Dr.Doom Exposes Trump's Tax Plan As "A Plot Against The 99%"

Tyler Durden's picture

Authored by Nouriel Roubini via Project Syndicate,

US President Donald Trump, in partnership with congressional Republicans, is pursuing tax cuts that will blow up the fiscal deficit and add to the public debt, while benefiting the rich at the expense of middle- and working-class Americans. Once again, Trump has not hesitated to betray the people he conned into voting for him.

After multiple failed attempts to “repeal and replace” the 2010 Affordable Care Act (Obamacare), US President Donald Trump’s administration now hopes to achieve its first legislative victory with a massive tax giveaway that it has wrapped in the language of “tax reform.” To that end, Republicans in the US Congress have just unveiled a bill that, if enacted, could vastly widen the deficit and increase the public debt by as much as $4 trillion over the next decade.

Worse still, the Republican plan is designed to funnel most of the benefits to the rich.

It would lower the corporate tax rate from 35% to 20%, reduce the tax on capital gains (investment profits), eliminate the estate tax, and introduce other changes that benefit the wealthy.

Like the Republicans’ health-care proposals, their tax plan offers little to struggling middle- and working-class households. Trump continues to govern as a plutopopulist – a plutocrat pretending to be a populist – who has not hesitated to betray the people he conned into voting for him.

Before releasing the current plan, congressional Republicans passed resolutions to reduce taxes by $1.5 trillion over the next decade. But the actual tax cut will likely be much larger. The proposal to lower the corporate tax rate to 20%, for example, implies a $2.5 trillion tax cut, once other tax cuts in the plan are considered. To keep the tax cuts below $1.5 trillion, one would have to keep the corporate rate at or above 28% and broaden the tax base.

To make up for this difference, the bill proposes a cap on the mortgage-interest deduction for homeowners, and on the deductibility of property tax, as well as eliminating other tax benefits for the middle class. It would eliminate or cap the income-tax deduction for state and local taxes – again, squeezing the middle class to cover tax cuts for the rich.

The problem is that eliminating the state and local tax deduction would provide just $1.3 trillion in revenue over the next decade. And because this change would hurt middle-income families, many epublicans in high-tax states such as New York, New Jersey, and California will oppose it. If congressional Republicans and the Trump administration end up keeping the state and local tax deduction, their tax cuts will add $3.8 trillion to the public debt over the next decade.

Moreover, Republicans want their tax cuts to be permanent. Yet they are trying to enact their bill through the congressional budget reconciliation process, which requires any tax cuts that add to the deficit after ten years to be temporary. Even if the Republican plan really did keep the cuts at $1.5 trillion, it still would not comply with this rule.

Trump and congressional Republicans argue that tax cuts will boost economic growth, and thus revenues. But standard dynamic scoring models show that increased growth would offset the cost by only one third, at most: the US would face $1 trillion, rather than $1.5 trillion, in lost revenues.

So, how will the Republicans fudge these fiscal rules? For starters, like President George W. Bush’s administration, they will set the personal income tax cuts to expire after ten years. This will give them plenty of time to enjoy the political gains of tax cuts – starting with the midterm elections in 2018 – long before the bill comes due.

But corporate tax cuts are another matter, because making them temporary would defeat the purpose. Companies operate with a much longer time horizon than households, and are unlikely to boost investment in response to cuts that last only ten years.

To get around this problem, Trump and the Republicans might decide to bend or manipulate congressional rules. Or they might rely on unorthodox and untested economic models to claim that their cuts actually are revenue-neutral, and will have a much larger impact on growth than what standard models project.

Most mainstream economists would estimate that a tax cut of the size being proposed would increase US potential growth by 20 basis points, at most, taking the growth rate from around 2% to 2.2% over time. Yet Trump and his advisers have clung to the false claim that growth will increase to 3% or even 4%.

If this far-fetched projection sounds like voodoo economics all over again, that’s because it is. Voodoo economics came into parlance in the 1980 presidential election, when George H. W. Bush criticized Ronald Reagan for claiming that his planned tax cuts would pay for themselves. Bush was vindicated just a few years later, when the Reagan administration’s tax cuts blew a huge hole in US public finances.

