U.S. President Donald Trump speaks at the National Governors Association meeting at the White House in Washington, U.S. February 27, 2017. (REUTERS/Kevin Lamarque)
Forget the 100 day reckoning; let’s give President Trump 130 days instead.
Here’s why: the president is on the cusp of achieving nothing less than a once-in-a-generation tax cut that will boost the U.S. economy out of its 8-year rut and restore the nation’s competitiveness.
It won’t pass in the next four weeks, but if Trump throws himself into selling the plan over the next month, and it catches the country’s imagination, “Resisting” Democrats will have to climb aboard. The buoyant stock market will continue its run, optimism will rise yet again, and Donald Trump will be well on his way to a successful presidency.
Trump himself will have to hit the campaign trail, dig out those red MAGA hats, and convince the country that this program will create jobs, boost wages, help middle-class families and put the nation on the right track. He must sell it not as a tax cut, but as a jobs bill – something the country has hungered for ever since the Great Recession. Something President Obama failed to deliver.
This is the biggest test yet for the young Trump presidency. It isn’t Paul Ryan’s plan or Kevin Brady’s plan; it’s the Trump tax plan. He owns it, he campaigned on it, and if he can get it done his backers will be thrilled.
It will especially please small business owners, who pay taxes today at over 50 percent in some states, and who are among Trump’s most enthusiastic backers. As one participant in a recent small-biz roundtable with the president wrote in The Hill, “Former President Barack Obama was an almost-daily insult for eight years, telling us the economy was doing great while business owners struggled keep their doors open.” Small firms account for nearly half the nation’s private workforce; they need lighter regulation and a tax break; Trump is serving up both, as promised.
Oh, and by the way, if Trump succeeds in pushing through his tax plan, those deriding the White House as inept and Republicans as unable to govern will develop a sudden case of laryngitis.
Bringing the party together to cut taxes for millions won’t have happened in the first 100 days. Who’s counting? If significant progress is posted in the next few weeks, Trump wins.
The Tax Foundation last year analyzed Trump’s tax plan, and estimated it would boost economic growth, create 5.3 million new jobs, and kick wages up by 6.5 percent. Notwithstanding the benefits that will accrue to U.S. workers, Democrats will fight Trump’s tax plan tooth and nail.
They don’t believe that lower taxes spur growth, even though tax cuts pushed through by John F. Kennedy and Ronald Reagan most definitely did. They don’t want to “starve the beast” of the ever-expanding federal government, because they don’t think that Americans are wiser about investing our money that the bureaucrats in Washington.
Adding to their hypocrisy is a new-found concern about the federal debt. Democrats complained for years that the Stimulus passed in 2009 wasn’t big enough; they are fans of deficit spending – as long as it grows the swamp and not the private sector.
The battle is joined, as we saw from the next-day treatment from the media. The New York Times banner read: “Tax Overhaul Would Aid Wealthiest”. The paper followed up with: “Trump’s Plan Shifts Trillion to Wealthiest.” Fact: the top 20 percent of earners in U.S. pay 84 percent of the country’s income taxes. Yes, those folks, the ones paying the lion’s share of our taxes, will get a break.
In numerous articles, the Grey Lady has hinted recently that Trump’s tax policy is especially crafted to benefiting himself – by retaining the mortgage interest deduction, for instance. Yes, real estate developers benefit from that deduction; so do tens of millions of American homeowners. Since the current plan includes eliminating the ability to deduct state and local taxes, which would pummel wealthy New Yorkers like Trump, that particular story line was muted.
The facts are clear: the United States has one of the highest corporate tax rates in the world. Nearly every one of our major competitors has cut their corporate tax burden in recent years; we are the outliers. While it is true that businesses take advantage of numerous loopholes and pay less than the statutory rate of 35 percent (39 percent for companies operating in high-tax states), it is also true that even adjusting for deductions and carve-outs, American businesses still pay the second-highest actual rate among developed countries.
A CATO study some years ago argued that in today’s interconnected world, it is workers who ultimately pay business taxes. “The burden of corporate taxes in the globalized economy,” senior fellows Chris Edwards and Daniel J. Mitchell wrote in Global Tax Revolution, “mainly falls on average workers in the form of lower wages. If U.S. and foreign semiconductor and pharmaceutical companies are not building factories in America because of higher taxes, it is American workers who lose.”
We need to do better. Donald Trump sometimes says “We don’t win anymore.” His supporters get that. Businesses want to move out of the U.S. to take advantage of low tax rates elsewhere, but our country should press our many advantages. We are a rule of law nation, we speak English and we have vast energy resources that over time will become a significant competitive advantage. While labor rates in manufacturing, for instance, are cheaper elsewhere, automation means that wages are becoming a smaller part of total costs. If tax breaks spur investment, U.S. firms will become ever more competitive. Most important, we are still the world’s largest consumer market – right here. Why on earth wouldn’t companies want to locate here? Let’s make it easy for them.
The plan rolled out by the White House is an opening bid. There will be negotiations over the top rates, the repatriation on overseas-held cash and other particulars. Trump could mollify deficit hawks by eliminating the tax break on carried interest, for instance, which mainly benefits private equity and hedge fund managers. Even many industry participants think that hand-out should disappear. He also could pressure Democrats by rolling out an infrastructure plan to be seeded by the proceeds of a one-time repatriation of foreign earnings stashed overseas by U.S. companies. That’s the Art of the Deal.
But the main message is this: lowering corporate and individual rates will gin up growth, create jobs and raise wages. Astonishingly, even the prospect of this tax plan set the stock market soaring and boosted consumer and business confidence. That’s how hopeful people are, and how potent this medicine will be for our ailing economy. This is Trump’s big moment; I’ll give him a few more weeks.
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