Thursday, April 27, 2017

Saturation Coverage of Non-News About Tax Policy

By Neil H. Buchanan

[Note: The tenth and twenty-first paragraphs below have been updated to correct an error on my part regarding the lowest tax rate in Trump's non-plan.]

During the 2016 election campaign, Donald Trump hit a low point with the press when he announced that he would make a "major statement" about the birther controversy, supposedly to tell the world at long last that he had been wrong to say for years that Barack Obama was not a natural-born U.S. citizen.

In fact, Trump used the occasion to lead a meandering media event that he turned into an infomercial for his new hotel in Washington, D.C.  Finally, after jerking around the assembled press for what seemed like an eternity, Trump quickly said that Obama was born here and that the birther controversy was Hillary Clinton's fault all along.  He then left the room.

I take this trip down memory lane because that cynical manipulation of the press was supposed to have been a defining moment, the day that the press finally woke up and refused to be "played" by Trump's ongoing reality-TV show.  But of course, the press has instead slouched back into its familiar role of eagerly reporting on everything that comes out of the White House as if it is news.

Which brings us to this week's hysteria over Trump's "massive" tax cut.  Nothing of any real significance happened this week regarding tax policy, but reading the news coverage would make a reasonable person think that the world has just been shaken by the announcement of a major policy proposal.

In short, by doing nothing more than pretending to have something to say, Trump "won the news" again this week.  We know nothing more than we knew a week ago, but Trump succeeded in making it look as though he was doing something big before the 100-day mark of his presidency.  What can we learn from this non-event?

As a matter of tax policy, I have been pointing out for over a year that Trump has never offered anything that deserves to be called a "tax plan."  He has opted instead to issue vague pronouncements that are impossible to assess.  Independent tax analysts have had to make heroic guesses about what Trump would do in order to "score" his supposed plans, but everyone admitted that it was pure speculation.

We knew all along that Trump would play by the orthodox Republican playbook on taxes.  This meant calling for repeal of the Alternative Minimum Tax (AMT) and the estate tax, reducing the official corporate tax rate, cutting income taxes for rich people, and maybe tossing a few dollars at the rest of America.  In short, trickle-down economics.

Of course, there are plenty of different ways to change the corporate and personal income tax systems, and the amounts of the cuts matter enormously, so we actually do need to know the details in order to make any assessment of the effects of a real tax plan.

Yet one of Trump's hack economists actually had the nerve to say that this is "the most significant tax reform legislation since 1986 and one of the biggest tax cuts in American history."  No, it is none of that.  In fact, it is not tax reform legislation at all.

Did we get any details this week?  One could argue that it was news that Trump was talking about creating three personal income tax brackets of 10%, 25%, and 35%.  But other than eliminating the highest current rate (39.6%) -- thus confirming that this is all about helping rich people, what does that tell us?

Notably, because we do not know the income ranges to which those rates would apply, it is impossible to know whether, as a New York Times news article claims, Trump "proposed sharp reductions" to people's tax rates.  After all, if the cutoff for the 35% rate is set low enough, that would actually increase the tax rate for people who are currently paying at a lower rate.

I am not saying that this is what Trump would actually do, but the point is that we have so little information right now that we cannot honestly say that this is a tax cut for everyone, as Trump's people are claiming -- and as the press is dutifully repeating.

Even more obtusely, in an otherwise excellent response to Trump's non-announcement, the editors of The New York Times had this to say: "So as to not seem completely venal, they served up a few goodies for the average wage-earning family, among them fewer and lower tax brackets and a higher standard deduction."

Again, we are taking it on faith that the tax brackets would actually lower rates for average wage-earning families, but why is it a "goodie" for average families that there would be fewer brackets?  This is one of the oldest Republican dodges going, claiming that the complexity of the tax code is a function of how many tax rates there are.  That has always been simply wrong.

Surprisingly, the average wage-earning family's tax situation is almost always quite simple already, because the complexity of the tax code is mostly a matter of hiding goodies for wealthy people.  For example, the ability to recharacterize salaries as "profits" of personal corporations, which one of Trump's bullet points would make especially attractive, is not something that regular folks have to worry about (because they cannot do it).  They might have a few plain-vanilla deductions, but that is usually the end of it.

More importantly, a citizen's computation of her tax liability is not at all complicated by the number of brackets.  That is what tax tables are for, and it takes about five seconds to find the correct amount to pay once she has figured out her taxable income.

Notably, even so-called Flat Tax proposals, which have only one rate, would still require tax tables, because so many people either cannot do the arithmetic or would want the government to verify that they had multiplied a decimal correctly.

