A “Trickle-Down Disaster”
By: Brendan Duke, Ryan Erickson, Harry Stein, and Alex Thornton
Today, Donald Trump gave a speech at the Economic Club of New York further refining his “economic vision,” including new details on his proposal to overhaul the U.S. tax code. This comes in the middle of a week where he argued that you “could make the case” for the U.S. to default on its debt and accused Fed Chair Janet Yellen of keeping interest rates “artificially low.”
Very simply: Donald Trump has cut the biggest portion of his previous middle-class tax cut by three-quarters while keeping many of the same tax cuts for the very rich including a lower rates on corporations, capital gains, and the top 1%. The tax plan that Trump outlined in his speech in New York on Thursday continues a pattern of reckless policy proposals bound to hurt working families.
Call it a “trickle-down disaster.”
Trump’s new tax plan cuts his middle-class tax breaks but keeps his tax cuts for rich families like his own.
Donald Trump’s original tax plan increased the debt by an outrageous $9.5 trillion. His new tax plan tries to scale back the cost somewhat, particularly by slashing his middle-class tax relief. The centerpiece of his original tax plan was an increase in the standard deduction from $12,600 to $50,000 for joint filers — a $37,400 increase. His new tax plan only increases the standard deduction to $30,000, just a $17,400 increase.
Not only that, Trump now also eliminates personal exemptions, which currently give married couples a tax deduction of about $8,000. This means that Trump is only giving families a $9,400 higher tax deduction when the two policies are combined. Thus, the new Trump tax plan slashes the biggest part of his original middle-class tax cut by three-quarters.
Trump is cutting the cost of his original tax plan by reducing his middle-class tax cuts, but he has retained many of the biggest tax cuts for the rich: his new plan would still slash corporate tax rates, cut taxes on capital gains, and eliminate the estate tax, with the last policy benefiting only the richest 0.2 percent of estates.
Trump’s economic “vision” still spells economic danger.
Just this week, Trump flirted again with defaulting on the nation’s debt, saying that you “could make the case” for a default — which would cause widespread economic panic — only to take it back today. Given Trump’s own history of defaulting on what he owes his lenders and his workers, Trump’s latest assurance rings hollow. And he threatened the independence of the Federal Reserve by accusing Fed Chair Janet Yellen of keeping interest rates “artificially low to get Obama retired” — an accusation he repeated after his speech today.
Donald Trump’s economic plan is more than his tax plan — it is also his threat to remove 11.3 million undocumented workers, start a trade war with China and Mexico, and possibly default on the nation’s debt. An earlier analysis from Center for American Progress Action Fund showed that a spike in interest rates following a default on the national debt as Trump he has advocated could result in the loss of over 3 million jobs and could force homeowners to take a $72,000 hit in the value to their homes. A recent independent analysis of Trump’s economic plan by Oxford Economics concluded that Trump’s economic plans would reduce GDP by 5%. Similarly, Moody’s concluded that Trump’s agenda would start a recession in early 2018 that would last into 2020 and there would be as many as 3.5 million fewer jobs by the end of his first term.
Trump’s tax plan is still too high a price to pay for slashing the tax bills of the country’s wealthiest.
Trump claimed today that his tax plan would cost a whopping $4 trillion, but that two-thirds of his plan will be paid for by the economic growth caused by his tax, immigration, energy, regulatory, and trade policies. Earlier analyses that demonstrated how full enactment of Trump’s policies in some of these areas would severely hurt rather than help the economy, and simply accepting Trump’s word on the economic growth claims of his economic plans just doesn’t cut it. And ample evidence shows tax cuts do not grow the economy.
Penny Pinching Middle-Class Programs
Trump is also dusting off an old Republican policy called the “penny plan” to make indiscriminate cuts to vital programs, with the cuts growing larger each year by one percent. This includes scientific and medical research that drives economic growth and saves lives, education funding to support low-income school districts and special education, and even Head Start preschool, despite Trump’s claims about helping working families access child care. While Trump says defense funding would be exempt from these cuts, it appears that veterans’ health care, infrastructure programs, and even the border patrol would also take major cuts.
While the cuts in the “penny plan” may sound small, this is actually just a con to hide huge cuts. By the end of Trump’s first term in fiscal year 2020, nondefense discretionary programs would be capped at about $498 billion under Trump’s penny plan, which is 8 percent less than even the sequester spending cap of $542 for FY 2020, which is far too low as it is. While the penny plan only cuts by 1 percent per year, the sequester caps actually increase slightly over time to at least partially compensate for inflation. Instead of making things worse, lawmakers will need to strike a new budget deal next year to prevent the sequester caps from slashing middle-class investments and hollowing-out the safeguards that prevent the playing field from tilting further towards the wealthy and powerful.
Despite Trump’s attempt to show yet another pivot during his economic speech, Trump’s proposed changes are hardly changes at all. Trump is still flirting with renegotiating the public debt, which would cause global economic turmoil. He is still pushing reckless tax policies that stand to benefit him and his family handsomely. And his plans together amount to a very costly hit to the economy. In short, little has changed — except for cutting the biggest part of his previous middle-class tax cut by three-quarters. He is still borrowing a lot of bad ideas from the conservative, trickle-down economics of GOP tradition, throwing in yet more sweeteners for people like him, and playing chicken with the global economy. His economic “vision” is one that Americans just can’t afford.