In Monday’s debate, Hillary Clinton, as many conservatives hasten to point out, made an unsupportable argument that the Bush tax cuts caused the 2008 crash. You might make the argument that insufficient regulations or Fed policy (sustaining a bubble) or housing policy (everyone should own a home) or simply Wall Street irresponsibility is to blame (or some combination). But there is a reason she tried to make it about tax cuts.
[T]he official Financial Crisis Inquiry Commission report assigned blame to banks, regulators, government agencies, and credit raters — not the 2001 and 2003 Bush tax cuts.
That being said, it is not surprising Clinton is making this argument. It is, in effect, “Trump wants to replay the same policies that almost destroyed the US economy, but more so.” Fewer and fewer people remember the Reagan boom or how better supply-side policy contributed to economic growth during Bill Clinton’s presidency. Any Republican who ever proposes tax cuts for the wealthy and business is likely to see some version of Clinton’s argument. Trump didn’t have much of a response other than to asset his tax cut “will create tremendous numbers of new jobs.”
Sure enough Hillary Clinton pounded Trump on his tax cut giveaway to the rich argument:
And the kind of plan that Donald has put forth would be trickle-down economics all over again. In fact, it would be the most extreme version, the biggest tax cuts for the top percent of the people in this country than we’ve ever had.
I call it trumped-up trickle-down, because that’s exactly what it would be. That is not how we grow the economy.
We just have a different view about what’s best for growing the economy, how we make investments that will actually produce jobs and rising incomes.
This is a policy and political problem for conservatives. On the policy front it is far from clear that reductions in the top marginal tax rate will bring a boom akin to the 1980s. Ronald Reagan’s tax cut took individuals in the top bracket from 70 to 28 percent. (This does not include state and other taxes, nor does it tell us with precision what the effective tax rate is.)
The top rate now is 39.6 percent. Might a cut generate some additional investment and jobs? Sure. But it is very expensive to bring the top rate down to, say 28 percent, meaning you vastly increase the debt. (No, the Reagan tax cuts did not pay for themselves.) What’s the real value of such a reduction? Well, remember when the GOP counseled that repeal of the Bush tax cuts for those making $450,000 for married couples and $400,000 for singles would doom us to a recession? Well, growth has not been terrific but since that was accomplished in January 2013, the economy has continued to expand and the jobless rate came down below 5 percent. (Yes, yes, it could be better but lots of things contributed to measly growth.)
Moreover, because of the lost revenue from cuts to the top rate, other tax reductions or changes that might be more helpful cannot be accomplished (e.g. expansion of the Earned Income Tax Credit, payroll tax cuts to encourage hiring).
Beyond the real question as to how much bang for the buck we get with cuts to the top rate (as opposed to smart trade, regulatory, immigration, and education policies) let’s get real: With wages stagnant and widespread concern about income inequality, tax cuts for the top bracket are not politically viable. It just isn’t. Republicans, including Trump — who was supposed to avoid this cul-de-sac with a populist agenda — who trot this out get killed. It simply is not worth the political capital advocating for something that is not attainable and in any case won’t be a cure-all.
We would rather see corporate tax reform (flatten the rate, broaden the base), status quo for the top rate and reductions elsewhere and certainly a bevy of policies that might get at the barriers to greater worker productivity and entrepreneurism. In short, Republicans surely can oppose tax hikes but they better get out of the business of offer plans that disproportionately benefit the rich.