(AP/Julie Jacobson)

Donald Trump's fantasy-land tax scheme: Why his attempts to play populist champion completely fall flat

Trump's idea of reform includes a nominal concession to populist interests, paired with more trickle-down madness


Conor Lynch
September 29, 2015 3:58PM (UTC)

For some time, it has seemed like Donald Trump would be playing the role of Jeb Bush’s father when it came to taxes, while Jeb would be playing the role Ronald Reagan. Trump has previously advocated raising taxes on the rich and lowering them for the poor and middle class, while Bush has been promoting a supply-side plan that would cut taxes for everyone, but especially for the rich -- a plan that his father would have once called voodoo economics.

Trump has been vocal about making the wealthy pay more taxes, and has even stated that he is fine paying more himself:

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“I don't mind paying some taxes. The middle class is getting clobbered in this country. You know the middle class built this country, not the hedge fund guys, but I know people in hedge funds that pay almost nothing and it's ridiculous, OK?”

On Monday, Trump released his tax plan, and as usual, he was mostly full of it.  Trump’s plan would lower today’s top income rate from nearly 40 percent to 25 percent, compared to Jeb’s planned cut to 28 percent.  He would also reduce the corporate tax rate from 35 percent to 15 percent, which is also lower than Bush’s 20 percent proposal. Additionally, he would eliminate all taxes for people who make under $25,000, or couples who bring in under $50,000 (he had to make it somewhat populist). To pay for some of these large reductions, he has proposed eliminating the carried interest loophole, which allows hedge-fund managers to pay a low capital gains tax for their compensation -- a cut that his fellow congress-controlling Republicans have long opposed and Democrats like Obama have supported. It has been estimated that eliminating carried interest would raise around $18 billion over a decade with the current tax code -- but significantly lower if Trump got his tax cuts.

While $18 billion (or $2 billion per year) sounds like a big number, it is minuscule when considering the $598.5 billion military budget for 2015, or the $18 trillion in debt. So how would Trump really pay for these cuts? Like past and current supply-side gurus, he wouldn’t -- but let’s just look at his depressingly familiar message.

“There will be a major tax reduction," said Trump on Monday, “It'll simplify the tax code, it'll grow the American economy at a level that it hasn't seen for decades.” The night before, he told "60 minute’s" Scott Pelley:  “Overall it's going to be a tremendous incentive to grow the economy and we're going to take in the same or more money.”

Where have we heard this before? It is, of course, trickle-down economics; the idea that major tax cuts for the rich will stimulate the economy so much that tax revenue will actually grow with all of the added income and profit. Of course, it has never worked out that way. The major trickle-down experiments in the United States came with the Reagan and second Bush administration. Reagan’s first major tax cut in 1981 (which reduced the top income rate from 70 percent to 50 percent) ended up reducing revenue by $314.8 billion (in 2012 dollars) in its first four years, according to a study by the Treasury department. Compare this to the tax increases of 1993 under the Clinton administration, which increased revenues in its first four years by $84.6 billion, and the Bush tax cuts of 2001, which reduced revenue $125 billion in its first four years.

And how about the big bad debt, which Republicans like Trump go on and on about. It nearly tripled during the Reagan administration, from $907 billion in 1980 to 2.6 trillion in 1988, while under the Clinton administration, when top rates were increased, the federal government actually had a surplus in his final years in office. Bush Jr. then turned that around quickly with his major tax cuts and spending increases, particularly with the military.

Furthermore, the idea that tax cuts for the wealthy would “rise all tides” and help everyone economically proved to be completely false. After forty years of neoliberal policies, economic inequality is at highs unseen since before the Great Depression. A recent study by the International Monetary Fund (IMF) has also pointed out that increasing income share of the poor, not the rich, is what ultimately boosts the economy.   The authors write:

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“If the income share of the top 20 percent (the rich) increases, then GDP growth actually declines over the medium term, suggesting that the benefits do not trickle down. In contrast, an increase in the income share of the bottom 20 percent (the poor) is associated with higher GDP growth.”

With all of this data, it is quite clear that trickle-down economics is indeed voodoo economics. But data has not stopped Republicans from preaching the supply-side gospel. The myth appears to be too convenient to give up, and Trump’s tax cuts for the rich are even larger than Bush’s, which is ironic, considering Trump is no small government conservative. He does not preach a “starve the beast” philosophy, but how great the government could be if only he were at the helm. He is the savior who will come in and demand respect from China and Mexico and grow the economy at levels we haven’t seen for decades. In other words, he’s a demagogue's demagogue -- which may be why him and Ted Cruz have developed a bromance of sorts.

For a while it seemed Trump would challenge the GOP status quo when it came to taxes, but he has challenged nothing. Trickle down economics is the GOP’s motto, and neither facts nor Trump will change that.

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Conor Lynch

Conor Lynch is a writer and journalist living in New York City. His work has appeared on Salon, AlterNet, Counterpunch and openDemocracy. Follow him on Twitter: @dilgentbureauct.

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