There’s unexpected nuance in the initial Trump tax cut plan. It’s way too early to come to conclusions, but there are challenges for Democrats and progressives. We need reliable numbers before we can come to conclusions, but Trump has included elements of tax reform that need mulling over.
The political fight is over who is protecting middle-class, working family and low-income Americans. In a sense, capping the popular mortgage interest and state and local tax (SALT) deductions is a burden on higher-income Americans. Expansion of child tax credits and standard deductions should benefit moderate and low-income taxpayers. Dems from New York, California and other high-tax states will be pounding for additional protections that will benefit their own, relatively high-income constituents. So will Republicans from those states.
This sets up a kind of auction. The initial cap on SALT appears to be $10,000. You can expect Republicans like Peter King and Dana Rohrbacher to demand and get sizable increases, allowing them to claim victory and vote yes. The legislative dynamic and bargaining will be fierce but predictable and, from Trump’s point of view, successful. They will have the votes in the House, and they will claim they’ve protected the middle class.
Which leaves us with the much more profound problems inherent in the Trump plan. The real beneficiaries are corporations whose tax rate plunges to 20 percent, the tiny number of billionaires who may now pay an estate tax and the moderately wealthy who apparently benefit from the rate cuts.
The dinosaur in the room is the impact on the structural deficit. The evidence available shows that whatever stimulative effect flows from huge tax cuts will not lower the ongoing deficit (see Brownback, Sam and the Kansas failure). This is the kind of deeper and long-term economic mistake that will be gleefully ignored by Republicans, even the deficit hawks that formerly controlled tax policy.
These larger issues will be of little moment in the House but will resonate in the Senate. The Corker/Flake/McCain rebels will talk about deficits, credibly. Many Dems will do so with less credibility. After all, when was the last time the Federal deficit was an issue for Dems or progressives?
The probable Senate outcome is some Republican defections and some Democratic defections, and a bill being sent to conference committee that looks a lot like what came out today. And the conference committee compromise is likely to become law.
Elections have consequences. In tax policy terms, we’re headed for structural deficits, corporation-friendly tax cuts and just enough middle- and low-income goodies to round up the votes. For all the justifiable outrage about Trump the personality, he’s going to put his stamp on the economy with relatively little opposition.