President Donald Trump is in a big rush for Congress to approve big tax cuts, and he is using the damage left by Hurricane Irma to argue his case. One has nothing to do with the other, except for their negative impact on middle-class Floridians. The nation needs tax reform, but not tax cuts for the wealthy that would sacrifice popular tax deductions and raise the federal deficit.
Before he traveled to Florida to survey the damage last week, Trump tweeted: “With Irma and Harvey devastation, Tax Cuts and Tax Reform is needed more than ever. Go Congress, go!” No, Congress, slow down. Tax cuts are not going to lessen the financial impact of the hurricanes, and there often is an economic stimulus after major storms as communities recover. Real tax reform takes time to refine and build consensus, and the last thing this nation needs is unfunded tax cuts like those enacted under President George W. Bush.
Trump promises the largest tax cut in history and met privately last week with key Republicans and Democrats, but details aren’t expected to be released until later this month. The president wants to cut the top federal corporate tax rate from 35 percent to 15 percent, although congressional negotiators are aiming for roughly a 20 percent rate. Republicans point out the U.S. corporate tax rate is the highest in the world, but in fact most companies pay a far lower rate, and after deductions and credits the highest effective tax rate is just over 19 percent.
Dramatically cutting corporate tax rates would not bring back the factories to the Midwest as the president promised. It would not create the millions of new jobs he talks about or increase economic growth by the wild numbers he tosses around. In fact, nonpartisan studies consistently suggest most of the benefits of corporate tax cuts go to company owners or investors, not to hire more workers or raise wages.
Similarly, Trump’s rhetoric is at odds with the math regarding his proposed reduction of seven individual tax brackets to three tax brackets of 10, 25 and 35 percent. The president said on his trip to Florida last week that he wants to cut taxes for the middle class and that “the wealthy Americans are not my priority.” Yet the Urban Institute-Brookings Institution Tax Policy Center estimates 40 percent of the benefits would go to the top 1 percent of households, which make more than $732,000 a year. Income inequality already is a major issue in this country, and the outlines of the president’s rough plan would make that worse.
Trump also is pushing an old Republican favorite: eliminating the estate tax. Republicans love to call the estate tax “the death tax,” but the idea that family farms and small businesses are being routinely lost because of the estate tax is a myth. Congress’ Joint Committee of Taxation says far less than 1 percent of all Americans pay any estate tax, and nearly all of them are among the wealthiest 5 percent. This is another tax break for the wealthy, not the middle class.
Predictably, negotiators for Congress and the Trump administration are struggling to find ways to pay for tax cuts that the Tax Policy Center estimates could cut federal revenue by up to $7.8 trillion over the next decade. Trump’s notion that economic growth will pay for most of it is fantasy, and Democrats are not going to sacrifice popular tax deductions such as those for mortgage interest and charitable donations to help pay for tax cuts for the rich. While some deficit spending could be justified for initiatives that would stimulate the economy, such as a substantial investment in infrastructure, there is no reason to add to the deficit for tax cuts to fulfill a campaign promise.
This nation could use real tax reform that makes the complicated federal tax code fairer and simpler without raising the deficit. But unless there is a sudden epiphany in Washington, what Trump and congressional leaders are pursuing is not tax reform. It’s just another tax cut for the wealthy that the nation cannot afford.