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  August 31, 2017

Trump's Tax Cut Plan Alienates His Base

Trump's plan would mean 'a huge increase in the budget deficit primarily to give tax cuts to the richest people in the country,' says economist Dean Baker. 'I don't think most people would think that sounds like a very good idea'
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Dean Baker is senior economist at The Center for Economic and Policy Research (CEPR). He is the author of several books including, The United States Since 1980; Social Security: The Phony Crisis (with Mark Weisbrot); and The Benefits of Full Employment (with Jared Bernstein). He appears frequently on TV and radio programs, including CNN, CBS News, PBS NewsHour, and National Public Radio.


SHARMINI PERIES: It's the Real News Network. I'm Sharmini Peries, coming to you from Baltimore. President Donald Trump began his week-long tour on Wednesday to drum up support for the proposed changes to the United States' tax code. If you recall, the president released his proposals for what he called, "the biggest individual and business tax cut in American history," back in April. Trump's upcoming speeches will be largely devoid of details. However, the proposal that have been released today do reflect a rather corporate-friendly outlook from his administration. The White House proposals include reducing the tax bracket from seven to three, at 10, 25, and 35, and of course repealing of the debt tax and repealing of the 3.8% Affordable Care Act on small businesses and slashing the corporate tax rate from 35 to 15.

Joining us today to discuss the Trump tax proposals and the implications is Dean Baker. Dean is co-director of the Center for Economic and Policy Research, and he's the author of Rigged: How the Globalization and the Rules of Modern Economy Were Structured to Make the Rich Richer. Dean, good to have you back.

DEAN BAKER: Hey Sharmini.

SHARMINI PERIES: All right, Dean, let's first of all clear up whether we've learned anything more, any details of the Trump's administration's tax proposals since the 19 point bullet plan was released back in April.

DEAN BAKER: No, they haven't put out anything today. I mean, he's giving a speech this afternoon and I was just checking the website to see whether they'd put any specifics up there and they haven't. My understanding, and I can't say I know this for sure, is that they've planned to let Congress move ahead with it and just leave their general outline up there and see what Congress comes up with, kind of what they did with healthcare, not that it worked out that well for them, but that seems to be their plan.

SHARMINI PERIES: So then why is he hitting the road with a campaign about tax cuts?

DEAN BAKER: Well, I think he's trying to round up support for it. Interestingly, he really didn't do that with healthcare, I don't know whether that would've helped or hurt. But in any case, he really didn't go around the country trying to round up support for their repeal of Obamacare. He does seem to be prepared to do that for taxes. I don't know if this is the first of many visits or this is just a one-off. We'll have to see.

SHARMINI PERIES: All right. He seems to be in campaign mode all over again. Anyhow, what would the consequences for eliminating the debt tax for example would be?

DEAN BAKER: Well, let's refer to the estate tax. This is something that really just benefits a tiny, tiny percentage of people, and this is something that we should be very clear on, because they always try and say it's not fair for a small business, someone's who's worked their whole life and want to pass something onto their kids. Almost no one's in that boat. The estate tax, you can exempt with very minimal planning, $8 million from taxation. So that's quite a small business if you have $8 million or more than $8 million and ... and just to be clear, this is net. So I've often heard people say, "Well, a farm could be worth more than $8 million." That's entirely possible, but they owe debt on that, so this is saying after, free and clear of any debt. And furthermore, again, something people often get confused on: it's a marginal tax. So let's say you're at $8 million 100 thousand. You're paying the tax on the $100 thousand, and frankly, if you're going to tell me you have $8 million, 100 thousand and you have to the pay on 100 thousand dollars, I'm not going to cry for you.

SHARMINI PERIES: And the other thing out there that is under discussion is the reduction of the tax brackets from seven to three. What are the implications of that?

