“Trumpenomics”: Five takeaways from the latest proposals
The economy has thrived since Trump’s inauguration, to the dismay of many. The Dow Jones has jumped time and time again, the inflation rate has fluctuated without becoming a cause of worry and the unemployment rate has fallen.
That said, much like the economic success under Reagan and Clinton, I’ll argue this has little to do with Trump’s policies, especially seeing he hasn’t had many legislative wins, though not for lack of effort.
Since he assumed office, we’ve seen several variations of a new tax code and new healthcare plan. While it’s hard to get in the mind of our Tweeter-in-Chief, there are a few things we can take away from these proposals.
Time to see what the Republicans are up to:
1. Debt reduction isn’t on the menu
If there wasn’t already enough evidence of the utter lack of interest among top Republicans to prevent catastrophic rises in the national debt (seen in the reckless spending of Republicans under Reagan and the Bushes) the last year has proven that, much like the Democrats, they don’t plan to prevent it. While they grab an occasional headline or two to give off the impression of fiscal responsibility, there is no substance to this claim.
Trump and Republicans have made headlines by trying to cut federal funding for Meals on Wheels membership organization, which received less than $249,000 from the US government in 2016 and they also made statements pondering the idea of defunding Planned Parenthood, an organization that similarly, receives little from the federal government.
Meanwhile, the GOP champions a $54 billion increase in an already bloated defense budget and wish to increase it by $929 billion over the next decade. Further, the bill also adds $45 billion in spending to fight the opioid epidemic, because that is somehow more “fiscally responsible” than cutting the billions in funding to the DEA to criminalize the substance.
The House and Senate versions, along with the ideas previously proposed by Donald Trump did make varying cuts to Medicaid, but the GOP is consistent in agreeing to replace that spending with block grants. The CBO score for the House healthcare plan is that it will reduce the deficit by $118.7 billion by 2026, and $321 billion for the Senate version. If either of these sound like accomplishments, they’re not, seeing that the 2016 deficit was $585 billion, and I can’t imagine what it will be in 2026.
It’s also worth mentioning that these tax cuts – while being beneficial to the economy in varying degrees – will cost the government revenue, even though I expect lowering the top bracket to 35% will increase revenue.
While I do think the estimate is a little high, the CBO score for the GOP tax plan is $2.2 trillion lost over the next decade, exponentially larger than the amount cut through the Healthcare plans. I think any true capitalist would vehemently support the tax cuts under the condition that the administration make necessary spending cuts to support it. Unfortunately, that simply isn’t the case.
2. Most of this is self-serving
I have no issue with tax cuts for the wealthy, in fact, I support them.
Recently, the latest GOP tax plan endorsed by the Trump administration calls for an elimination of the alternative minimum tax and the estate tax, both of which will provide massive benefits to the Trump family since Donald Trump almost exclusively paid the AMT, which accounted for $31 million of the $38 million he paid in federal taxes in 2005.
In addition, his family will benefit substantially from Trump’s wealth when he passes without a tax.
It’s more than understandable for someone to argue for a cut in income tax, corporate tax, alternative minimum tax or capital gains tax. What is hard to defend is the complete elimination of the alternative minimum tax, a tax that almost strictly is applied to earners between $200,000 to $1,000,000 per year, all the while not touching payroll taxes and increasing the lowest tax bracket.
Why should a middle class blue collar worker pay between 25-30% between income and payroll taxes while someone earning three quarters of a million dollars per year pay nothing?
The top tax rate will only be dropped to 35%, many of the deductions will be eliminated, the capital gains tax won’t be touched and actually many people in the top 10-2% of income earners will see a tax increase, depending on the bracket cutoffs for the 25% and 35%.
Of course, the corporate tax rate is also being reduced to 20%, but many people, myself included, like the idea of dropping taxes on business. The objective is none other than to decrease Trump’s taxes specifically rather than the upper class as a whole.
3. The poor shouldn’t expect any favors
Lower-income Republicans, I have some unfortunate news for you: it’s happening again. Much like how President Ronald Reagan gave higher-income Americans the largest tax cuts in history all the while increasing payroll taxes and upping the lowest income tax bracket by 15%, Trump’s tax reforms aren’t for you.
The latest plan is to increase the lowest bracket to 12%, make no changes to payroll, eliminate some exemptions and increase the standard deduction. While it depends greatly on income and filing status, the working poor shouldn’t expect significant changes – for better or worse – in their tax burden.
It is also somewhat unapparent what the GOP is trying to achieve with healthcare, as it certainly isn’t a full repeal.
