It’s rare when President Trump lays bare the contradiction at the heart of his push for tax reform so specifically. But, here you go, in one tweet clocking in at only 108 characters.
The economy, Trump says, is doing great! (Or rather, the capital-E Economy.) If Congress approves tax reform (“Tax Reform”), though, then the results will be … great.
This contradiction has been an undercurrent to the administration’s efforts from the get-go. During his September speech in Indiana, where he kicked off his efforts to reform the tax code, the same contradiction was obvious.
“Already, we’re seeing the results of an economic policy that finally puts America first,” he said, referring to the economy as it is currently. “Unemployment is at a 16-year low. Unemployment for African Americans is near its lowest point since the turn of the millennium. It’s really a fantastic thing to see. Wages are rising. Optimism among manufacturers has reached all-time highs. GDP growth last quarter reached 3 percent way ahead of schedule; nobody thought that was going to happen for a long time.”
A bit later, he transitioned.
“America is back on the right track. … But our country and our economy cannot take off like they should unless we dramatically reform America’s outdated, complex and extremely burdensome tax code. It’s a relic. We’ve got to change it. We have to compete — compete with other countries. The current tax system is a colossal barrier standing in the way of America’s economic comeback because it can be far greater than it’s ever been.”
We have our cake. We will also eat that cake.
The most explicit demonstration of this was on jobs and wages. “Unemployment is at a 16-year low” and “wages are rising,” he said. Then, a bit later, when outlining the key goals of the plan: “We will cut taxes on American businesses to restore our competitive edge and create more jobs and higher wages for American workers.”
One can interpret Trump’s argument as his intention to do the good things for which he’s already taking credit, and to do more of them. It’s certainly not a given that Trump deserves all the accolades for the economy, mind you; most Americans still credit former president Barack Obama with the economy’s strength. The stock market boom began in 2009. The country’s seen positive job growth every month since 2010.
Nor is it clear that there’s much space for the unemployment rate to fall further. The Federal Reserve figures that the natural unemployment rate, accounting for things like job movement, is between 4.4 and 5 percent — higher than the rate right now. Thirteen states hit record-low unemployment this year. It’s not clear how much lower the rate can get.
Of course, the tax plan that’s before Congress doesn’t focus directly on increasing wages. The White House has highlighted a study showing that cutting corporate taxes will increase the average household income in the United States, a study that is both (a) contested and (b) takes advantage of the difference between average incomes (inflated by massive incomes) and median incomes (the level at which half of incomes are higher and half lower).
The idea is that by cutting corporate taxes (and otherwise easing the burden for companies), those businesses will then hire more and pay employees higher salaries. As it stands, businesses are already cash-rich, with more liquid assets at their disposal than at any other point in history. When businesses receive an infusion of cash, there’s not much evidence of late that they translate that directly into benefits for employees. At an event this week featuring Trump’s chief economic adviser, Gary Cohn, a roomful of business leaders were asked if they planned to increase capital investment in their companies — that is, to invest in expanding in a way that might help bolster job growth. Few indicated that they were.
Cutting taxes for the middle class would have the indirect result of increasing take-home pay, of course, though this isn’t the GOP’s argument. Instead, the argument is that the tax cuts will be “rocket fuel” for the economy (to use White House press secretary Sarah Huckabee Sanders’s evocative phrase from Thursday) and that wages will rise as businesses grow and employers compete to hire workers. But even that indirect increase in wages from tax cuts seems like it will be short-lived. An analysis from the Joint Committee on Taxation released this week indicated that taxes will increase by 2027 for everyone who makes less than $75,000 a year.
Trump wants the tax bill to pass for a few reasons. One is that he needs a political victory, having seen his other major policy efforts die on the vine. Another is that he himself will almost certainly benefit. A third is that he probably believes his rhetoric about spurring the economy.
Yet he also can’t say the economy isn’t doing well, because that reflects poorly on him and, well, because it’s hard to make that case. So he’s stuck in this weird position where he has to celebrate how well he’s doing on the economy and then argue that he needs to do so much more.
So far, that apparent contradiction doesn’t seem to have dissuaded many congressional Republicans from backing his proposal.