Tuesday, September 29, 2015

Trumpy The Populist? Uh... No


"We have an amazing code. It will be simple.
It will be easy. It will be fair.

Yes, yesterday Trump boasted: "There will be people in the upper echelons that won't be thrilled with this." And yes, he forced Jeb Bush into agreeing that the carried-interest loophole Republicans have clung to is inherently unfair and needs to be dumped. But will Trump's new tax plan fundamentally change the tenor of the Party of Greed and Selfishness and their horrific tax agenda? When Trump the fake "builder" tells the rubes, "This is my wheelhouse; that’s what I do well-- the economy is what I do well," he's doing what he actually does do well: lying. 

Manipulating markets for personal greed is not "the economy," something Trump knows almost nothing about. The headlines are all about how Trump's plan will cut taxes on regular folks and small businesses and raise them on the rich. But... is that really what Trump's plan would do, aside from pretty drastically reducing government revenues (and services)? Not really-- at least not the part about raising taxes on the rich.

The top tax rate for the fabulously wealthy-- now at 39.6%-- should probably be hiked up by at least another 10 points or so. Instead, Trumpy and his friends-- "it's going to cost me a fortune" he offered at his press conference, lying as usual-- would be paying 25% under his plan, just like in the Roaring Twenties and the beginning of the Great Depression that those years and policies brought on. Top rates on capital gains and dividends, which is how the rich get even richer, ought to go up substantially, but under Trump's plan they would get cut from 23.8% to 20%. In Trumpy World corporate tax rates would fall from 35% to 15% and the estate tax would be entirely abolished.
When talking about taxes in this campaign, Donald Trump has often sounded like a different kind of Republican. He says he will take on “the hedge fund guys” and their carried interest loophole. He thinks it’s “outrageous” how little tax some multimillionaires pay. But his plan calls for major tax cuts not just for the middle class but also for the richest Americans-- even the dreaded hedge fund managers. And despite his campaign’s assurances that the plan is “fiscally responsible,” it would grow budget deficits by trillions of dollars over a decade.

You could call Mr. Trump’s plan a higher-energy version of the tax plan Jeb Bush announced earlier this month: similar in structure, but with lower rates and wider tax brackets, meaning individual taxpayers would pay even less than under Mr. Bush, and the government would lose even more tax revenue.

...Trump says he’d pay for those tax rate reductions by “reducing or eliminating most deductions and loopholes available to the very rich.” But in truth, rich people already pay tax on most of their income, so there’s less revenue available from cutting rich people’s tax breaks than Mr. Trump and many voters believe.

In 2013, taxpayers earning between $500,000 and $10 million deducted or exempted an average of 12 percent of their income from tax; for those earning more than $10 million, the figure was 16 percent. If those deductions were abolished entirely (and Mr. Trump proposes only to reduce them), that would not come close to paying for a cut in the top tax rate from 39.6 percent to 25 percent, which is a relative reduction of 37 percent.

...Even the hedge fund managers Mr. Trump has railed against on the stump would get a tax cut under his plan. The usual fee structure for a hedge fund is called “2-and-20”: a flat management fee (often 2 percent) on all assets, plus a performance fee (often 20 percent) on profits above a set threshold. Currently, the management fee is taxed at ordinary rates up to 39.6 percent, while the performance fee enjoys a preferential rate of 23.8 percent. Under Mr. Trump’s plan, all this income would be taxed at a maximum of 25 percent. The performance fee would be subject to a small tax increase, but that effect would be dwarfed by the large tax cut on ordinary management fees.

...A document from the Trump campaign says all these tax cuts would be “fully paid for” by the elimination of deductions and by a one-time tax on foreign profits of American firms held abroad. That math simply does not add up: As discussed above, rich people do not currently take enough tax deductions to offset the tax rate cuts Mr. Trump proposes, and the one-time foreign profits tax might raise $250 billion, not close to the trillions of revenue that would be lost through tax rate cuts.

At a news conference Monday, Mr. Trump offered another way his tax plan would pay for itself: economic growth, perhaps as fast as 6 percent a year, again a higher-energy estimate than the 4 percent Mr. Bush has proposed. But there is no evidence to support the idea that such rapid growth can be produced through tax cuts.
As Greg Sargent informed his Washington Post readers right after Trump released his plan, based on consultation with Roberton Williams, a senior fellow at the Tax Policy Center, "It would probably result in a tax cut, possibly a very large one, for many of the highest earners."
It is possible, Williams said, that some high earners (say, those who make most of their money in carried interest) would see a higher tax burden. But many top earners would see their rates come down, he said, and it’s unlikely (though we still need more detail to be sure) that this could be offset by eliminating loopholes and deductions.

"From what I’ve seen so far, the cuts in tax rates are large enough that getting rid of tax preferences would not recoup the lost revenues," Williams says. "The tax rates for high income taxpayers are large enough that you need very big cuts in the tax preferences to make up the lost revenue. I don’t see anything in the plan that indicates there would be a large reduction enough in those preferences." The plan 'doesn’t appear to make the rich pay any more, and what detail we have suggests they would probably pay less," Williams said. "From the looks of it, they would do very well. But without the details, we can’t say for sure."

... We may soon have it confirmed that Trump’s plan also delivers a windfall to many top earners and would blow up the deficit. If so, then the temporary threat posed by the billionaire’s soak-the-rich talk-- that there might be a genuine outlier of a tax plan from a Republican candidate, forcing a GOP debate that challenged party dogma on the imperative of slashing the tax burden at the top-- will have been averted. And order will have been restored to the universe.

If you want an actual populist vision, former Labor Secretary Robert Reich has one for you: "Tax laws," he wrote, "have special loopholes for the partners of hedge funds and private-equity funds, special favors for the oil and gas industry, lower marginal income-tax rates on the highest incomes, and reduced estate taxes on great wealth."
Reversing the scourge of widening inequality requires reversing the upward pre-distributions within the rules of the market, and giving average people the bargaining power they need to get a larger share of the gains from growth.

The answer to this problem is not found in economics. It is found in politics. Ultimately, the trend toward widening inequality in America, as elsewhere, can be reversed only if the vast majority join together to demand fundamental change.

The most important political competition over the next decades will not be between the right and left, or between Republicans and Democrats. It will be between a majority of Americans who have been losing ground, and an economic elite that refuses to recognize or respond to its growing distress.
I can't wait to hear how Trump ally Ted Cruz reacts to this. After all, it would put the U.S. budget in debt to the tune of between $2 and $3 trillion. But for normal people, how seriously should anyone take the Trumpish proposals? This seriously... exactly this seriously:

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