This week’s elections are over, and Republicans did badly. GOP leaders are now saying openly that they need to pass a tax bill or face losing the House of Representatives next year.
Well, a year can be a long time in politics.
Thirty-five years ago, in Ronald Reagan’s first mid-term election, Democrats made huge gains, and the experts predicted Reagan might be a one-term president. Instead, two years later, he won 49 of the 50 states.
So you never can tell. But I am more interested in what President Trump’s tax bill would mean for all of us. So I turned to Economics Professor Charles Ballard at Michigan State, a man who for many years has specialized in the Michigan economy.
I asked him to analyze the plan for me.
Economics is a complex subject, and economists are famous for qualifying their predictions. But Ballard wasn’t hesitant. He believes the President’s tax plan would be an unmitigated disaster for the state, the nation, and for every economic group except the super-rich.
“The first thing to say is that we shouldn’t even be talking about a tax cut now, with the economy at or near full-employment,” Ballard told me.
Now, there just isn’t a big reservoir of unemployed workers.
“From a macroeconomic perspective, this is just bad policy,” he said, principally because we are getting to the point where the long-term federal debt is beginning to be a cause for serious concern. The federal or national debt first reached a trillion dollars in 1969. It is $20 trillion now, and is projected to reach $23.6 trillion in five years.
Trump’s tax plan, as it now stands, would add another $1.5 trillion.
“I am concerned about the amount of debt we are leaving to our children and grandchildren,” Ballard told me.
But what about the tax plan’s effect on regular Michiganders? Professor Ballard calculated its effects on two married couples. One with a taxable income of a million dollars a year, which doesn’t include most of the folks at my dry cleaners.
That lucky couple would get a Trump tax cut of just under $29,000. Then let’s consider a couple with a taxable income of $40,000. They would see an actual tax increase of about $800 a year. True, some families in this bracket might not see their taxes rise, because of proposed increases in other exemptions.
But Ballard said, “the notion that this [plan] is tilted towards average families is ridiculous.” He added that this is even less good for the working poor.
“The biggest thing that could help those people would be an increase in the Earned Income Tax Credit,” he said.
But the plan doesn’t propose that.
President Trump asserts that this tax plan will lead to a massive increase in wages, something Ballard thinks is absurd, partly because of a change in corporate culture.
Years ago, he said, many CEOs would have used a tax cut windfall for productive investments. Today, he noted, their first instinct is to increase dividends.
The bottom line is that this would mean a huge windfall for the wealthy, and add to income inequality and the burdens of the poor. That may not make a difference to Congress, but we should at least recognize this package for what it is.
Jack Lessenberry is Michigan Radio’s Senior Political Analyst. Views expressed in his essays are his own and do not necessarily reflect those of Michigan Radio, its management or the station licensee, The University of Michigan.