The Washington PostDemocracy Dies in Darkness

Opinion Trump’s boasts don’t match voters’ economic reality

Specialists work on the floor of the New York Stock Exchange in April. (Richard Drew/AP)

Last week’s consumer price index numbers revealed one reason the GOP’s tax cut plan pitch has fallen flat. CNBC reported:

While the rest of the economy pointed higher in July, American workers took a step backwards.
Hourly and weekly earnings languished when factoring in the rise in cost of living, according to figures the Labor Department released Friday.
Average weekly earnings actually decreased 0.2 percent over the one-month period and increased only fractionally from the same period a year ago. Average hourly earnings were unchanged over the month and actually two cents lower than July 2017. . . . The Consumer Price Index increased 0.2 percent month over month for an annual gain of 2.4 percent, up one-tenth of a percentage point from June and driven primarily by a jump in rental costs.
The decline puts real wages at their worst level since October 2012.

Trump can brag all he likes about an average wage gain, but that doesn’t tell us much about how wage increases are distributed, much less tell us whether taxpayers feel better off.

In particular, those in Trump’s non-college, often rural base can surely see that the gap between them and the super-rich is widening under Trump. As former car czar Steven Rattner wrote at the beginning of the month, “Beyond all the facts and figures, let’s not forget that the Trump administration’s policies have done little for the average worker. Mr. Trump’s tax cut delivered 84 percent of its benefits to business and to individuals with incomes above $75,000 a year. A typical middle-income worker will get a $930 reduction in his taxes this year, half of which will be consumed by higher gasoline prices.”

This is not to say the economy is in bad shape. To the contrary, Trump inherited a steadily growing economy that was adding jobs month after month. The rate of job increases has slowed, but the economy is still growing enough to absorb new workers. Nevertheless, Trump’s eye-rolling exaggerations and over-the-top boasts about the economic progress over the past 18 months simply do not comport with many Americans’ real-life experience.

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Trump should have listened to American Enterprise Institute’s Alan Viard. In a recent interview with his colleague Jim Pethokoukis, Viard explained:

What you ideally would like is that from the beginning, the corporate rate cut should have been marketed for what it is, a tool that can build up the US capital stock and gradually raise worker productivity and deliver somewhat higher levels of wages over a period of time. But of course it was instead marketed either implicitly or explicitly in a lot of cases as something that would just give companies money which they would then do good things with. And then when the bonuses occurred, proponents say here’s the good things being done. And then of course the inevitable blowback of, well a lot of companies are not doing the “good things.” They’re doing the “bad things” of the stock buybacks and dividends.
The economy is doing well under President Trump. Fox News (really) wants you to know that. (Video: JM Rieger/The Washington Post)

Trump, the pitch man, has always been plagued by his penchant for overselling and underperforming. His presidency is no different. (Who can forget his rookie mistake of bragging about the stock market?)

Moreover, Trump’s economic choices pose a long-term threat. He unwisely did not choose a budget-neutral tax plan. “Ideally you would have adopted this in a revenue neutral or budget neutral form to begin with. Obviously that didn’t happen,” Viard says. He suggests going back to recapture some revenue through tax increases:

[You could] increase taxes on the dividends and capital gains of American shareholders, that would apply regardless of what companies they held their stocks in, where those companies were chartered, where those companies did their investments, where those companies book their profits. There wouldn’t be any penalty on companies putting their investments in the United States because that tax wouldn’t depend on the location of the investment.
So that would be an obvious way to make up the revenue loss that would still be progressive. People say about the corporate rate cut that a lot of that benefits the shareholders who are rich. Well, that’s true. It benefits workers too, but it also benefits the shareholders a lot. So if you’re concerned about that, raise taxes on them, on the shareholders, to offset that loss.

That’s an honest, conservative economist.

Lastly, Trump’s trade war threatens to undo economic gains in two ways. First, it’s a recipe for lost jobs and economic contraction. (That is why you see employers who depend on exports shedding workers and closing plants.) Moreover, everyone but Trump knows that tariffs are simply a tax on consumers. They need to spend more to get the same items. The price-hike (or tax increase if you prefer) means their expenses outpace wages even more.

In sum, the economy on paper is solid. Trump’s rhetoric falls flat because its benefits aren’t flowing to ordinary Americans, especially those who voted for him. Add in a massive debt and tariffs (which hit agriculture severely), and the road ahead may not look so smooth. Democrats would do well to focus on take-home pay, health-care costs and strategies to increase wages — that’s a pitch ordinary voters might relate to their own lives.