Trump tax plan goes for growth

After President Obama's two terms of anemic economic growth and huge federal deficits, there is a lot of room for growth in the American economy.  Targeting "seed corn taxes" that obstruct investment is the smart way to spike growth rates, which will bring jobs, increase taxes (in the long run), and swing political approval toward the GOP president and Congress.  It worked for Reagan, and it will work for Trump, if a version of the tax plan becomes law.

The White House briefing and one-page description of President Trump's plan for tax reform issued yesterday contain the bones of an ambitious plan that could indeed jump-start the economy by lowering corporate income and capital gains tax rates, and by repatriating corporate money held overseas to avoid the punitive 35% levy on overseas profits when they are brought home to the USA.

It is now time for the author of The Art of the Deal to start making deals with the Democrats.  Treasury secretary Mnuchin is already executing a classic Trump pre-negotiation maneuver.  Via the WaPo:

Mnuchin said Wednesday that he would like to negotiate details of the plan with Democrats but would cut them out of talks if necessary and seek only support from Republicans, perhaps by pursuing a strategy known as "reconciliation." Using that process, a tax overhaul could escape a 60-vote requirement in the Senate, but it also would have a 10-year expiration date.

The threat of losing any leverage at all over the nation's taxes is enough to encourage flexibility, and ultimately a bipartisan approach.  There is plenty of room for negotiation, especially in the elimination of all personal deductions, save for mortgage interest and charitable deductions.  Lurking in this proposal is eliminating the deduction of state income taxes from federally taxable income.  This would hurt high-income taxpayers in states like California and New York, where upwards of 10% of personal income goes to state coffers and would be double-taxed by the feds.

This would hit the Democrats' core constituency hard.  This map from the Tax Foundation shows who benefits the most from the existing deductibility:

Compare it to the county-by-county electoral map last November:

Because the Trump plan doubles the personal deduction to $24,000 for a married couple, low-income families in blue enclaves would not be affected.  The damage would go mainly to high-income families in big cities.  It would also have the effect of making states much more reluctant to have income tax rates, since the disincentives have just been raised by at least a third for high-income bracket taxpayers.

The Democrats would absolutely hate this, but they have few rhetorical legs to stand on, since they would be defending high income earners – typically demonized by Dems.  So let the Dems try to defend their blue enclave base.  Maybe they would be willing to trade away some other aspects of their opposition in return for retaining deductibility for state income taxes?

I wonder why the plan does not include a cap on charitable deductions.  Wealthy left-wingers use tax-deductible donations to push their left-wing politics.  Foundations and universities have accumulated vast stores of wealth that have been seized by left-wingers and put to use for political causes.  I would prefer to see a reasonable cap on charitable deductions – say, ten to twenty thousand dollars a year, which would continue to encourage personal charity but which would also eliminate charity as a tax dodge for the mega-wealthy.

I suspect that there will a lot of wheeling and dealing ahead.  The Dems know that if they stonewall, they will be cut out entirely, and tax cuts are politically popular.

I don't like all the aspects of the plan, but it is a start.