Explained: The Problem With Trump's Tax Reform Policies

Fresh from his first hand assessment of the damage caused by Hurricane Harvey in Texas, President Trump made his way to Missouri to discuss one of his pet projects: tax reform. Under normal circumstances, one would imagine such a speech would be postponed until one of the most destructive storms in American history had ended, but lest we forget, we are not living in normal times.

Trump began his tax reform speech (the full transcript can be found here) by yet again citing regulations as the cause for high unemployment rates in America: “We got nothing but unemployment. We got nothing.” This is a curious claim, considering the unemployment rate is currently the lowest it’s been in 16 years. I know about the unemployment rate because Trump frequently boasts about it. He apparently believes that economic shifts happen in a matter of months rather than years and ignores the reality that this trend has little—if anything—to do with his leadership.

In the same vein, Trump also used yesterday’s speech as an opportunity to give himself credit for the GDP hitting 3%: “On a yearly basis, as you know, the last administration, during an eight-year period, never hit three percent.” The problem with Trump’s assertion is twofold: first, he’s including the George W. Bush-era Great Recession in his ten-year figure, which naturally drags down the average.

Second, Trump can’t compare his year-over-year GDP figures to those of the Obama administration because—and Christ almighty, this is hard to believe—he hasn’t been in office for a year. As the Washington Post notes, if you look at quarterly figures (which are a more accurate comparison given Trump’s limited time in office), the GDP grew better than 3% in eight quarters under President Obama.

After a solid 15 minutes of patting himself on the back, taking potshots at President Obama, and thanking everybody on the dais (and, oh yeah, offering his support for the victims of Hurricane Harvey for a grand total of 60 seconds), Trump turned to his plan for tax reform. If you have a chance to read the full transcript, I strongly suggest it; listening to a Trump speech doesn’t quite paint a complete picture of exactly how scattershot, disorganized and at times incoherent the man really is.

During the speech, Trump laid out his four principles of tax reform (but not without going on a five-minute free-association tangent in between each principle). Trump’s four principles are:

  1. Simplify the tax code
  2. Lower the corporate tax rates
  3. Tax relief for middle-class families
  4. Bring back wealth “that’s parked overseas”

Trump asserted that “more than 90% of Americans need professional help to do their own taxes [which] disadvantages ordinary Americans who don’t have an army of accountants.” While the figure itself is technically accurate, it also includes people who use tax-preparation software like TurboTax; the true number of people who hire accountants to do their taxes each year is around 54%.

The solution, according to Trump, includes cutting the number of federal income tax brackets from seven (10%, 15%, 25%, 28%, 33%, 35%, and 39.6%) to three (10%, 25% and 35%). So someone who brings in $10 million per year (like, for example, the President) would save hundreds of thousands in federal taxes. And though Trump claims the new tax brackets will lower taxes for those who need it most, he has also expressed a desire to eliminate the “Head of Household” filing status that benefits single parents; as a result, the taxes for this group would actually increase.

Referencing the need for a corporate tax cut, Trump praised Ronald Reagan’s Tax Reform Act of 1986, claiming that “under this pro-America system, our economy boomed.” This is an interesting change of direction for the President, considering he’s repeatedly blamed the Tax Reform Act for the savings & loan crisis, a downturn in real estate investing, and the 1990 recession.

And although it doesn’t seem to matter anymore, it’s worth remembering that Trump refused to divest himself of his business holdings after being sworn in. Therefore, any corporate tax cut (Trump is proposing a 15% corporate tax rate) would create an inherent conflict of interest.

The majority of Trump’s proposals are clearly self-serving; it boggles my mind that an audience will applaud Trump decrying “loopholes…that primarily benefit the wealthiest Americans” when, during last year’s debates, Trump not only admitted to exploiting those loopholes to avoid paying his fair share in taxes, but claimed that doing so made him “smart.”

Make no mistake: any Trump-sponsored tax reform is going to be a grift of massive proportions. Everything he’s done thus far is evidence that Trump will always put his own gain over that of others. But that’s not my problem with his proposal.

My problem with his proposal is that it’s moronic.

Trump and the GOP seem to believe (or at least pretend to believe) that by lowering corporate tax rates, businesses will use that extra money to hire American workers, purely out of the goodness of their hearts. That isn’t going to happen.

A 2004 survey by the National Bureau of Economic Research found that given the opportunity to benefit shareholders in the long term by sacrificing short-term earnings, only 59% of the executives surveyed said they would consider taking such action. In other words, no top executive is going to look at a massive tax cut as an opportunity to give back to the American workers, especially when you give them the benefit before they have to do anything to earn it.

And in the case of lowering the income tax rate, how will the federal government offset the loss of billions of tax revenue? By eliminating deductions at the state level. So if you live in Alabama where state taxes are lower, this is great news. Unfortunately, people in states like New York (which pays nearly $20 billion more in tax revenue to the federal government than it receives in federal funding; that money is disbursed to poorer states like Alabama), will pay higher taxes to offset those savings; in essence, the Rust Belt is receiving welfare from the so-called “coastal elites.” You’re welcome.

Since the initial unveiling of his very specific tax reform proposals earlier this year, Trump has become increasingly vague about the details. It wouldn’t surprise me if the GOP tries to run a scam similar to the one they used when attempting to repeal Obamacare; namely, introducing a bill at the last minute and trying to jam it through without giving anyone a chance to read it.

For now, Trump’s tax reform is nothing more than wishful thinking and empty promises. For our sake, let’s hope it stays that way.

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