Now it's all clear. The months and months of Donald Trump wielding a big stick when it came to business, harping on unfair trade deals, bashing outsourcing, etc. — stuff that's so out of place for a Republican — suddenly makes sense.
In announcing his intention to reduce corporate taxes to 15-20 percent from the current 35 percent and cut business regulations by as much as 75 percent, Trump is finally producing the carrot — the big payoff — to go along with that big stick.
The stick is what could help him avoid the economic trap that's wounded every Republican tax cutter that came before him like George W. Bush and even Ronald Reagan.
Trump appears to have been paying attention to the immediate things that usually happen as soon as those cuts go into effect: Higher deficits and basically the hoarding of cash by the very rich.
Conservatives know that lower taxes and regulations produce better economic growth for all over time. Even some non-conservatives, like President Obama's former top economist Christina Romer, have said it, too. But the immediate effect that we've seen historically before most of the economic positives kick in from tax cuts is that the Treasury sees lower revenues and corporations use their newly found cash to fund stock buybacks and CEO pay raises. That's hardly the kind of thing the new president can use to help sustain his blue collar popularity or win over new voters.
Presidents Reagan and George W. Bush learned that the hard way. The Reagan tax cuts did eventually ignite the 1980s economic boom. But it took some time. 1982 and most of 1983 were recession years despite Reagan's historic 1981 tax cuts. The Bush tax cuts of 2001 didn't really start to show positive results for the economy as a whole until 2004. In both of those cases, things turned around in time for both Reagan and Bush to be re-elected. But coming in with a historically low approval rating, President Trump probably doesn't have the same luxury of time.
So, enter the stick. That is, those stern warnings to the very same companies President Trump would be basically gifting with those promised tax and regulation cuts. He said Monday morning that he feels confident in making threats against companies that consider outsourcing because he believes the tax and regulation cuts would eliminate the biggest justifications to leave the U.S. and eliminate American jobs in the first place. In so doing, the White House is hoping to hit fast forward on the economic positives that come from a more pro-business tax policy.
Will it work? At the very least, it should help the Trump administration avoid the terrible political optics of seeing richer corporations get a bigger cash hoard and still move overseas. But what we're seeing so far is more of the best-case scenario, where top corporate CEOs flock to the White House to prove they are at least willing to try to increase American manufacturing and jobs.
And what about the deficit and the American consumer? The Trump team has to be hoping that the deficit won't be dented too much at first. That's because even a corporate tax reduction all the way down to 10 percent from 35 percent could actually be revenue positive if the biggest U.S. corporations see that lower rate and bring back the hoards of cash they're holding overseas.
Ten percent of something is better than 35 percent of nothing. The consumer may be a little less lucky. Those tax and regulation cuts should theoretically help keep down the prices of the things we buy. But there's no guarantee of that. Unless President Trump is going to have his team monitor the price of every consumer staple to luxury item now made in the U.S., the chances are good that at least some manufacturers won't be so quick to cut prices — or even resist raising them.
But in politics, perception is reality. And the perception here is that, while those corporations may finally get those tax and regulation cuts they've been salivating over for years, this time the public sees a president who's asking them for something very specific in return. Every announcement by companies saying they're planning to open or maintain a plant in America creates the perception that these future promised gifts to Big Business do come at a price that benefits more than just the "1 percent." And now we know that President Trump had to establish himself as someone dead set on exacting that price first, before he started going into specifics about corporate-friendly cuts.
He started with the stick, and now he's beginning to show the carrot. President Trump indeed does know Corporate America and its usual set of tricks. It may or may not be the best economic policy, but it is brilliant politics.