By Hunter Wallace
Here is some historical context:
George W. Bush
For all the talk about the Bush tax cuts, George W. Bush only lowered the top marginal income tax rate from 39.6 percent to 35 percent, but that eventually expired during the “fiscal cliff” and the top rate returned to 39.6 percent under Obama in January 2013.
In 2008, John McCain ran on making the Bush tax cuts permanent, which were set to expire in 2010. McCain also proposed cutting the corporate tax rate from 35 percent to 25 percent in order to deter American corporations from hiring foreign workers.
In 2012, Mitt Romney ran for president on a much bolder supply-side economics platform than McCain. Romney’s plan would have dropped the top two marginal income tax brackets from 35 percent to 28 percent and 33 percent to 26.4 percent. Like McCain, Romney also wanted to cut the corporate tax rate to 25 percent.
The ¡Jeb! tax plan, which goes much further down the supply-side road than the Romney tax plan, replaces the current seven income tax brackets with just three: 28 percent, 25 percent, and 10 percent. It also cuts the corporate tax rate from 35 percent to 20 percent.
The Trump tax plan has a bright shiny populist pitch: individuals who make less than $25,000 a year or married couples who make less than $50,000 a year pay a 0 percent rate and get a form from the IRS in the mail under Trump Claus which simply states, “I win.” This would raise the number of American households which don’t pay income taxes from 40 percent to over 50 percent.
At the same time, the Trump tax plan rolls out three new income tax brackets: 25 percent, 20 percent, and 10 percent. He drops the corporate tax rate from 35 percent to Larry Kudlow’s preferred rate, 15 percent. This goes into supply-side economics territory far beyond anything George W. Bush, John McCain, Mitt Romney or Jeb Bush proposed.
Whatever else Trump might propose, this much is certain: at the 25 percent marginal income tax rate, which takes us back to Herbert Hoover’s America, billionaires should also get a letter from the IRS, although it should read: “I win bigger than anyone.”
There are still some big unknowns out there:
1.) First, in light of the huge tax cuts, where would Trump cut government spending? What effect would that have on income distribution?
2.) Second, what will Trump do on trade policy? His tax plan turned out to be the exact opposite of its advertising. If tariffs are raised on foreign manufactured goods, how much of that will be passed on to consumers, who will just pay higher taxes in the form of higher prices? What effect does that have on the income distribution?
3.) Third, if we assume that Trump gets the pro-growth economy he wants, does the economic growth generated by the tax cuts benefit anyone except foreign workers and their wealthy employers? Do wages continue to stagnate? Does average household wealth continue to decline? Does the income distribution become even more stratified than it is now?
4.) Fourth, how serious is Trump about his immigration plan? Does he “pivot” away from it like Romney in the general election? Would the Republican Congress pass the immigration plan? Is Trump going to send a proposal to the Republican Congress as a token gesture only to have it die and then say, “aw shucks, I tried”?
The bottom line: Grover Norquist, Larry Kudlow, The Wall Street Journal and the Beltway Boys are cheerleading for Trump’s tax plan. According to Mort Kondracke, it would have made Jack Kemp proud. This is George W. Bush, John McCain, Mitt Romney and ¡Jeb! economics, but on steroids. And it is being sold as a “populist” tax plan.
I suppose we will have to wait and see the bigger picture once trade and spending are fleshed out, but right now it isn’t looking good.