And yet Republican administrations have persisted in pursuing unsustainable and undesirable tax cuts benefiting primarily the rich, leading to ever-larger deficits and trillions of dollars of additional public debt. The Republicans’ eagerness to pass reckless tax cuts once in power gives the lie to their claims of fiscal rectitude.

Making matters worse, America’s pluto-populist president is peddling a tax plan that will further increase economic inequality at a time when income and wealth gaps are already widening, owing to the effects of globalization, trade, migration, new labor-saving technologies, and market consolidation in many sectors.

Given that the rich tend to save more than middle- and working-class people, who must spend a larger proportion of their incomes on basic necessities, the Trump tax plan will do little for economic growth; it may even decrease it. And it will add far more to the US’s excessively high public-debt burden. It is fake reform, brought to us by an alt-fact administration and a party that has lost its economic bearings.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
truthalwayswinsout's picture

Trump's tax cut is a billionaire's bonanza. He lowered their tax rates and then left the Hedge fund exception for Wall Street. He still allows Jackie O trusts as well.

It is clear that Trump is good at one thing and one thing only; blowing smoke up people's asses.

Obamacare?

Clinton in Jail?

Immigration?

The Wall?

Trade deals?

 

 

surf@jm's picture

This mess is coming out of congress......

Trump just desperately wants something to pass this year, no matter how much lipstick has to be stuck on it..........

nevertheless's picture

You mean like an amnesty bill, which would be just fine with you too I take it. 

Singelguy's picture

I think it is more likely that Trump is deliberately exposing the entrenched bought and paid for establishment Congress critters for who and what they are. He will be happy to remind everyone next fall before the mid term elections.

rickv404's picture

"Bush was vindicated just a few years later, when the Reagan administration’s tax cuts blew a huge hole in US public finances."

And Bush betrayed fiscal responsibility, and his son did much worse, by raising taxes. 

willspeaks's picture

Tax cuts did not blow a hole in anything. Runaway spending did.

Reagan's tax cuts ended up doubling the revenue to the treasury because of the extra economic activity.

Congress spent it all, and a whole lot more.

Singelguy's picture

That was only half the story. Reagan wanted to cut taxes AND cut spending. But the Democrat controlled Congress said, let's do the tax cuts first and do the spending cuts later. Reagan agreed but the spending cuts couldn't get past first base. It was the lack of spending cuts that blew a big hole in the public finances.

ZIRPY's picture

The only middle class that lose out on the new  500k mortgage deduction limits are ones who live in the large metro areas on the coasts. 

500k is pretty much luxury housing in much of flyover country. 

unlock your mind's picture

good grief...zerohedge is lately starting to go full 'libtard'.

This article is a complete joke and clearly just done as an attack on Trump.

gdpetti's picture

Yeah, that was my impression.... this guy doesn't know how to hide his political leanings, using "THE REPUBLICANS" in nearly every paragraph.

We know the system can't be fixed, so why not help expose all the crap going on for decades by THE ESTABLISHMENT... Dems and Repubs have worked together for a very, very long time to accomplish all this graft, greed, corruption, warmongering genocide, torture etc.... So, is this guy a former Clintonite or what? Trumpy might not be a  member of the DC club, but he's been in bed with the Agency/banksters etc since taking over the front man job at Resorts International in the 80s... so this tax policy isn't new... same BS as usual... the system is OWO... meaning it is engineered for collapse.

roadhazard's picture

Trump ONLY cares about a WIN. YOU are not even considered.

AriusArmenian's picture

Can elections matter if the result is always the same?

PotusNextus's picture

"grow an economy" is more magical thinking language from numbnuts who didn't have proper "parenting" & "Educationing" growing up to be children..

In the Case of U.S.A. it is necessary to build an economy over and out of the ruins of an economy that pre-existed the current horrible mess. We don't have an econmy; instead we have fascist corporate, military industrial and de-employed masses Welfare States...that produce waste and loss and nothing useful and a bunch of magic thnkers talking about "growing economies" using language that is a dissimulative off branch of PC lack of enganging any real object with objective lanfguage so as to avoid actually stating or asserting anything real. So fuck off all you half-wit morons.

nevertheless's picture

Wall Street should be burned to the ground. Money is the root of all evil, and we all know who has all the money...they pick the winners and the losers. 

