William Black New Economic Perspectives February 25, 2019
Donald Trump promised to deliver a middle-class tax cut of epic proportions.
“The largest tax reductions are for the middle class, who have been forgotten,” Trump said in Gettysburg, Pennsylvania, on Oct. 22, 2016.
If Trump had fulfilled that campaign promise, it would have made him spectacularly popular and vastly increased his support beyond his base. He, not the ‘Republican Party,’ controlled the House and the Senate.
Many Democrats would have supported a serious cut in middle-class taxes. Better yet, from Trump’s perspective, many Democrats like Nancy Pelosi and ‘Chuck’ Schumer would have bitterly opposed the Trump Tax Triumph on the economically illiterate basis budget surpluses are next to godliness.
Trump could have followed up his tax cut success with a real infrastructure program distributed through grants to counties, cities, and states. Again, this would have been spectacularly popular and even Pelosi and Schumer would have rushed to co-sponsor the legislation. This would have been the second Trump triumph.
With those two triumphs, the Republicans would have won a whole series of close congressional elections in 2018, retained (and perhaps expanded) control of the House, and expanded control of the Senate. That would have been the third Trump triumph and would have positioned him brilliantly for reelection.
I return now to expanding on the mystery of Trump’s refusal to enact a real tax cut for the middle class. As Paul Krugman has emphasized, it is extraordinary for a President to give away trillions of dollars in tax reductions – and end up like Trump having his tax cuts prove massively unpopular.
Consider how easy it would have been for Trump’s Treasury Department to design the tax cut to expand his base and deepen his popularity with his base. The average annual tax savings of the quintessential middle-class household with an income of $50,000 – $75,000 is a paltry $870. Worse, the Trump corporate tax cuts are permanent, but the tax cuts for the middle class largely end in 2027. By 2027, the net effect of the Trump tax plan for that same middle-class family would be a $30 tax increase. Working class households would suffer slightly larger tax increases in 2027 than their middle-class counterparts.
Treasury, run by a plutocrat (Steven Mnuchin) for plutocrats, designed the Trump plan to give its benefits overwhelmingly to the plutocrats. Mnuchin’s minions, drawn from the worst of Wall Street, ensured that the tax cut benefits would go overwhelmingly to the ultra-wealthy.
Trump could have created a real middle-class tax cut. He could have used round numbers – every household with combined taxable income below $75,000 gets a Trump refund of $5,000. If Trump wanted the refund more quickly, he could have given every household with taxable income below $75,000 the prior tax year an anticipatory refund of $5,000.
If he wanted to favor groups that made up his existing base, the Trump tax cuts could have been larger for farmers, blue-collar workers, or the elderly. He could have denied tax cuts to those he viewed as likely to vote against him – the poor. If Trump wanted to plug entrepreneurship, he could have created a $20,000 tax credit for anyone who started a new business during the tax year (or even in prior tax years).
These are merely examples designed to make the general point – it is easy to shape a massive middle-class tax cut certain to be spectacularly popular with broad segments of the population – including Democrats and Independents otherwise inclined to vote for the Democrats.
What would have such a real tax for the middle-class have done to the overall economy? It would have stimulated the economy far more effectively than Trump’s tax giveaway to the plutocrats – and it would not have produced any harmful inflation. The reason for the first point is that the working and middle class are far more likely to increase their consumption if given a lump sum tax cut of several thousand dollars. That increases demand and business leaders respond by increasing production and capacity, which further stimulates demand.
The obvious question is “can this cause inflation in some circumstances?” Yes, if the tax cut is so large relative to unused capacity that it creates a serious scarcity of real resources. The Great Financial Crisis, however, so reduced labor force participation and growth that cuts the size of the Trump tax cut, even if given to the middle class instead of to the plutocrats, would not have been large enough to absorb our economy’s unusually large unused capacity.
Trump’s tax giveaway to his puppet masters (my wife’s apt phrase), predictably, did not lead to a record economic boom stimulated by a dramatic surge in investment in new plant, equipment, and research & development. Instead, it produced an orgy of stock buybacks and massive raises for CEOs.
What would the public reaction have been to a real middle-class tax cut that stimulated the general economy far more effectively that Trump’s tax payoff to his puppet masters? The public would have loved it and given Trump great credit for it.
The last sentence understates the scale of political benefits that would have come to Trump had he fulfilled his campaign promise to slash middle-class taxes. It leaves out how much the so-called Democratic centrists’ opposition to such a tax cut would have added to Trump’s popularity while reducing support for Democrats in the 2018 congressional elections.
