Exit polls from the 2016 presidential election find that the biggest motivating factor for voters in the contest between Donald Trump and Hillary Clinton was a desire for “real change” (39 percent). Of those voters, Donald Trump won an astounding 83 percent. That is the biggest reason he won.
The change people wanted most was clearly in the economy. Exit polls show the economy/jobs were the top issue for voters (52 percent), almost three times the number who named the next biggest concern (terrorism). Voters preferred Trump’s approach to the economy by 48 percent to 46 percent, roughly mirroring the actual vote result.
But when it comes to the nuts-and-bolts of his tax and economic plan, Trump has been attacked by liberals as offering “warmed-over supply-side nostrums” with the New Yorker sneering that Trump represents “Palin populism in the streets, but Reagan in the balance sheets.”
Trump’s advisers should view the comparison to Reagan as a compliment. Trump wants to lower the estate tax, slash the corporate tax rate by more than half and allow for the repatriation of overseas business profits.
As for personal income tax rates, Trump would create four brackets of rates ranging from 12 percent to 33 percent. The standard tax deduction would be increased, and at the same time over 90 percent of Americans would no longer have to itemize their deductions.
On the expenditure side, Trump is weak on budget controls but has adopted the “Penny Plan” that reduce federal spending across the board by one cent on the dollar. On the revenue side, he predicts that opening up federal lands for energy exploration would net a trillion dollars in federal revenue over the course of the next few years.
No doubt Trump will be slammed for having refused to release his tax returns during the campaign. Trump doesn’t deny he employed legal means to lower his tax burden as much as possible. But he says many tax provisions should be sunsetted. “One of the major reasons I am running is to reform our broken tax code,” he told an audience in Colorado in September. “Who better to fix it then someone who knows just how crazy it is?”
Trump has some support for that notion. Some reformers believe there is a chance for tax reform next year — particularly if public anger grows that the code is benefitting the wealthy at the expense of the middle class.
“What might compel [action], especially in this era of populism, is this broader sense of how much some folks are getting away with, lawfully or not,” says Sage Eastman, a lobbyist at Mehlman Castagnetti and former top aide to retired House Ways and Means Committee Chairman Dave Camp (R-Mich.) The trick, he says, is to make sure that corporate welfare and egregious tax provisions for special interests are addressed as part of any reform
The tax code we now have is a bewildering thicket of provisions created by politicians who for three generations have tended to want to raise top tax rates to appease class warriors while bringing the effective tax rate down through myriad tax handouts. Economist John Tammy notes that the power politicians exercise “springs from their ability to hand out favors through an overly complicated tax code. If implemented, Trump’s plan would clear away a lot of underbrush from the current thicket of tax rules.
Why is tax reform so important?
At the heart of the debate between upholders of the economic status quo and reformers is the issue of economic growth.
For the Obama-Hillary team of economic experts, permanent subpar growth is not a crisis. Wealthy special interests are prospering in an easy money environment while their lower-income voters are promised more social programs.
New York Times columnist Thomas Friedman gave the game away when he recently called for the need to “strengthen our safety nets, because this era will leave more people behind.
It already has. We are living through the weakest expansion since World War Two. President Obama has yet to preside over a single year in which the economy grew by 3 percent. The Federal Reserve does not project the economy to grow above 2 percent through 2019, and its longer run expectations are for the economy to grow about 1.8 percent a year. Current signals are bleak -- factory orders have been down for 22 straight months and business optimism is at the lowest level since the financial crisis.
Low growth has consequences. The average American remains poorer than he was before the Great Recession began in 2008. Seven million men of working age do not even bother to participate in the labor force. Unprecedented monetary policy expansion has boosted the worth of owners of assets. Those not invested in the stock market, those who have fallen behind, are a seething group of voters and they are indeed lashing out -- embracing either Trump’s restrictionist rhetoric on trade or the socialist twaddle of Bernie Sanders.
Trump’s economic team indicts current policy makers as too complacent about the anemic economic growth of the last decade, “If we slash regulations, tap into our bountiful domestic energy reserves and reduce business taxes while avoiding a trade war we could see an explosion of economic growth,” says Steve Moore, a Fox News contributor and economist at the Heritage Foundation.
Donald Trump will have a lot on his plate when he is inaugurated in January. But nothing would represent a greater break from the past than passing his tax and budget plan.
Because tax and budget issues can’t be filibustered in the Senate they require only a simple majority vote.
If Trump holds his GOP Congress together he can pass his plan.
It will be the first big test of his administration, and one that many of the people who voted for him expecting “real change” will be watching carefully.