Trump’s Tax Plan Is Indefensible

by Ken Morris, Truthout | Op-Ed –

When President Trump agreed with Democrats on a debt limit increase, there began talk about a new era of cooperation. For those foolish enough to fall for such claptrap, just wait until the tax reform train comes barreling in later this year. And make no mistake, Trump and the GOP have made it clear (for decades) that “reform” really means cuts for the wealthy. When it comes to making the super-rich super-richer, there is no negotiation.

And who exactly is advocating massive reduction in top-end marginal tax rates (MTR), a policy with dubious and arguably non-existent benefits? As for Trump, after years of attacking China over currency manipulation, early in his presidency he reportedly asked National Security Adviser Mike Flynn about the economic impact of a strong US dollar. Soon-to-be-fired Ex-General Flynn had no answer since, like Trump, he has no understanding of macro- or micro-economics. At least Flynn never claimed to have graduated at the top of his class from the greatest business school in the universe (Wharton undergraduate school of business) where, in Intro-Econ, they presumably outlined the trade implications of a strong versus weak greenback. Tragically, when it comes to understanding the impact of tax policy, most Republican politicians appear equally under-informed.

The GOP mantra is that all tax cuts — especially those that fall disproportionately on the wealthy — not only boost the economy, but more than pay for themselves by stimulating spending and greater levels of taxable income (a Reagan era discredited theory known as the Laffer Curve where, it was mistakenly argued, taxes may be reduced, government spending increased and the budget balanced). More remarkably, despite historically gigantic income disparity, they additionally swear the benefits of more wealth to the mega-rich will trickle down to other classes. Unfortunately for those living paycheck-to-paycheck, history suggests this is utter nonsense.

During the period from 1951 through 1963, with the highest marginal tax rates at a whopping 91 percent, the economy grew at the annual rate of 3.90 percent. In the 1990s, President Clinton raised the top MTR from 31 percent to 39.6 percent, and not only did the economy grow at 3.8 percent, but over 21 million jobs were created (and there was a budget surplus for the last time in forever). And while in the previous Reagan-Bush administration, lowering MTR from 70 percent to 28 percent resulted in a growth rate of 3.5 percent (additionally assisted by massive military expenditures), that was after President Reagan recoiled from gigantic deficits and de facto raised taxes in 1982 and 1984 (by closing loopholes and reducing tax breaks on the wealthy), in what tax historian Joseph Thorndike characterized as “the biggest tax increase ever enacted during peacetime.” Though not given his due by the Right, even Reagan understood the benefit of a flexible tax policy.

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Reprinted with permission from Truthout