So how is it a "goodie" for middle-class workers to know that the amount that they pay was based on a three-rate system rather than the current seven?  (Why not ten, or eighty, or one?)  Maybe the Times was so stuck for examples of middle-class-friendly ideas from Trump's announcement that they were desperate, which speaks volumes.  But this simply does not belong on their list.

One small surprise is that Trump bothered to specify an actual new number for the standard deduction, increasing it to $24,000 (from the current level of $12,600) for a married couple filing jointly.  But Trump's one-page list of proto-ideas also included eliminating almost all deductions, which could cut in the opposite direction.

Among other things, we do not know whether that means that Trump would eliminate the personal exemptions (which, combined with the current standard deduction, reduce taxable income by more than $24,000 for a family of four), which means that we do not even know whether the increase in the standard deduction would be offset by losses there.

For example, a single person who current earns $15,000 and has no dependents would pay $465 in federal income taxes for the year.  A $12,000 standard deduction for a single person, if there is no longer a personal exemption, would leave $3000 to be taxed at a 10% rate, or $300.  Or, if the personal exemption is retained, the tax bill goes to zero.

Moreover, even if the idea is to expand the "zero bracket" -- that is, the amount of money that is not subject to the income tax -- the way that this works is by removing some people who currently pay some federal income taxes from the tax rolls entirely.

Is that not a good thing?  I think so, but I am a liberal who believes in progressive taxation, which means that I think that the least among us can and should be helped by being exempted from tax payments as well as by the provision of a safety net.  Trump, on the other hand, wants to further shred the safety net and give huge tax breaks to the wealthiest Americans to make it impossible to fund the safety net in the future, and he would at most make this up with a few dollars in tax cuts for the least well-off.

It is also of more than passing amusement that this would increase the number of people who supposedly have no "skin in the game."  This is the nonsensical argument that has been popular on the right since early in the Obama years that says that everyone should have to pay taxes so that they will care about holding the government to account.

Again, that is a silly argument, but it was the basis for Mitt Romney's famous "47% gaffe," in which he claimed that almost half of the people do not pay taxes and thus will not take responsibility for their lives.  They supposedly just want "free stuff."  This has been gospel on the right since at least 2011, with constant complaints about the number of people who do not pay taxes.

Of course, everyone actually does pays taxes, and the tax system overall is roughly proportional, but the standard deduction and personal exemptions do keep many people off the federal income tax rolls.  Now, Trump is telling us that he wants more people to have no skin in the game.

But I digress.  There really is so little to this tax non-plan that it becomes easy to obsess about the small tidbits that have been announced, and that is part of the problem.  We can chew these things over as if they are real proposals that have real economic and political significance, but they are merely distractions.

To their credit, some in the press have correctly called Trump out for the ridiculous lack of content to his announcement, but they still treat it as if something significant has happened.  This is a case where the only news is meta.  The headline is not: "Trump Proposes Regressive Tax Plan."  It is: "Trump's Promise to Announce Tax Plan Was a Prank."

The editors of The New York Times came close to saying that in their lead editorial today, calling out Trump for his continuing lack of substance.  Yet the news side of their paper eagerly reported this as if it were a real story for days, writing multiple front page articles about the Trump plan as if it existed.

Again, we know today exactly what we knew a week ago.  Trump is a standard Republican when it comes to tax policy.  He thus wants to eliminate progressivity in the tax code wherever he can find it, including by eliminating the AMT and the estate tax.  So does every other Republican.  He wants to reduce taxes on the rich and on corporations.  So does every other Republican.

Someday, Trump might actually propose a real tax plan.  For now, however, he might as well be back in the lobby of his Washington hotel, promising big announcements that amount to nothing more than media-diversion exercises.


Shag from Brookline said...

This "tax plan" is one where the devil does not provide details. The indication that property taxes might not be deductible seems to be an unsubtle attempt to punish Blue States.

David Ricardo said...

Mnuchin said that about 100 people at Treasury have worked on this proposal. Someone then noted that works out to about 2 to 3 words person. We assume given the lack of intelligence added by Mnuchin and Cohn that they were responsible for most of the a's, an's and the's.

Shag from Brookline said...

David, I assume than Mnuchin, Cohn and the others made rough calculations at least mentally as to how much their tax cuts might be.

David Ricardo said...

Shag, to the penny my friend, to the penny.

Shag from Brookline said...

I understand that President Trump will be taking a "Mulligan" on his FIRST 100 DAYS. He has to work on his puts [sic].