President Trump’s tax plan is less a plan than a wish list, too skimpy on details to allow for any real analysis. The White House has basically admitted that this is simply an opening bid, with budget director Mick Mulvaney acknowledging it was designed to be vague. “We did it on purpose,” he said. “This is the first discussion.”
There are few of the usual elements of even a basic tax proposal: details on how each part will work, modeling of who would be affected and how, analyses to bolster their claims. Instead, there is happy talk from Treasury Secretary Steven Mnuchin, who declares — with no evidence — that the cuts will touch off a wave of growth and prosperity that will make up for revenue losses. In keeping with his swashbuckling, real-estate-gambler persona, Trump is betting on the come, only this time with the American economy. Pardon us for being skeptical.
The GOP-led Congress also is becoming leery of Trump’s back-of-the-napkin style of planning. Leaders there described the proposed overhaul as “principles outlined by the Trump administration” that would “serve as critical guideposts.” Translation: We’ll take it from here.
This country desperately needs tax reform. It’s been 30 years since the last one, and the economy has changed greatly in that time. The system is too complex: Even average wage earners must go through elaborate tax preparations, lest they run afoul of some obscure tax rule or miss out on some little-known deduction. Corporations are laboring under one of the highest tax rates in the world. Some have lowered their effective tax rate through loopholes that further complicate the system, but others have not, becoming less competitive in a brutal global market.
Trump’s plan has some elements worth pursuing: a lower tax rate for corporations and a lower rate on foreign profits that could serve as an inducement to bring them back to the U.S. While many tax policy experts have recommended eliminating the mortgage interest deduction, Trump takes a different route, doubling the standard deduction, so that many more households would have no need of the mortgage deduction. The housing industry will look askance at that, but it could be a boon for renters.
However, Trump’s plan also is too heavily tilted to the wealthy. It wipes out the alternative minimum tax, which is in need of adjustment, but not elimination. He would scrap most deductions, including medical expenses, which would penalize the sickest among us. The inability to deduct state and local taxes would hurt higher tax states like Minnesota and be a gut punch to middle-class taxpayers.
The biggest flaw in Trump’s plan, however, is its potential impact on an already crushing national debt, which now stands at just under $20 trillion. By some estimates, Trump’s proposal could add $7 trillion in a decade, which would rise to $20 trillion by 2036. That doesn’t count the vast sums Trump wants to spend on his border wall, the military and infrastructure.
Bernard Baumohl, chief global economist at the Economic Outlook Group, a forecasting firm, might have said it best when he told the New York Times that “the bare bones plan we saw unveiled today is already conceptually flawed and unlikely to go far in Congress.” The final product, he predicted, “will bear no resemblance to the principal points highlighted in today’s meager release,” and even as a first step, was unimpressive.
The House GOP plan, which centers on a border adjustment tax that would heavily penalize import-reliant Minnesota companies such as Best Buy, is just as distasteful.
As a next step, Trump and his army of investment banker advisers should roll up their sleeves and do the hard work of creating a realistic and detailed plan worthy of the biggest, most important client they’ve ever had — U.S. taxpayers.