Donald Trump's tax plan doesn't break with Republican dogmas

http://www.theguardian.com/commentisfree/2015/sep/29/donald-trump-tax-plan-republican-dogmas

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If we tried to put down a marker anywhere on this campaign where Donald Trump supposedly shot himself in the foot, it’d look like one of those dotted lines from a Family Circus comic. Donald’s Day Out. Donald’s Sunday Adventure. Donald’s Campaign Rise. Who’s to blame? Not Me. Immigrants.

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The old rules don’t apply to Trump. He can insult John McCain and get away with it, and when he says that rich guys can afford to pay more taxes, the Club for Growth can howl while crowds of conservative die-hards cheer. Which makes calling any one thing Trump does “a mistake” nearly futile. Under normal circumstances, the tax plan that Trump unveiled Monday should be a mistake. It sounds populist, after all those applause lines on the stump about making hedge fund guys pay, but it isn’t – not really. It doesn’t work, but who’s to say what works anymore? Not Me.

Points to Trump for showmanship, though. Under his plan, those making $25,000/year or less will pay zero taxes, so long as they send a one-page form to the IRS stating: “I win.” His plan reduces the total number of tax brackets from seven to four with, again, the bottom bracket paying nothing so long as they send the IRS a catchphrase. Maybe people who don’t have a pen can take one of those new Harry Potter-esque iPhone moving selfies of them doing a Fonzie snap-point thing. Anyway, people making $25,000-$50,000 (or couples making $50,000-$100,000) will pay 10% and keep almost all their deductions. People making $50,000-150,000 (and couples $100,000-$300,000) pay 20% and would still enjoy a little over half their current potential deductions. People making more than $150,000 and couples making over $300,000 would lose almost all their deductions and pay 25%.

Meanwhile, the plan offers a few other faintly populist rumblings. Middle-class Americans would keep their mortgage-interest deductions while the carried-interest loophole would be eliminated, although that income would only be taxed at the top 25% rate. How much that will actually ding the rich depends on how stupid they or their accountants are, since average Americans didn’t start screaming about carried interest until Matt Taibbi’s articles in Rolling Stone on the Great Recession popularized loathing of it around 2008, meaning everyone not paying it has had seven years to game-plan not paying some other tax instead, when the time comes.

Further, Trump called for a quasi-amnesty of income earned overseas, offering a one-time 10% rate on the $2.5tn lurking beyond our borders. After that, businesses would no longer be able to defer taxation on overseas earnings. The whiffs of populism die here. Trump wants to reduce the corporate tax rate from 35% (which is already applied with the watertight structure of a colander) to 15%. This might seem like a gesture that unlocks investment revenue and spurs the economy forward – if you believe the supply-side line – but the GAO estimates that large corporations already pay on average about 12.6%. At best, this might be considered codifying our existing arrangement, while expanding other exemptions.

For instance, as the Washington Post’s Dave Weigel reports: Trump’s cutting of “pass-through” income tax rates from 39.6 to 15% opens up as many loopholes as his other plans close. As Jared Bernstein, a former economic advisor to Vice President Joe Biden, told him: “Every single person in the top bracket would have a huge incentive to incorporate somehow.”

Additionally, Trump called for the elimination of the Estate Tax, which has been a bulwark of progressive taxation since its creation, and whose elimination can in no way be construed as populist. Currently, 99.8% of estates pay no estate tax, which only kicks in at $5.43m in value and only starts to apply to dollar amounts above that exemption. This would be very good news if you had a name like, say, Donald Trump, Jr, Ivanka Trump, Eric Trump, Tiffany Trump or Barron Trump.

All told, this is hardly populist and very expensive. According to a Citizens for Tax Justice report, the bottom-line numbers are pretty ugly. Trump’s plan would decrease tax revenues by roughly $900bn in year one and cost the federal government up to $10tn over the course of the decade. In exchange, the poorest 20% of Americans would get roughly $250 back on average; middle-income Americans would get an average of a little more than $2,500, and top 1% earners would get back an average of over $184,000. In even starker terms, Vox prepared this graph that pairs Jeb Bush and Trump’s tax plans. Trump kicks back over $100,000 more to the top 1 %.

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It’s important to mention Jeb Bush, because he said something pretty enlightening over the weekend. Bush defended his tax plan by saying: “Of course, tax cuts for everybody is going to generate more for people that are paying a lot more. I mean that’s just the way it is.”

What’s interesting here is the begged question at the heart of Bush’s logic, a statement of just the way things are that he probably doesn’t intend but which is shared by every member of the current Republican presidential field. It’s the idea that, if we’re going to have tax cuts, they have to be for everybody. And of course that’s absurd. You can cut taxes for everybody and increase the highest marginal tax rate, and the world will not explode. This is why Europe is not burned to cinders. It is the nightmare lurking at the heart of Republican economic policy, that the golden age of the American economy they hearken to so fondly – the 1950s, a time when we could still pay to fix a bridge – occurred under a highest marginal tax rate that is 51 points higher than the rate under which America is currently being strangled.

Trump had a chance to throw a wrench into the Republican economic works, and he skipped out on it. Those cheers on the stump for saying he’d be willing to stick it to finance guys weren’t sporadic or isolated. Trump really had a shot here, if only because the Republican Party has codified Worthington’s Law as its guiding – arguably only – economic and social principle. For years, we’ve been told to listen to rich people because they’re rich, and they’re better than we are because they are rich. Why is someone smart? Because he’s rich. Well, here was a guy with a huge fortune willing to say that he should pay more, and so could a bunch of finance guys, and he would have been unimpeachable. Just look at those big hotels, like Monopoly with more brass. Instead, he just called for the country to punt more money at the obscenely wealthy than the low-energy scion of a political/banking/oil dynasty wants to.

And who knows? Maybe it works. Maybe poor and middle-class voters look at that “I win” letter to the IRS and think that this Trump guy really knows how to stick it to The Man, even as they get back $180,000 fewer dollars than a one-percenter. Maybe this is another non-mistake after a seemingly endless dotted-line trail of mistakes that didn’t matter. But let the record show that, when there was a chance for a self-described straight-talker like Trump to actually put his own vague challenge to the prevailing conservative economic orthodoxy into numbers, he said Not Me, and vanished.