The ‘New Democrats’ and the House Democratic leadership are fervent supporters of “paygo” limitations on budget expenditures. They are far to the right of Republican members of Congress on this issue. More precisely, Republican members of Congress overwhelmingly pretend to care about budget deficits and federal debt only when the President is a Democrat. ‘New Democrats,’ ‘Blue Dog’ Democrats, and Democrats who join “Problem Solvers” and other groups religiously oppose deficits even when increasing the deficit is the best economic action. The result of the ‘centrist’ Democrats’ war against even desirable deficits is they would have fought and died to oppose a real middle-class Trump tax cut. They would have predicted it would produce a disaster.
Their predictions about the grave and imminent peril of increasing the deficit, as always, would have proven false. Trump would have emerged with his own popularity greatly expanded and enhanced as his greatest rival’s popularity greatly diminished. The Republicans would have held the House, and possibly expanded their majority there and added to their Senate majority.
Trump would have demonstrated that he was the expert on the economy, taxes, and the deficit. Pelosi would have demonstrated her recurrent failure to understand the economy, taxes, and the deficit. She would likely have been defeated in 2018 in the Democratic vote for minority leader.
Pelosi is a skilled legislative leader, with terrible, closely related, blindspots on deficits and the urgency of dealing with climate change. She acts as if we cannot afford to save the planet by acting decisively against global climate change now. That view is horrific economics and public policy.
Similarly, she would have been at her worst in arguing Trump was endangering the Nation by creating a real trillion-dollar middle-class tax cut. She would have been the face of the Democratic Party in the 2018 elections – the woman and her Party that tried to keep your middle-class family from receiving a $5,000 tax cut. When the economy reacted positively to the resultant stimulus, her humiliation, and that of her Party, would have been complete.
Given what Trump knows now about Pelosi’s skill in legislative infighting he should be able to weigh the “opportunity cost” of not using a real middle-class tax cut to maintain control of the House and to discredit and ultimately cause the Democrats to remove Pelosi from leadership. Trump’s cowardly and corrupt surrender to his puppet masters on the tax cut and infrastructure allowed the Democrats to gain control of the House.
That made it possible for Pelosi to become Speaker again and to rain down the blows on Trump that have made his life miserable.
Trump’s refusal to deliver the great middle-class tax cut he promised (twice, in 2016 and 2018) has only two possible explanations. One, he is spectacularly stupid. Not mediocre, lazy, or nearly invincibly ignorant. It takes spectacular stupidity to be unable to see, after months of meeting and press reactions, that the middle-class will love major middle-class tax cuts and hate tax cuts designed by Trump’s puppet masters to go overwhelmingly to the exceptionally wealthy.
Trump is the laziest, most corrupt, and most narcissistic President in U.S. history. It is clear whenever he speaks that he is far from intelligent. He is not, however, spectacularly stupid. He is normal stupid. He knew that a real middle-class tax cut would have made him spectacularly popular.
The other explanation for Trump’s breaking his tax promise to his base also explains his breaking his infrastructure promise. In both cases, Trump has chosen the policy option that is worst for the American people – and for Trump’s popularity. In both cases, Trump kowtows not to his base but to the wealthiest and most rapacious American elites.
Trump is spectacularly cheap. He did not fund his presidential election and he was not remotely as wealthy as he claimed to be for decades. He cannot borrow from any reputable bank in the world. He is in office not due to a wave of small contributions from his base, but because he kissed the ring of a whole string of plutocrats who share two Trumpian traits. They are sleaze and they are greedy. They provided the funding to put Trump in office. Their members and minions populate the horror show that is the Trump administration. The plutocrats crafted the Trump tax cut to provide the astonishing transfer of wealth to the plutocrats.
The plutocrats knew that if Trump delivered a real middle-class tax cut and infrastructure program he would become spectacularly popular. That would make him far more powerful and potentially independent from his plutocratic puppet masters. A real middle class tax cut would have given tax relief overwhelmingly to the middle-class instead of the plutocrats. The puppet masters hated that idea and killed it before it ever became a policy alternative in the Trump administration.
Similarly, a real infrastructure stimulus plan would have made regular Americans far better off, made Trump widely more popular, and driven bipartisan agreement. Trump’s plutocratic puppet masters killed that option before it could become a policy alternative. The result is a plan designed by and for the puppet masters. Their predatory “partnerships” have the public provide the financing while the plutocrats skim the profits and dump the losses on the public.
We have run two real world tests of the relative power of Trump’s base versus his puppet masters. In both tax cuts and infrastructure, Trump has shown slavish fealty to his puppet masters even when it harms and upsets his base and prevents tens of millions of other Americans from adding their support.