Trump very recently stripped away $9 billion in ACA healthcare subsidies and suggested allowing Insurance companies to offer products across state lines to compete with each other, which are both steps in the right direction for rendering healthcare more affordable.
However, it still seems he intends to maintain some form of government Healthcare. Regardless, the lower spending from downsizing federal healthcare won’t be returned to the poor, as I previously mentioned that the tax cuts won’t benefit blue-collar America.
In perspective, however, it’s worth mentioning that $9 billion is very minimal seeing that Obamacare subsidies cost the United States $660 billion in 2016, so this cut is still very minimal and will make few changes to premiums.
4. The end goal for healthcare is hard to determine
As I previously mentioned, it’s hard to fully understand what the GOP and Trump administration hope to achieve with healthcare.
For one, until GOP Senators Susan Collins (R-ME), John McCain (R-AZ) and Lisa Murkowski (R-AK) stop voting against GOP healthcare plans, it seems they won’t get enough votes in the Senate regardless. Not to mention, more capitalist or right Republicans in the Senate like Ted Cruz (R-TX), Mike Lee (R-UT) and Rand Paul (R-KY) will push for more radical changes, meaning that the GOP may never get the opportunity to repeal, replace or alter Obamacare.
With three failed attempts at passing a new healthcare bill, it seems unlikely the GOP will pass anything.
So far, it seems more like a series of half-measures: a minor cut to the subsidies given to insurance companies that would lead to an elimination of cost-sharing subsidies, but then providing $70 billion to help insurance companies cover patients with high medical costs.
The House and Senate versions have varying cuts to Medicaid and both plans seem interested in repealing most of the Obamacare taxes, with the exception of the increased payroll tax hitting higher incomes and an investment income tax of 3.8%. However, that also repeals the 40% surtax on “Cadillac” insurance plans, the 10% increase in the health savings account withdraw tax, the 2.3% tax on medical device manufacturers, the 10% tax on indoor tanning services, and a number of other Obamacare taxes.
It still isn’t apparent why some of these subsidies and taxes were kept and others were not, but it certainly confirms earlier points.
First, debt reduction isn’t a primary concern for Republicans; otherwise they wouldn’t have eliminated the majority of tax hikes while keeping a majority of the funding. That isn’t to say some of this isn’t good – I, for one, definitely applaud the elimination of the excise tax on medical manufacturers. That said, Republicans are attempting to keep the majority of the subsidies in place while gutting most of the taxes, something that isn’t very fiscally responsible.
Second, it is fairly self-serving for Trump. Cutting the tanning services tax is far more applicable to President Trump’s daily life than payroll or investment tax, seeing he pays his dues through the alternative minimum tax, so keeping two taxes that rake in some revenue that don’t affect Trump isn’t bad politics.
5. Simplification seems to be on the agenda
Perhaps the best part of the Trump economic agenda is that it will in many ways make everyday life easier. Seven income tax brackets will be cut to three, the alternative minimum tax is eliminated, many Obamacare-era taxes are eradicated and most of the tax deductions are cut, even though it appears that the mortgage interest deduction and charitable donation deduction are here to stay.
A George Mason University study found that tax filling cost Americans $67-$378 billion per year, a number that would certainly dip even with these half-measures.
There are clearly sizeable economic benefits to reforming and reworking the tax code, something that many tax-filing companies that lobby Washington won’t be happy about. This isn’t to say all the details have been released – we still don’t know how the right hopes to alter the child tax credit and we don’t know all of the details with the corporate tax being lowered, but from the outside looking in, this is still a step in the right direction.
Overall, I’m hesitant to support these economic reforms and I’m lukewarm on many of these proposals. Tax cuts, privatization and simplification are all long overdue, but I’m not sure I want to reward a president’s manipulating of the government to make his wallet thicker, even if the new healthcare plan is better than the ACA, or if the new tax plan is slightly better than the current system (especially if it will lead to public debt proliferation).
For that matter, I question whether President Trump has an economic philosophy or rather that the Republican establishment is crafting these proposals and putting the President’s name on them.
The budget, tax plan and healthcare plan all seem sloppy at best – eliminating the AMT while leaving the poor to rot in the sewer with nearly the same tax burden and acting like an executive order to reduce insurance subsidies for the poor by $9 billion was a monumental victory while adding a $70 billion in a glorified subsidy to cover patients with high medical costs are just two examples. The Republican Party with its landmark immense political power across government had the potential to drive the American economy to eternal free-market success, but instead they proved themselves unworthy frauds that are hindering the efforts of libertarians to implement true capitalist reforms in America.