We are now starting to see more concrete evidence of what Donald Trump's (and the Republican Party's) economic policies might look like. Both Trump and his party are saying that they are going to lower taxes. Trump is talking about a tax cut for the middle class. These tax cuts are placed in the context of creating or expanding programs designed to create more jobs. On the surface the tax cuts look like a replay of Republican "trickle down" theories of the economy, where tax cuts lead to more job creation, which in turn leads to more taxe revenue paid by the newly employed, offsetting the tax cuts and the expense of the programs. It has never worked, not once, since Reagan started doing this, and has instead led to massive deficits that the Republicans like to blame the Democrats for.
It looks like the GOP might be doubling down on this again.
Treasury secretary nominee Steven Mnuchin rejected claims that Trump’s tax program would benefit mainly the wealthy, instead highlighting plans for a child-care tax credit and a middle-class tax cut.
“There will be no absolute tax cut for the upper class,” he said on CNBC. “There will be a big tax cut for the middle class.”
The Party is talking about a tax cut for corporations.
Mnuchin and (Wilbur) Ross (Trump’s pick for commerce secretary) reiterated the administration’s commitment to cutting taxes for the middle class, but that remains a key difference between the president-elect’s campaign plan and the tax blueprint put forth by GOP leaders on Capitol Hill.
The congressional plan, like Trump’s, would cut taxes for the wealthy and for corporations, but it would not do nearly as much as Trump would to cut taxes for lower- and middle-income Americans.
Of course the GOP is always talking about tax cuts for everyone, and they can't really talk about tax cuts for corporations without talking about tax cuts for the middle class. But is there a way we can get a sense of what they are really planning? And have they come up with a new twist that will allow them to cut taxes and not increase the national debt?
The hot news story on the economy is that Donald Trump personally intervened with the air-conditioner company Carrier to keep a thousand jobs at its Indianapolis plant from moving to Mexico. This is in line with his claims during the election that he would be negotiating various deals directly with companies (and governments) to keep jobs in the United States. But how did this one work?
Carrier will be staying because it is getting millions of dollars of state tax incentives to stay. This is not the first time that companies have been subsidized with tax deals in Mike Pence's Indiana. Paying state tax subsidies to companies like Carrier takes money away from other things it could be used for. Such subsidies might make sense if they were offset by income-tax revenue from the people whose jobs were saved. But apparently the subsidies generally amount to hundreds of thousands of dollars per job. They do look good in the papers, however. And they are very profitable extra subsidies to big business. In the case of Carrier, however, the subsidies don't make up for the millions of dollars the company hoped to save by moving to Mexico. It is speculated, however, that Carrier is also keeping an eye on its major defense contracts with the government and that this was a "scratch your back deal" with the incoming Trump administration to maintain or expand these contracts. There's really nothing new here. It's the same thing that politicians have been doing for a long time. In this case, it substitutes state taxes for federal taxes and makes it look to the public like they are not really paying for it. It's the Old Squirm, in this case with Trump taking credit for something that Pence was going to do anyway. And it doesn't help a lot of other Indiana workers from having their jobs moved abroad, including workers from Carrier.
What about Trump's massive infrastructural development and repair plan?
America's infrastructure is a mess, although it's a complicated mess. Barak Obama claimed at one point that he was going to establish a $50 billion bank to finance "shovel ready" jobs that would both take care of the mess and provide jobs during the employment crash that occurred after the Great Recession. This didn't really pan out, in part because infrastructure jobs tended not to be as shovel ready as people first thought. Trump plans to fix the infrastructure, which everyone agrees needs to be fixed for the same reasons they were agreeing about it eight years ago. But Trump offers a new twist. He claims he is going to finance it without a bunch of Federal investment and new taxes. How is this supposed to work?
Trump wants to offer $137 billion is tax breaks to contractor for new projects. The tax breaks can be applied to projects already underway (that didn't need them). There are no requirements that any new jobs be created. And the subsidized projects will probably tilt toward profitable infrastructure projects that will generate cash flows for the companies involved (toll roads, toll bridges, etc.). Infrastructural repairs will take second place in this scheme, since there is no profit in it. Insofar as the government tackles the repair of existing eroded infrastructure, it will have to resort to old fashioned deficit financing.
The new twist in Trump's programs, then, is to increase the flow of tax dollars to corporations. It's really a variation on the old corrupt "privatize the gains, socialize the losses (and risks)" that we have been seeing all along. If the Trump government lowers taxes while promising new job-creating infrastructure projects, it will either have to borrow more money, impose new hidden taxes, cut entitlements and shift expenses from the federal government to local agencies, or use tax subsidieswhere to encourage private companies to build toll roads and other potentially lucrative projects.
