Trump´s tax cuts are great for the rich, but not for nation

The phenomenal increase of income inequality is the biggest economic story of our time. As recently as 1978, the most affluent 1 percent of American households received less than 9 percent of all of the income in the country. In recent years, the top 1 percent have received more than 20 percent of total income. That’s a massive redistribution of more than one trillion dollars per year. Judging from his tax plan, Donald Trump thinks that income inequality is too low, that more inequality is a good thing, and that those at the top deserve a big tax break.

Charles L. Ballard

I disagree.

Of course, we can’t be absolutely sure about what the U.S. tax system will look like a year from now. Trump has been known to change his mind about things, and any proposals he puts forth will only become law if they get through the House and Senate. But let’s focus on the set of proposals that he used during most of the campaign, which have been analyzed in detail by the highly respected Tax Policy Center.

The centerpiece of the Trump plan is a set of cuts in tax rates. Most taxpayers would receive a tax cut, but the biggest reductions are for the most affluent. The tax rate for those at the top of the income scale would decrease from 39.6 percent to 33 percent. As a result, the top 1 percent would get an average tax cut of more than $200,000 per year, and the top one-tenth of 1 percent would see their taxes slashed by about $1.1 million per year, on average.

Meanwhile, taxpayers in the middle fifth of the income distribution would receive a tax cut of about $1,000, and those in the bottom fifth would get a tax cut of about $100.

At the same time that the distribution of income has become more unequal, there has also been an increase in the inequality of wealth (ownership of stocks, bonds, homes, etc.). The estate tax was established in 1916 with the goal of reducing the concentration of wealth. Donald Trump’s tax plan would eliminate the estate tax.

Just as Trump appears to believe that income needs to be more unequal, his plan to eliminate the estate tax suggests that he also believes that wealth should be more unequal.

If you think that the most affluent among us need huge tax breaks, the Trump plan is for you. On the other hand, if you share my concern that the distributions of income and wealth in the United States are more unequal than they should be, the Trump plan scores very badly.

Beyond the plan’s huge tilt in favor of the most affluent, there is a big question about whether we should be cutting taxes at all. It made sense to cut taxes in 2009, at the depths of the Great Recession. Those tax cuts helped to reduce the severity of the worst economic downturn since the 1930s. When the economic engine is sputtering, it makes sense to step on the gas.

But the economy has now been expanding for more than seven years, and the unemployment rate is lower than it has been since 2007. If we step on the accelerator now, by enacting tax cuts, we aren’t likely to get much extra economic growth, because the economy is already growing about as fast as it can.

We are not likely to get much economic growth from these proposed tax cuts, but we will certainly get a lot of debt. The total national debt has grown to about $19 trillion. About $5 trillion of that is held in government accounts, but that still leaves $14 trillion that is owed to individuals and governments, at home and abroad. That’s a lot of money. If enacted, the tax cuts will increase the national debt by an estimated $6.2 trillion over the next 10 years. I question whether it makes sense to be adding so much to the national debt at a time like this.

The tax plan on which Trump campaigned has many features, and there isn’t space here to discuss all of them in detail. But the broad outline of the plan is to give fabulous tax cuts to those at the top of the income and wealth scales (that is, to people like Trump), while ballooning the national debt. In my view, this plan would take America in the wrong direction. I hope it does not become law.

(Charles L. Ballard is a professor of economics at Michigan State University, where he directs the quarterly State of the State Survey, which measures consumer confidence and approval ratings of politicians.)