President Donald Trump has called for a tax cut that will add $1,500 billion to the national debt. In normal speak that is $1.5 trillion added to an already staggering debt. Does that make sense?
We are at a time of strong economic growth and unemployment is at a 17- year low. Most economists would strongly advise we cut taxes when the economy is stagnant or shrinking and unemployment is rising. Neither of those conditions are present today.
What is a present and future danger is the amount of debt we are passing on to our children and grandchildren: $20 trillion. That is a gross debt of 100 percent of our national economy. That's the largest debt since World War II. Candidate Trump pledged to eliminate our debt very quickly. Instead, he is adding to it "big league," as he is fond of saying.
The president also argues that economic growth will surely follow his tax cuts. We have heard that siren song before. Remember the Bush administration?
We were told if we just had a massive tax cut and deregulation, growth would explode and it would pay for itself. What happened? We had a huge tax cut in 2001 and the debt exploded. By the end of President George W. Bush's term we were on the brink of a depression. The economy was shrinking at a rate of 9 percent and we were losing 800,000 jobs a month! Have we forgotten?
President Bill Clinton tried a very different approach. He had a plan that modestly increased taxes on the wealthy while cutting some spending. The result was remarkable: a balanced budget, a record 23 million jobs created and the longest period of economic expansion in our history. And as all incomes rose, poverty was reduced by a record amount.
Hello! This is not economic theory. This is what happened in the real world with two very different approaches. As President Ronald Reagan liked to say, "Facts are stubborn things."
Trump says his tax plan is focused on the middle class but only one-fifth of the benefits go to them. Almost as much goes to eliminate the estate tax, which benefits no one in the middle class. Eliminating the estate tax benefits only 5,400 households a year. These are the wealthiest two-tenths of 1 percent of the population.
In short, only estates over $5.5 million pay anything at all. You may have heard the term "death tax" used to describe the estate tax. There is no death tax. The estate tax is a levy on large estates to raise revenue and prevent extreme concentrations of wealth in the hands of just a few super rich families.
I believe the middle class needs a tax cut. At the same time, the best research tells us tax cuts financed by borrowing hurts long term economic growth. We can achieve tax cuts for middle class families and pay for them by closing the many loopholes, deductions and exclusions that litter our current code. Tax shelters should be a special focus.
A trove of leaked documents, called the Paradise Papers, reveals the extent to which corporations and individuals use offshore tax havens to avoid paying billions of dollars in taxes owed to the United States. A modest, five-story building in the Cayman Islands, called Ugland House, claims to be home to 18,000 corporations. Either that is the most most efficient building in the world, or it is a multi-billon dollar tax dodge. You decide.
The president also argues that we need a corporate tax cut to be competitive. He claims we have the highest corporate tax rate in the world. But the truth is, our effective corporate tax rate, what companies actually pay, is in about the middle of the industrialized world.
It is also the case that many companies, even large and very profitable ones, pay no corporate income tax.
I personally believe we should lower our top corporate tax rate to improve our competitive position, but it should not be done with borrowed money, much of which comes from the Chinese, with whom we are competing. I was part of the Simpson-Bowles effort that proposed precisely such a plan to lower rates but to offset the cost.
Trump's plan needs major revisions if we are to avoid the disastrous outcomes we experienced when this same academic theory was tested in the Bush administration. We can and must do better - for middle class families, and for the long term economic stability of our nation.