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Donald Trump is fumbling his real chance at tax reform

  • Trump rolled out his new tax plan Wednesday.
  • Tax reform plan was neither particularly new nor truly a "plan."
  • This is not how policy making usually works — at least, not for policymakers who hope to pass actual laws.
President Donald Trump prepares to sign an executive order.
Carlos Barria | Reuters
President Donald Trump prepares to sign an executive order.

The Trump administration, with great fanfare, rolled out a new tax plan on Wednesday. It was neither particularly new nor truly a "plan," at least not in the way that word is typically used in presidential politics. It actually tells us less about where Donald Trump wants to take the tax code than his campaign plan did, which bodes poorly for anyone who hoped Trump was serious about a sweeping, pro-growth overhaul of the system.

Americans went to the polls last November not knowing a lot of important details about Donald Trump's promise to deliver what he said would be the largest tax cut in US history. They didn't know how that plan would guard against a wave of tax-evasion by high earners, or how it keep from adding trillions of dollars to the national debt, or — and this seemed especially important — how it would avoid actually raising taxes on 25 million families.

Seven months have passed. Trump's team has had a lot of time to fill in those blanks, which it promised to during the campaign but never did. But somehow, the one-page outline for tax reform that administration officials released on Wednesday managed to include fewer details than his campaign plan. It answered none of those questions from the fall, and it raised several new ones.

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This is not how policy making usually works — at least, not for policymakers who hope to pass actual laws.

"We're just in theatrics mode, even though there's a chance to do something," said Alan Cole, an economist at the conservative Tax Foundation, whose colleagues declared on Wednesday that the new Trump outline did not include enough details for them to complete a full economic analysis of it.

Trump officials "still think of, how does stuff play on cable news?" Cole added. "They've built a culture that's not ideologically predisposed to listening to someone who cares about little details. … It feels like we're kind of in a perpetual campaign, and as a result, there's no policy."

Skimping on details is a great way to undercut real reform

Cole, and many others like him, has high hopes for a truly bold tax reform bill — one that encourages growth, investment, and income gains across the economy. Many supply-side economists will tell you that to be effective, those reforms need to be permanent, and not set to expire after a few years, so that companies can invest and hire with confidence.

This is the first of many, many rubs for the Trump plan. To cut taxes permanently in Washington, you either need to clear 60 votes in the Senate, or you need to clear 50, but not increase the deficit outside of a 10-year window. Trump appears to have done none of the outreach to Democrats that he would need to get 60 votes. That leaves the 50-vote route, via budget reconciliation, and the easiest way through it is designing a plan that Congress's tax-scorers will deem revenue-neutral (when accounting for a boost to economic growth from the cuts).

Trump is nowhere close to such a plan, going by the details he's put forth. Doing some back-of-the-envelope math, Cole estimates he's proposing around $2 trillion to $3 trillion in net tax cuts — rate cuts minus offsetting loophole closures. He thinks the plan might generate about $1 trillion in added revenues from growth. That would still leave Trump short.

Again, this is a rough estimate, and if anything it's optimistic — it comes from a think tank that typically projects much higher growth gains from tax cuts than its peers.

Trump's team could solve this, theoretically, by producing its own modeling showing massive growth effects from the plan. It could even persuade senators to adopt that model for the purposes of reconciliation. But — ugh, here it is again — you can't model a plan without details.

You need to estimate, for example, how many high-earning workers might suddenly file their taxes as a so-called "pass-through" business in order to take advantage of the administration's proposed 15 percent tax rate for such businesses and drastically cut their tax bills. The Trump team says it will limit that practice — restrict the rate to actual businesses, not workers who can declare themselves LLCs — but it won't say how, and so, it's impossible to predict how successful that limitation might be, which matters a lot for tax revenues.

"Their answer to that is, no, trust us, we'll fix it," said Harry Stein, the director of fiscal policy at the liberal Center for American Progress. Stein does not take that promise seriously. But, he said, "I do take (the plan) seriously as an intent to enact enormous tax cuts for wealthy people and big corporations."

The plan leaves huge questions for the middle class, especially

This is another rub for Trump. His officials are selling the plan as a big boost to the middle class. But while the new outline is clear on its cuts for businesses, it does not specify the income thresholds for each of its three personal tax rates. It increases the standard deduction, though not by as much as Trump originally promised, and it eliminates most other deductions, but it also appears to eliminate some deductions that particularly benefit larger middle-class families with children.

That combination is what led Lily Batchelder, a New York University professor and former Obama economic adviser, to calculate the effects on the middle class. She said that some 25 million low- or middle-income families could see their taxes go up under Trump's campaign proposal. To which Trump's team responded, no, they won't — our plan will ensure it.

Such assurances were nowhere to be found in the plan released on Wednesday.

After its release, Batchelder said in an interview that "the changes announced today could have been written on a business card," but by carrying over some assumptions from the campaign plan, she could roughly estimate its effects.

"It appears to me that it's worse for the middle class, and that more working families will face a tax increase," she said. "I, or many tax nerds, could have fixed this in a matter of hours. I don't think it's a lack of staff. It's a lack of will."

In call after call with economic experts on Wednesday afternoon, no matter their ideology or party affiliation, this was the constant question: Why didn't the administration sweat more of the small stuff? Or even more of the big stuff?

It appears "they didn't put much thought into this, and then last week, Trump announced they were doing a plan," said Stan Veuger, an economist at the conservative American Enterprise Institute.

"It's just not well done. I don't know what else to say about it. It's hard to tell what goal we're working toward."

Trump has seen this move on Obamacare already, and it didn't go well

On Wednesday, administration officials stressed the time and preparation that had gone into the plan before they rolled it out.

"This is quite an historic day for us, and one that we have been looking forward to for a long time," said Gary Cohn, the head of the National Economic Council.

"We've been working on this plan for a considerable amount of time," said Steven Mnuchin, the Treasury secretary.

And yet, Mnuchin swatted away request after request from reporters during a White House briefing on the plan, saying the administration would tell Americans more once it had reached a deal with Congress. "You're going into very micro details here," he told a questioner at one point.

If that sounds familiar, it's because the administration took a similar tact on its effort to repeal and replace Obamacare.

Trump never detailed his preferences on the issue publicly, failed to unify Republicans around a bill, and has seen the issue languish in the House. Tax reform was supposed to go more smoothly for him, in part, Americans were assured, because Trump knows and cares more about tax policy than he does about health care. That attitude should worry boosters of reform.

There are lots of reasons why the country hasn't seen a major tax reform effort pass Congress since 1986. Presidential indifference to tax policy isn't one of them. Every president since then has campaigned on a tax plan and worked, at least at the margins, to change tax policy.

True reform — and not temporary cuts, or tinkering around the edges of the code — requires that sort of deep knowledge from a president. It also requires attention to detail, in order to translate presidential priorities into real-world effects. It requires coalition building and public salesmanship. And it requires hard choices, angering some interest groups while pleasing others.

Trump's new plan reflects none of those traits. That is why, unless he fleshes it out and answers the hard questions, it seems likely to fail.

Commentary by Jim Tankersley, politics and policy editor at Vox.

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