The truth about the Trump/GOP Tax Cut

There is no question that the huge tax cut the GOP passed in 2017 has had economic impact, as tremendous amounts of money were diverted from tax receipts into the bank accounts of corporations and wealthy individuals.  Part of this impact was simply anticipation of growth in a Trump economy- one in which it was clear his goal was to benefit large corporations and the donor class via the tax cuts and slashing regulations.

However there are insidious aspects to this tax cut which I will describe below, and in my opinion there was a political component to this tax cut, which was designed in many ways to benefit Trump and the GOP, at the expense of most of America.

• The tax cut juiced the economy. Trump is all about appearances and superlatives. His goal was to get 4% GDP growth, which is not easy to achieve. However, it’s important to remember that much of the “growth” was built on huge amounts of borrowed money.
• The ultra wealthy and large corporations got the lions share of the tax cut. This included eliminating estate tax on huge estates, ensuring that the wealth transfers to the next generation of billionaires.
• Corporations received a huge windfall. However there is no evidence that they built new plants and factories, that they hired more workers or that they stopped offshoring jobs.  In fact, Trump (who is an awful negotiator) basically gave corporations this tax cut with no strings attached.  Therefore what incentive do they have to stop moving jobs overseas? Why wasn’t the tax cut linked to requirements to expand operations/ hire workers or bring jobs back?
• Many companies just used the windfall to do stock buybacks. This had the short term effect of juicing the stock market, which again benefitted mostly rich people, not the average American.
• What about the individual tax cuts? Yes, these did benefit many Americans, depending on their individual situation people saved hundreds or thousands of dollars. However the tax cut for lower income Americans was paltry, and many middle income and higher income (I.e. over $100k a year) ended up paying more in federal taxes due to changed in SALT.
• Most Americans are paying higher taxes now, but they are hidden, in the form of tariffs.  Due to Trump’s imposition of tariffs on imported goods, these taxes get passed on to importers, wholesalers and consumers in the form of higher prices. Trump has been lying, saying that China is paying the tariffs. That is completely false. Americans are paying tariffs- which are taxes.

What are the political aspects of the GOP-Tax Cut?

• The GOP can talk about the tax cut and how you have more money in your pocket. They also manipulated the withholding tax, so most people got larger paychecks, but ended up owing more at tax time.
• Trump and GOP can talk about GDP growth, jobs and the economy, while ignoring the fact that the tax cut was built on $1.5 trillion of borrowing.
• For the first time we got a tax cut designed to punish Americans living blue states. States such as NY, NJ, CT, MA, MD and CA- that have relatively high state and local taxes were states that voted for Clinton. Trump decided to limit the deduction on state taxes in these states to $10k, meaning that residents in these states paid thousands more in federal tax, and will be even more penalized in 2025 when the tax cuts expire!  The GOP did pay a price for this politically as they lost a lot of congressional seats in moderate districts in blue states.
• The personal tax cuts expire in 2025- this was by design. The cuts were designed to expire after a planned second term by Trump. This of course would leave his democratic successor with trillions more in debt, and just as a new President is taking office, there would be massive tax INCREASE.
• The huge budget deficits created by the tax cut allow the GOP to rationalize huge cuts in spending- their targets include Medicare, Medicaid, Social Security, Education, Science, EPA etc.  It is all part of a concerted effort to slash spending for programs that benefit the average American.
• Due to the annual trillion dollar deficits Trump is running, at some point this juiced up economy will come to an end. Will it be a crash like 2007? Who knows. But Donald Trump isn’t concerned with long term stability, reducing the debt or whether our children will have a sound economy. It is all about political power and what the donor class wanted.
• When the crash does come, as it did right before Obama took office, Trump’s (democratic) successor will be forced to deal with a sagging economy, huge deficits and have to RAISE taxes. Then, predictably, the GOP will point at how the democrats are raising your taxes and suddenly they will start talking about deficits again.
• Trump is a horrible President and the tax cut is his only legislative accomplishment. Therefore he will do anything to keep this economy juiced, including trying to manipulated the Fed to keep interest rates low.