Trump's Tax Reform Nightmare

President Trump has built an escape hatch from his own tax plan. In Indianapolis yesterday, he bragged that it's the "largest tax cut in our county's history."

But in the West Wing earlier, Trump resisted the framework that had been cooked up by congressional leaders, plus economic adviser Gary Cohn and Steve Mnuchin:

Why it matters: If Trump shows the fickleness he showed on repeal-and-replace (championing the House plan, then later calling it "mean"), that could increase the chances the plan sinks, with him blaming Congress.

What happened: On Monday, there were some tense moments for Republicans at both ends of Pennsylvania Avenue, as word got out Trump wasn't thrilled with the framework, sources tell Axios' Jonathan Swan.

• Trump wanted to propose an even lower corporate rate. It's "The Art of the Deal": Don't open the bidding with the number you ultimately want — 20% (the figure announced yesterday), down from 35%. Open with an extreme bid and work back. Trump wanted to propose 15%.
• Trump was also attuned to the political risks of raising the bottom rate from 10% to 12%, while cutting the top individual rate. (That would shift the pitch to a zero rate with the doubling of the standard deduction, and leave room for a higher top rate. Yesterday's plan could drop the top rate for individuals to 35% from 39.6%.)
• On Monday, Republicans on the Hill were genuinely uneasy, and thought there was a chance POTUS wouldn't sign off.

Be smart: Tax reform is now an existential issue for House Speaker Ryan and Senate Leader McConnell. If they botch this, as they did health care, both chambers could lose their Republican majorities.

• Some conservative Republicans worry about a "nightmare scenario" for the party: no health care repeal, no tax reform — and the party's top two accomplishments of this Congress are a "bailout" for insurance companies (fixes to the Affordable Care Act), and "amnesty" ("Dreamer" legislation).
• That would depress Republicans and excite Democrats — the surest formula for the GOP to blow its majorities.

How it's playing ... USA Today banner, "Trump could reap millions in tax plan: Proposals to cut estate taxes, AMT would benefit wealthy" ... L.A. Times lead story, "Tax plan would hit state hard: GOP proposal would end a big tax break for Californians and may curtail the mortgage interest deduction."

The standard by which the Trump tax plan should be judged is the standard that the Trump administration itself has set.

“There will be no absolute tax cut for the upper class,” Treasury Secretary Steven Mnuchin said shortly after the election. “My plan is for the working people,” President Trump said yesterday. “I don’t benefit.”

None of that is true. It’s the latest disturbing example of politicians telling falsehoods about a proposed policy. Trump has done so repeatedly, and now members of Congress are doing it more often, too. These aren’t mere exaggerations or truth shadings; they are often just lies.

“Trump’s tax plan: prioritize cuts for the rich, say he isn’t,” as New York Magazine succinctly puts it.

You can read The Times Editorial Board’s analysis — that the plan relies on the discredited notion that tax cuts for the rich help everyone — here.

Howard Gleckman of the Tax Policy Center, probably the single best source for tax analysis, writes that the plan “may cut taxes modestly for some middle-income households, but it appears to be a far bigger tax cut for high-income households.”

Wealthy households, Gleckman explains, would benefit from individual rate cuts, repeal of both the alternative minimum tax and the estate tax, as well as tax cuts for corporations and “pass-through” businesses (such as sole proprietorships and partnerships).

In Fortune, Seth Hanlon points out that this last provision would shower huge benefits on Trump’s family.

And the tax cuts for the affluent are so large — trillions of dollars over the coming decade, says Lily Batchelder of N.Y.U. — that they would cause the deficit to soar.

James Pethokoukis of the American Enterprise Institute writes that “their plan should be a non-starter.” He adds, “It also makes a joke of the GOP’s supposed deficit worries during the Obama years.”

As those comments suggest, the plan didn’t even win good marks from many conservatives. National Review’s Ramesh Ponnuru had one of the less harsh takes and argued that the plan would be much better with a large child tax credit.

The search now begins for three Republican senators — enough to stop this plan — who are willing to take a stand for the deficit and the middle class.

You can watch a video of Trump’s tax speech here.

Source Axios

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