Trump’s tax proposals debunk outsider myth

Trump’s tax proposals debunk outsider myth

Trump’s recently released tax proposals were dismissed by many in the GOP establishment as unrealistic. While this is certainly true, a closer look at the other candidates’ plans shows that the Trump tax plan is merely an exaggerated example of tax policy embraced by nearly all Republican candidates this presidential cycle.

“Give a man a reputation as an early riser and he can sleep ‘til noon”, said Mark Twain. Long before announcing his candidacy for the Presidency, Donald Trump had managed to obtain a reputation as the ultimate outsider: the apolitical businessman. The GOP establishment’s response to Trump’s success in the polls has done much to reinforce this image.

The notion of Trump as an independent maverick has now taken over to such an extent that it has obscured what a slightly closer look at his and other candidates’ budget plans clearly reveals: that while there are some true GOP mavericks aiming to ‘make America great again’, Trump is certainly not one of them. In fact, on taxes, he has shown himself to be the ultimate GOP establishmentarian.

Bush v Trump: Spot the difference

The extent to which Trump’s policies are in line with establishment thinking becomes clear when his tax proposals are compared to those published earlier this summer by the supposed chief insider – Jeb Bush. The most striking conclusion: the plans can hardly be told apart.

Like Trump, Bush calls for a reduction in the number of tax brackets and the creation of a zero bracket; like Trump, Bush wants to cut the top income tax rate, scrap the Alternative Minimum Tax, and slash the corporate tax rate (though Trump actually wants to abolish the tax altogether). Even the provisions that are to be scrapped to pay for the cuts are largely the same: both Bush and Trump eye up deductions for debt-interest.

Given the similarities of the proposed measures, it is not much of a surprise the outcomes are comparable too; both plans add trillions of dollars to the deficit over the next decade and are regressive. Despite widespread concerns about income inequality in the US, they provide only small after-tax income increases for the poorest Americans while giving double-digit tax cuts for the top 1%.

Another overlap between Bush and Trump is the degree to which their plans rely on boosting growth and revenues to make up for the created shortfalls. Even when optimistic forecasts about additional economic growth potentially yielded by the plans are considered, both plans would be far from self-funding. Bush’s plan would still increase the deficit by around $1.6 trillion, while Trump’s shortfall amounts to a whopping $10 trillion.

Considering the costs of their plans, neither candidate (Mr. Bush’s clumsy remarks about ‘phasing out Medicare’ not considered) has bothered to identify specific spending cuts they would introduce to achieve another one of their shared goals: a (constitutionally-mandated) balanced budget.

Nothing new

When it comes to taxation and the budget, it is not just Bush whom Trump is hard to tell apart from; Rand Paul too, despite having repeatedly accused Trump of being a polarizer, should see eye-to-eye with ‘The Donald’ on taxes.

Paul himself has proposed to ‘blow up’ the tax code and replace it with a 14.5% flat tax. His plan easily surpasses Trump’s in terms of political unfeasibility and the shortfalls it creates, which are estimated to total $15 trillion. Like others in his party, Paul assumes higher economic growth will cover the shortfall.

The same is true of another ‘insider’, Governor Bobby Jindal. He proposes to lower tax rates and eliminate the corporate tax; thereby adding around $10 trillion to the deficit.

Not only are Trump’s tax plans largely representative of Republican ‘establishment’ policymaking during this cycle, historically his views also fit neatly into mainstream Republican budgetary thinking. Trump even shares many of the classic GOP hypocrisies on this topic. While his tax plan is estimated to add trillions to the deficit – and while he slammed Governor Walker for his failure to achieve a balanced budget – Trump has also said he does not want to cut entitlement programs.

This struggle with basic math and populism, between the desire to promise tax cuts and sound public finances without specifying politically unpopular cuts, is highly representative of Republican presidential elections. Four years ago, the Romney budget stubbornly refused to add up, and the Ryan Budgets have for years relied on (unrealistic) assumptions of above-average economic growth to pay for lower taxes and higher defense spending.

Indeed, the trend goes back to the Bush and Reagan tax cuts and indeed the 1980 Republican nomination with its debate around ‘voodoo economics’. Far from bucking this historical trend, Trump follows and builds on it.

Reality is the real outsider

Real maverick views on the budget and economy in the GOP presidential field can only be found in the center, in particular with Senator Lindsey Graham. Graham has openly and repeatedly argued for the adoption of the Bowles Simpson proposals, a bipartisan plan that not only increases the retirement age and reforms entitlement benefits, but also raises taxes on high-income earners.

Yet what is striking about Mr. Graham and others like him (his Senate colleague Marco Rubio is arguably a moderate on budgetary issues as well), other than how poorly they are currently polling, is how centrist, realistic, and reasonable their economic views really are. This should serve as a wake-up call for the GOP establishment.

It would do well to acknowledge how mainstream Trump’s policy stances are within the GOP, and realize that on taxes and the budget (at least) Trump is not the real Republican outsider. Unfortunately it is math, reality, and the reasonable center ground.

Categories: North America, Politics

About Author

Coen ter Wal

Coen ter Wal is a policy advisor for the economic and financial affairs committee of the European Parliament with experience in consultancy, banking and government in both Europe and the United States. He holds an MSc. in European Political Economy from the London School of Economics along with a BSc in Economics from Tilburg University in the Netherlands.