At least the GOP is consistent.
To today’s Republicans, who long ago abandoned any pretense of fiscal responsibility, tax cuts are the all-purpose remedy for whatever ails the country (or doesn’t). When the economy is good, cut taxes. When the economy is bad, cut taxes. When the deficit is high, cut taxes; when the deficit is low, or has even flipped to surplus, cut taxes then, too.
Even so, the tax proposals the Trump administration is floating appear especially irrelevant to today’s problems. Consider the four most frequently offered up by administration officials.
The White House has had two months and nearly unlimited resources to develop a plan for rescuing the economy, and so far this brain trust hasn’t come up with anything better than letting companies write off Yankees tickets and steak dinners.
No matter that major athletic events and concerts remain canceled, meaning that there are few entertainment opportunities available to deduct. Or that even where restaurants have reopened, Americans are afraid to dine out, on the company's dime or otherwise.
Never mind that procuring the ingredients for expense-account meals has become challenging, what with meat-processing plant closures caused by hordes of sickened workers. Or that most of the people laid off and most of the smaller eateries facing bankruptcy are unlikely to be the typical beneficiaries of “three-martini lunches” anyway.
No matter. Let them eat steak!
Then there are the various proposals to cut — or possibly eliminate — capital gains taxes, a favorite hobbyhorse of White House economic adviser Larry Kudlow. This would be a huge windfall for the wealthiest Americans and is unlikely to have any substantial stimulative effect on the economy.
Capital gains are already taxed extremely lightly. Long-term capital gains are taxed at a preferential (that is, much lower) rate than regular income. And most of those gains accrue to the ultra-wealthy. According to the Tax Policy Center, three-quarters of taxable long-term capital gains go to households in the top 5 percent of the income distribution.
“A capital gains tax cut would be both ineffective and regressive,” said Steven M. Rosenthal, a fellow at the center.
Then there’s the proposal to make permanent a provision of the 2017 tax law, one that allows firms to immediately write off the full cost of most kinds of capital investments.
Already, full expensing is in effect through 2022. This proposal, then, would “spend billions to incentivize businesses to buy equipment 32 months from now,” as New York University law professor Lily Batchelder put it, remarking that this was “among the dumbest stimulus ideas I’ve ever heard.”
If anything, this proposal might discourage businesses from spending, because there’d be no urgency to get the expensing in while it could be fully written off. Businesses could wait indefinitely to build factories or buy equipment, knowing that the tax break would always be there.
Finally, there is the proposed payroll tax cut.
The government has already deferred some employer-side payroll taxes until 2021 and 2022. Trump and other White House aides say they want to temporarily eliminate employee-side payroll taxes, too.
Of all Trump’s tax-cut proposals, this one at least has the theoretical possibility of helping regular workers, to the extent that the incidence of these taxes is borne by employees rather than firms. Still, if consumers are afraid to go out, and employers can’t guarantee safe workplaces, slashing payroll taxes is unlikely to result in much hiring. Payroll tax relief is an ineffective way to provide assistance to people not actually on payrolls.
One might argue that it’s easy to shoot down bad ideas and harder to come up with good ones. So if not these things, what should we be doing to heal the economy?
This economic crisis is, at heart, a public health crisis. The economic pain won’t be fully resolved until it’s safer for people to work, shop and socialize again, no matter the available tax boondoggles. The economy has been shut down for two months to buy the government time to come up with effective public health interventions — such as scaling up testing or spurring medical innovations.
But, hey, dusting off old tax breaks is just so much more fun.