My household payed way over $50k last year in taxes, and I would not mind it in the least if it were going to make my fellow Americans, college, hospitals, roads...but it's not, it's going to ILLEGALS who need welfare, healthcare and education, it's going to fight wars for Israel, and pay for Israel's weapons, and it's going to pork barrel projects the rich get because they own the politicians, AND IT IS GOING TO THE FEDERAL RESERVE FOR DOING WHAT WE COULD DO FOR OURSELVES. 

DEMOCRACY is the great equalizer, one man, one vote. Capitalism is one over the many. VERY RARELY DO THOSE AT THE TOP WORK HARD. And if you made your money on the American worker, it should go back into society. The rich paid to get corporations turned into citizens...what branch do they not own?

Instead we now have a nation of traitors who only care about themselves. If that is what capitalism brings, it is evil. 

America was far far far greater in the 30's 40's and 50's than it is now. the difference is the rich paid 50% of their income back into society and the Middle Class was the envy of the world. 

But the Zionist bankers and elites can't have that, so they went to work destroying the middle class, open borders, mass migration, moved jobs overseas, and bull shit "free trade". 

Furthermore, I don't mind paying taxes to my local school, does that make me a socialist? Sickens me how the globalists glorify capitalism, even as it ravages the nation, yet demonize any idea that people have a responsibility to their fellow Americans. BUT YOU DON'T MIND WHEN THOSE AMERICAN KIDS DIE FIGHTING IN ISRAEL'S WAR

The rich get richer and America dies. The great middle class IS what made America great. 

Faeriedust's picture

Actually, it's not as bad as they make it sound.

Corporate tax cuts are of course unnecessary, but they are being partially offset by the loss of certain deductions, most notably that for interest on borrowing rather than raising capital by profits or stock purchases.  The universality of corporate borrowing has led to an excessive dependence on the finance industry by businesses of every type in cutthroat competition to EXPAND by any means possible.  The importance of finance distorts the market by rewarding the production of power-point presentations (to financiers) over production of genuine goods and services, massively disadvantages small businesses, and bloats the already-bloated FIRE sector.  There are solid economic reasons for minimizing interest deductibility of all sorts, not the least being that it would gradually rein in the power of banksters over the economy in general.  Now don't kid yourselves -- this would reduce the profits of banksters enormously and thereby reducing "growth" in the "GDP" -- rather like the burst of rebuilding after a hurricane INCREASES the GDP measurement. The benefit to the REAL economy would look bad on the usual statistics, which are defined by what makes bankers rich.

The capping of mortgage deductions to an amount representing TWICE THE MEDIAN HOUSE PRICE similarly distresses bankers and real estate speculators, but leads to the desirable outcome of overall lower housing prices for the average buyer and a damping down of excess speculative frenzy in "red hot" markets.  The capping of state income and property tax deductions at $10,000 would inconvenience only persons 1) living in a few high-spending states who 2) make AT LEAST 3X THE MEDIAN WAGE.  Typical deductions for an individual taxpayer at about median wage ($37-38K) in an average-tax state run at between $2500-$3000.  Deductions of $10,000 require a wage of roughly $110,000 annually.  This might look low to stock flippers, but it's high enough that at least 85% of the population falls under the wire.

For the average person making a median wage, Trump's tax plan is a wash, leading to very small savings.  For the poor the benefits are higher, and yes, for the extremely wealthy, the benefits are far more than enough to make up for the loss of some deductions, as they will still get their nifty writeoffs for carried interest, capital gains, and all the other non-working income they receive for sitting on their candied asses.  Trump's plan is altogether too good for the very rich, BUT -- it has some interesting facets, facets which would specifically encourage the re-establishment of genuine productive industry and channel investment out of flipping houses and exacting rents from everyone else's economic activity while providing precisely nothing.  If, that is, the "reform" lasted for at least twenty years. 

MagicMoney's picture

Nah he's not the real Dr. Doom. Peter Schiff is real Dr. Doom. Just check out his youtube videos that span years. Some may consider him a perma-bear.