DEAN BAKER: Well, it's a big cut for the rich. This is, again, one of the games that these people play that, I'm sure they all know better. The complexity of the tax code has absolutely zero to do with the number of the brackets. At the end of the day, I'm sure I don't do my taxes any different than anyone else does. I look up at the tables and it says if you earn more than x, you owe ... between x and y, two numbers, you owe this much money. I don't have to know whether that was based on there being one bracket or a thousand brackets. It's the same thing to me. That has nothing to do with the complexity of the tax code. So when they're pretending that they're doing us some favor reducing the number of the brackets from seven to three, what they're doing is reducing the tax rate on rich people, and the calculations from the tax policy center, non-partisan tax policy center, it's a tax cut that will average almost half a million for people earning more than a million dollars a year.

They're going to get close to half of the tax break here. So, this is about giving money to rich people. The complexity of their tax code is really a non-issue.

SHARMINI PERIES: Right. And speaking of rich people, corporations being at the top of that, is going to under Trump's plan, receive a reduction of taxes from 35 to 15, assuming that they are paying 35 where is a lot of loopholes for it. Explain that, and what a 15% corporate tax would mean.

DEAN BAKER: Well, they actually do have a good point in the sense they're not paying 35%, so we have a tax rate of 35%. They always say, "Well, that's the highest in the world," or one of the highest, I'm not sure if it's the absolute highest. And the reality is almost no one actually pays that, so the average tax rate ... I haven't seen the way this numbers, but somewhere around 21, 22%, which is ... puts us a little below the average for all the wealthy countries. So it's not as though our corporations are particularly overtaxed. What I will say though is they get to 21, 22% by a lot of gaming. So if we had a lower rate, I don't mean 15%, but if we had a lower rate, let's say 25%, that they actually paid, that would be a huge benefit because a lot of people get rich by gaming the tax code. Think of Mitt Romney and his private equity guys. A lot of private equity is about gaming the tax code.

These people get very rich 'cause they're good at gaming the tax code. So if you could reduce or ... Well, you want to eliminate but if you could substantially reduce the opportunities for gaming, and the cost of that is a low tax rate, I'd be all for that. So they have a legitimate point there, but clearly they're looking to actually cut the corporate taxes. They're not paying too much in taxes. We need to restructure, but it's not that they're paying too much. We just need a different structure.

SHARMINI PERIES: Right, let's say that Trump and Congress is successful in passing some of these things that they're talking about. What would this mean in terms of the national debt and the reduction of tax income?

DEAN BAKER: Well, this is almost certainly a big cut in tax ... the amount of tax that's collected, and depending on what exactly they put in there, we're talking about losing perhaps somewhere in the order of 1 to 2 trillion dollars a year in tax revenue, which is a huge amount, I mean, so that's a very, very, big increase in the government budget deficit. Now, I assume what they ultimately pass won't cost that much revenue, but, again, if you take the high end of all these cuts, you can lose an enormous amount of revenue. So basically what that means is a huge increase in the budget deficit primarily to give tax cuts to the richest people in the country. I don't think most people would think that sounds like a very good idea.

SHARMINI PERIES: Right, and then finally, Dean, I mean, you look at these issues sitting in Washington quite a bit. What could the government be doing to have a really progressive tax code in this country?

DEAN BAKER: Well, as I was mentioning before with the corporate tax, I certainly favor restructuring that. I mean, what I actually propose is just require companies to give shares of stock, non-voting shares of stock. I'm not talking about running the company, just make sure the government gets its share. I'd like to see some increase in the individual income tax rate, there's other changes you can make. I won't go into all of those but getting rid of some of the deductions. The other thing that would be really, really great would be a financial transactions tax. That could raise a big chunk of money, but most importantly, that will eliminate a lot of the waste on Wall Street, 'cause of a huge amount of what goes on on Wall Street in terms of trading, it's not helping the economy one iota. This is just a waste, a waste of resources and again, a lot of people get very rich that way. We could argue whether people get rich or not or how rich they should get, but it doesn't make sense having people get very rich doing things that are not at all productive for the economy, and that's what we have now.

SHARMINI PERIES: All right, Dean. We'll be looking out for this this week as President goes around talking about his tax proposal, and we'll be happy to have you back if there's more details unraveled or revealed to us.

DEAN BAKER: Great. Happy to be back.

SHARMINI PERIES: And thank you for joining us here on the Real News Network.


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