Can Trump Bullshit His Way Into A Tax Cut For The 1%?

By the end of the week, a lot of people were saying Trump's tax plan would fail because of Republicans in New York and New Jersey. They're flipping out because Trump wants to eliminate the federal tax deduction of state & local taxes. The Wall Street Journal noted on Thursday the the Republican Tax Plan Quickly Hits First Hurdle, pointing out that "GOP lawmakers from high-tax states oppose repealing individual deduction for state and local taxes" and citing Republican members from New York and New Jersey. NY has 9 Republicans and NJ has 5 and it's great if they really are fighting this injustice. But what about California, which has the most to lose. There are 14 Republicans in the California delegation-- same as NY and NJ combined and that includes Majority Leader Kevin McCarthy and, along with deadwood with no influence, like Duncan Hunter, Dana Rohrabacher, Ken Calvert, Mimi Walters, Steve Knight and Doug LaMalfa, powerful senior members like Ed Royce, Devin Nunes and Darrell Issa. But, is far, there hasn't been a peep out of any of them.

McCarthy wants to eliminate the estate tax and cut corporate taxes and taxes on the wealthiest 1% so badly that he's ready to screw over middle class California taxpayers by offering a $1.3 TRILLION offset by eliminating the state and local tax deductions. California gets hit the hardest, although the other states that will be screwed are New York, New Jersey, Massachusetts, Connecticut, Rhode Island, Maryland, Oregon, Illinois, Minnesota and, interestingly, Wisconsin, Paul Ryan's home state. (How much is this worth to individual taxpayers? In NYC-- the average deduction for state and local taxes is $25,000 a year... so real money.)

7 Republicans signed a letter to Mnuchin urging that the itemized deduction for state and local taxes be retained in tax reform: Leonard Lance (NJ), Tom MacArthur (NJ), Rodney Frelinghuysen (NJ), Claudia Tenney (NY), Chris Smith (NJ), Peter King (NY) and Frank LoBiondo (NJ). Lots of Californians signed on as well, but only Democrats, not one Republican. Same in Illinois and Wisconsin-- no Republicans. The Republican majority in the House is 46, the number of Republicans in states that are going to get creamed if this ever passes: 52. They have the clout... if they want to use it.

The California Republicans may seem uninterested in stopping Trump's anti-California plan, but their progressive 2018 challengers are very interested. In northeast Orange County (CA-39), Sam Jammal is running against the Republican who should be in position to stop this kind of thing, Ed Royce, a senior member of the House Financial Services Committee. And Sam is calling Royce out in a big way that is resonating with his district's voters: "The new Trump tax on California families that's to the proposed changes to the state and local tax deduction should be enough for any Californian to oppose tax reform, but the appeal of helping the uber wealthy and Trump seems to be too much for Ed. It's a shame but not surprising when you consider where he stands on every other policy Trump proposes. He just doesn't represent any of us down here in the 39th."

Just south of the 39th, also in Orange County, consumer advocate Katie Porter today ripped her rubber stamp opponent, Mimi Walters (CA-45), for "actively supporting Trump's new tax plan. Walters is openly backing the plan despite new reports showing it would raise taxes on thousands of families in the 45th district-- all to fund tax breaks for billionaires and big corporations. It's clear Mimi Walters will back virtually any policy-- no matter how harmful it is to her constituents-- so long as it has Trump's seal of approval," said Porter. "The Trump/Walters plan would raise taxes on thousands of families in her district and pile up trillions in debt-- all to fund giveaways to billionaires and huge corporations. It is just reckless. Just as we saw with Walters' zealous defense of the Trump's attack on health care, the President's wish is her command, and Walters has a 97.8% record of voting with Trump to prove it."

Laura Oatman is the progressive candidate running against GOP crackpot Dana Rohrabacher in the wealthiest of the Orange County districts (CA-48). Several other Orange Co. candidates from different districts-- AND Mimi Walters who supposedly represents CA-45-- live in Rohrabacher's district because its so beautiful. But people there pay a lot of taxes and eliminating the state and local tax deduction is going to hit the middle class in that district especially hard. Rohrabacher hasn't had anything to say about it. Laura has though: "At a time when income inequality is already out of control, Trump’s tax plan will do everything to help himself and his billionaire friends, who are already doing very well under this economy, and nothing to help working class and middle-class families who are struggling. Trickle down economics has never worked, but particularly not now when huge corporations are utilizing automation, not people, to maximize their profits. We need to close tax loopholes and ensure that corporations are paying their fair share-- not slash taxes for Donald Trump’s billionaire buddies. Trump’s tax plan is simply a rich man’s tax break. Targeting Orange County taxpayers by ending the state income tax deduction is something Mr. Rohrabacher should be pushing back against. If he doesn't, I will. People in these communities deserve a representative who fights for them, not for Paul Ryan and Donald Trump."

Dr. David Gill is running for the central Illinois seat that starts up in Bloomington and Champaign and proceeds south and west through Decatur and Springfield and down to the exurbs north and east of St. Louis (IL-13). Illinois is one of the top 10 worst hit states if the state and local tax deduction is eliminated-- and not a single Illinois Republican member of Congress is complaining. Gill told us that "It amazes me that my opponent, Rodney Davis, supports the Trump Tax Plan. Our district is filled with people who will suffer real and significant economic pain with the elimination of the federal tax deduction for state and local taxes. Of course, I shouldn't be surprised-- virtually everything that Mr. Davis does is designed to increase the wealth of the already-rich and the large corporations who pour money into his campaign coffers. This leads to overwhelming hypocrisy on his part at times; I remember when I ran against him in 2012, he repeatedly screeched about our $18 trillion deficit and whined that 'It's not fair to leave such a deficit to my children and grandchildren.' Given his zeal to follow the marching orders of his party and his wealthy donors, and the furthering of the deficit caused by the Trump tax plan, it appears that Rodney has grown much less concerned about the future of his children and their children."

