U.S. Markets close in 2 hrs 33 mins

Trump has a credibility problem on tax reform

Rick Newman
Columnist
President Trump in Harrisburg, Pa., on Oct. 11, 2017 (AP Photo/Alex Brandon)

The White House just released a report saying that slashing the corporate tax rate would boost the typical family’s take-home pay by $4,000 per year.

Americans aren’t buying it.

As President Trump and his fellow Republicans roll out their big tax-reform plan, the biggest battles are likely to be over who stands to benefit the most. The framework for tax reform the Trump administration, published in September, called for simplifying the rate structure for individuals, killing the estate tax, lowering taxes on small businesses and slashing the corporate rate from 35% to 20%. The Tax Policy Center (TPC) found that the plan heavily favored the rich. It would boost the after-tax income of the top 1% by 8.5% on average, while the bottom 95% would enjoy just a 1.2% hike in take-home pay, at best.

The White House trashed the TPC analysis for filling in details the White House hasn’t yet provided. And it’s possible the final Trump plan will be kinder to the middle class than the TPC findings suggest. But the factual details of the plan, whenever they arrive, may end up being less important than the impression Americans have of the plan, which will determine the enthusiasm with which members of Congress support tax reform and are willing to risk political consequences to support it.

On that matter, Republicans are way behind, playing catch-up. A recent CBS News poll found that 58% of Americans think Trump’s tax plan benefits the wealthy, while just 18% think it benefits the middle class. That’s a giant gap. Better messaging about the plan might narrow the gap a little, but opinions are hard to change once fully formed. And the president himself, typically the top salesman for any major policy change, may in this case lack the credibility to convince rank-and-file Americans his plan will be good for them.

Trump’s core supporters seem willing to support him no matter what he says, but that may only constitute a quarter of all voters. Many of the rest need to be convinced, and Trump is not turning out to be a very good convincer. Part of the reason is a poor track record on promises made versus promises kept. Examples:

Trump’s own tax returns. The president has said many times he plans to release his tax returns, as other presidents have done. But he never has. Trump now says he can’t release his returns because they’re under audit. But Trump is fully allowed to release his own returns at any time, whether they’re under audit or not.

Health care. Trump has actually promised two things when it comes to health care: Repeal and replace the Affordable Care Act (ACA) and provide “insurance for everybody,” along with lower drug prices. But with Congress’s failure to repeal the ACA, Trump has issued executive orders that would make health insurance cheaper for some and costlier for others, while probably leaving fewer people with coverage overall. He’s accomplished neither of the two things he promised but somehow done a third thing likely to hurt more people than it helps.

A bunch of other things. Trump said he would protect Medicaid, yet embraced a Congressional plan that would have severely cut funding for this health care program for the poor. He once planned to balance the federal budget “relatively quickly,” but has now proposed tax cuts that would add more than $1 trillion to the national debt. He has pledged to save the coal industry, which most energy analysts say is on its way out no matter what Trump does. On North Korea, Trump recently warned of the “calm before the storm,” leaving the world wondering what he was talking about.

Who will win?

Tax reform isn’t a sounding-off contest. It will take real persuasive power to generate support for measures that are going to be controversial no matter what, because there’s a lobbying group in Washington opposed to every single change in the tax code anybody could ever suggest. The White House report on the corporate tax code comes from the Council on Economic Advisers, whose chair, Kevin Hassett, is a well-respected economist with years of experience on tax matters. The argument goes like this: Slashing the corporate rate to 20% will free up funds, boost investment, increase the demand for workers, raise their productivity and therefore push real wages up.

Some economists disagree and say the evidence tying lower business taxes to higher middle-class wages is weak, at best. But the prospects for Republican tax reform don’t rest on who turns out to be right. We won’t even know who’s right for years, if ever. The prospects for tax reform, rather, depend on who can make the best case. Republicans need to persuade ordinary Americans — and not just Trump voters — that the Trump tax cuts will benefit them. Democrats will argue that the Trump tax cuts mostly benefit Trump and other 1 percenters. Whom do you believe? That’s who will win.

Confidential tip line: rickjnewman@yahoo.com. Encrypted communication available.

Read more:

Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman