he and other rich people will pay more to ensure tax breaks for the middle class. Indeed, it is difficult to disagree very vociferously with such generalizations.

But there is no bill, and no actual direction on paper, and collecting on patriotism points for a blank check on what we know will never end up being so sunny and cheerful seems silly.

In fact, what we do know about the tax cut plans include several things that will bring tons of criticisms and huge questionable actions. Not common sense.

From the early hints at specifics, the President — and probably congressional Republicans — want cuts that favor the rich. Yes, there may be some small cuts for you and me, but the big savings will be for the one percent. By allowing limited partnerships, as one example, the kind of arrangements that allow real estate developers like Mr. Trump himself, to use tax exemptions on personal income, the President is creating a huge new loophole. Likewise, elimination of the alternate minimum tax, a kind of minimum tax assessment, would benefit the rich, not the poor or middle-class. Huffington Post quoted the Institute on Taxation and Economic Policy as saying that millionaires in Missouri would receive an average tax cut of $190,560 in 2018, equal to 7.9 percent of their income.

Saying you want to simply the tax forms, and doing so through the armies of lobbyists, would-be special interests, and plain-old traditions make the job complicated — even if this is for relatively good causes rather than just for the benefit of oil and gas companies, for example. Consider the results of eliminating home mortgage interest, for example, which builders, carpenters, real estate developers and anyone looking to buy a house would likely agree would be destructive. Similarly, those dependent on philanthropy, like arts and nonprofit organizations or churches and social justice groups, would want charitable contributions to remain as tax exemptions.

The more exemptions, the more complicated the forms must be.

For me, the biggest issue around the thinking about tax cuts is whether they will result in the main hope, that corporations that gain from far-reduced taxes will turn around and re-invest in new jobs. Over a long period of time, various tax cuts have resulted in corporations deciding to use such savings to pay off debt or to buy back outstanding stock or to buy up other companies, not to expand employment.

Mr. Trump uses a reasonable argument that lower taxes will lead to repatriation of foreign taxes from companies that have fled U.S. borders in search of lower tax bills. But that’s an assumption, not a certainty.

Mostly, the President is very good about issuing blank outlines and leaving the details to a Congress that will not necessarily agree on how to interpret the challenge. What the health care debate brought to the fore will be seriously dwarfed by the lobbying efforts by companies and various tax-paying entities to preserve their particular desires in a tax cut bill.

Lastly, the President has yet to show how all of this will be paid for, other than making the general argument that tax cuts will incent growth in the nation’s economic output. In his mind, the country will double its rate of growth, re-negotiate all trade arrangements to America’s favor, will produce a growing, educated work force that will expand with elimination of immigrants. In his mind, it is possible to have tax cuts along with paying for rebuilding Houston, vastly expanding the largest military in the world, adding nuclear weapons, building a trillion dollars worth of infrastructure and erecting a Wall on the southern border — all with less tax money coming in.

A desire for a 15 percent corporate tax rate already is being discussed in Congress as closer to 25 percent, just to try to make the numbers work. A proposal by Speaker Paul Ryan for a border tax on imports to pay for the tax cuts has been rejected by the White House. Republicans still have to figure out how to pass a budget this fall, a process that will play a big role in deciding how generous a tax plan they can write. They also have to decide whether tax changes should be permanent or temporary, and whether their plan should be a net tax cut that would add to the deficit.

So, we’re set up here for lots of conflict yet to come, even from within the Republican Party.

It is not useful to have a serious opinion about the Trump campaign for a tax cut program without knowing what’s really in it. Some 45 Democrats in the Senate have lined up to oppose tax cuts that add to the deficit. But it is a serious insult to all of us that the President is holding up agreement with him — whatever he believes — as a measurement of our patriotism.

It’s the kind of thing that makes me want to Resist.



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