Yesterday Frank Clemente, executive director, Americans for Tax Fairness, said that "It is absolutely outrageous that Donald Trump and Paul Ryan would seek to increase taxes on middle class families while lowering them for millionaires and billionaires. It's doubly outrageous that while they're doling out extra yachts and private jets to the elite, their budgets make cuts to Medicaid, Medicare, Social Security, and public education, further lowering the standard of living for working families. That's no tax plan, that's a tax scam. The Washington Post stopped short of calling it a scam-- but just short. They quoted the Brookings Tax Policy Center: "Despite repeated promises from Republican lawmakers that the plan is designed to provide relief to the middle class, nearly 30 percent of taxpayers with incomes between $50,000 and $150,000 would see a tax increase" and "the majority of households that made between $150,000 and $300,000 would see a tax increase."

Those trends were credited to the loss of itemized deductions, particularly the ability to deduct state and local property tax deductions from income. The loss of the personal exemption, which currently shields $4,050 of income from federal taxes for every household member also played a major role in increasing taxes for some households-- an effect that got worse over time, because the amount of the personal exemption kept pace with inflation.

Meanwhile, 80 percent of the tax benefits would accrue to those in the top 1 percent-- households making more than about $900,000 a year, who would see their taxes drop by more than $200,000 on average.

Separately, the Post ran it through their truth tester and found the Republicans are trying to sell this thing to the public with Pinochio-laden lies. "In selling President Trump’s tax plan," wrote Glenn Kessler, "his aides have resorted to making strikingly misleading statements to defend it." He lists the 2 whoppers coming out of the White House in this regard, first one from Gary Cohn and then one from Steven Mnuchin.

• The wealthy are not getting a tax cut under our plan- The Trump tax plan drops the top bracket from 39.6 to 35 percent, and allows for the possibility of a 25 percent top rate through a pass-through entity. It presumably would also eliminate a 3.8 percent Obamacare tax on investment income that hits only upper-income taxpayers.

...Besides a reduction in the top tax rate, the tax plan would eliminate the alternative minimum tax (AMT). That in theory should be a boon for the wealthy as well, although it increasingly has snared families in the upper middle class, especially if they live in high-tax states or have many children.

...[T]he tax plan calls for eliminating the estate tax, although it is unclear on whether any tax would be required when someone dies. Currently, the estate tax is estimated to affect only about 5,500 estates out of nearly 3 million estates because as much as $11 million can be shielded from taxation.

• We think this tax plan will cut down the deficits by a trillion dollar- Mnuchin is anticipating $2 trillion in revenue and Cohn is anticipating $3 trillion in revenue. But these are both very rosy estimates of the impact of a tax cut in economic growth. No serious economist believes that a tax cut boosts economic growth so much that the tax cut pays for itself.

The Congressional Budget Office, under Douglas Holtz-Eakin, a Republican, in 2005 estimated that a 10 percent reduction in federal income tax rates would have macroeconomic feedbacks of between 15 and 30 percent. In other words, a $1 trillion tax cut might yield $150 billion to $300 billion in additional revenue. That still means a reduction in revenue of as much as $700 billion.

“The big problem is that there is no fully specified plan,” Holtz-Eakin said. “Without one, you can’t gauge the growth or know the budget cost. I’m broadly sympathetic to the framework, but it is a start, not the finish.”

As Holtz-Eakin put it earlier this year in an opinion column for The Washington Post: “Proposing trillions of dollars in tax cuts and then casually asserting that such a plan would ‘pay for itself with growth’ … is detached from empirical reality.”

Indeed, contrary to popular perception, even Ronald Reagan predicted revenue would fall as a result of his big 1981 tax cut that reduced tax rates. That is shown in Reagan administration and Congressional Budget Office scores of the Reagan tax plan reproduced in a 2011 article for Tax Notes by Bruce Bartlett, who helped craft the 1981 tax cut as a congressional aide at the time. The estimates turned out to be wrong because the 1981-1982 recession was deeper than expected and inflation fell more rapidly than expected, so Reagan boosted taxes just one year after his tax cut.

William A. Niskanen, chairman of Reagan’s Council of Economic Advisors, co-wrote a paper in 1996 that defended Reagan’s economic record but also said it was “an enduring myth” that Reagan officials believed tax cuts would pay for themselves. “This was nonsense from day one, because the credible evidence overwhelmingly indicates that revenue feedbacks from tax cuts is 35 cents per dollar, at most,” Niskanen wrote, noting that “the Reagan administration never assumed that the tax cuts would pay for themselves.”

A Treasury Department study on the impact of tax bills since 1940, first released in 2006 and later updated, found that the 1981 tax cut reduced revenue by $208 billion in its first four years. George W. Bush’s 2001 tax cut led to a revenue loss of $91 billion, the Treasury paper calculated. (The figures are rendered in constant 2012 dollars.)

Both the Reagan and Bush tax cuts came during periods of economic stress, which is certainly not the case now. So there is less room now for a big swing upward in the economy, especially with the country’s aging workforce.

The Treasury Department did not respond to a query for an explanation of Mnuchin’s math. But frankly it is irresponsible for a treasury secretary to claim a certain amount of growth or revenue without even producing the details of a plan, as the details determine the impact on the economy.

Though the details of the tax plan are sparse, both Cohn and Mnuchin made statements that are simply false. Of course the wealthy will do well under the tax cut, even if certain deductions are eliminated, and it’s silly to pretend otherwise. And it’s a fantasy to claim that the tax cut will pay for itself-- and even reduce the deficit-- especially in an economy that already has low unemployment and a booming stock market.

Four Pinocchios