Different Economic Perspectives On Trump's Tax Outline
STEVE INSKEEP, HOST:
When President Trump released a tax proposal yesterday, it wasn't hard to read - one page, mostly double spaced, bullet points, lots of white space. It did mention fewer tax brackets, fewer deductions and a lower business tax. Treasury Secretary Steven Mnuchin promoted these ideas.
(SOUNDBITE OF PRESS CONFERENCE)
STEVEN MNUCHIN: The overall economic plan consists of massive tax cuts and tax reform, regulatory relief and renegotiating trade deals. And with that, we will unlock the economic growth that's been held back for too long in this country.
INSKEEP: We have two more views of that document. Peter Morici is a conservative economist at the University of Maryland. Good morning to you, sir.
PETER MORICI: Good morning.
INSKEEP: Joined once again by Jared Bernstein, former chief economist to Vice President Biden. Thanks to you for coming by.
JARED BERNSTEIN: Good morning.
INSKEEP: OK. Is this plan - this one page - serious?
BERNSTEIN: I would say no. I mean, first of all, it's not really a plan. It looks sort of like a shopping list for rich people who want to avoid taxes. It's going - the big problems are at least two-fold. One is it's going to increase the budget deficit probably by around $5 trillion over 10 years.
Now, there are times when you want your budget deficit to go up, say, to offset economic weakness. This is not one of them, so it squanders needed revenues, revenues we're going to need in the future, to give a bunch of wasteful tax cuts to rich people. It's also highly disequalizing, which is something we also don't need.
INSKEEP: That's Jared Bernstein. Peter Morici, what do you think?
MORICI: Well, it adheres to certain conservative principles. That is simplifying the tax system, eliminating deductions, compressing the rates and so forth. For many upper-income people, it'll mean higher taxes. For example, in New York, by eliminating the deduction for state and local taxes, it'd make their taxes higher.
I do find it amusing, the notion that we can't afford a tax cut now when six months ago - and when Jared's team had the White House - they thought that spending more money and increasing the budget deficit would be just fine. So it seems as though Democratic deficits by the government spending money are fine, but people getting to keep more of their own money to spend it...
INSKEEP: Jared raises a finger here. Go ahead.
BERNSTEIN: Completely inconsistent and not representative. In fact, not only did Barack Obama try to increase taxes, he actually did. And if you recall in his second term, he ran on that program. So that's false. Also - excuse me - his budget deficit was 10 percent, came down to about 2 or 3 percent by the time he left.
INSKEEP: Let's just talk about the present day here for the moment...
BERNSTEIN: Yeah. So here's the thing...
INSKEEP: ...Because this does seem to be - whoa, whoa, whoa.
BERNSTEIN: Let me just correct...
BERNSTEIN: No, no. I got to correct one thing Peter said.
INSKEEP: Gentlemen, gentlemen, gentlemen. OK, so let's just deal with the fact that there are proposed tax cuts here. There are not specific deductions, very many of them, that are named. It does appear to raise the deficit. Is that OK with you, Peter Morici?
MORICI: Oh, I think it raises the deficit, and it's not OK with me. My feeling is is that we really - if we want to cut taxes overall, then we need to cut spending to do it. I'm very disappointed that the proposal doesn't have details. These guys have had the White House in focus since November. By now, they should have a plan. It really shows that the White House lacks expertise. Mnuchin and Cohn have excellent business backgrounds.
INSKEEP: Gary Cohn, that's another one of the top economic advisers.
MORICI: Right, his - basically an aluminum siding salesman, silver trader who managed his way up in Goldman Sachs largely as an administrator and Mnuchin, who basically turned around a bank. But that doesn't give them expertise on tax policy or trade policy or what have you. This is nothing but the - basically, it's Newt Gingrich's Christmas list at 12.
INSKEEP: (Laughter) OK. Jared Bernstein, granted that you clearly don't like this plan, is there anything in here for Democrats?
BERNSTEIN: Not really. I mean, first of all, I do just want to correct something 'cause it is a - it's really a key point here.
INSKEEP: Oh, and you're still boiling on this thing from earlier.
BERNSTEIN: And that's that - it's that - look. The taxes on the upper-income folks, say the top 1 percent, are definitely going down under this plan. That's not at all...
INSKEEP: It lowers the top bracket.
BERNSTEIN: It lowers the - but I'm just saying. And as far as middle and lower-income people, it does increase the standard deduction, so that'll help a little bit folks in the middle. And then there's a bit of an increase in a child care tax credit.
But those are just tiny little de minimis parts of this tax - when you get rid of the alternative minimum tax, get rid of the estate tax, when you take the corporate rate down to 15 percent, when you have pass-through rate that's - these are huge tax cuts for those at the top.
INSKEEP: Although there is a line here and this one page - eliminate targeted tax breaks that mainly benefit the wealthiest taxpayers.
MORICI: That's right. I think that folks, for example, in New York who are on wage income, say, a physician who works for a hospital, will likely see higher taxes because - not terribly higher but because, simply, the reduction in the rate doesn't compensate for the loss of those deductions and exemptions, in particular, the state and local taxes. The question is, how far do they go with that? How many deductions and exemptions do they get rid of?
INSKEEP: And can I just mention also it specifically says we're going to protect the home ownership and charitable gift tax deduction. So we're going to get rid of deductions except not the popular ones.
MORICI: Those won't help the wealthy very much because...
BERNSTEIN: Those are those are two big deductions. Look. Let me - Peter brought up an interesting point. Take the high-paid physician in New York or any other place.
BERNSTEIN: That person under this plan, she now has an incentive to incorporate her business because she can go from paying 35 percent - the top rate on this plan - if she just pays...
INSKEEP: As an individual.
BERNSTEIN: ...The tax - the individual rate. Under this plan, the pass-through rate is 15 percent. So she goes to her boss tomorrow and says, I am no longer a physician working for Hospital X. I am now an LLC or self - a self - what do you call it? An S-corp.
INSKEEP: Limited liability.
BERNSTEIN: You know, one of the - limited liability. And then she's paying 15 percent, so that's a huge tax cut. And that's a loophole in this plan.
MORICI: It is not so easy to go from becoming an employee to a consultant in that manner. The IRS is very, very aggressive about reclassifying people if they try to turn themselves from an employee to a consultant. Where the real issue is is when people have LLCs because they do have speaking income or they work independently, how much of that they report as wage income.
INSKEEP: Just got about 30 seconds. Is Congress going to do anything with this proposal anyway?
BERNSTEIN: I think this is going to be a heavy lift for Congress. There are even Republicans who are grumbling now already about the deficit implication.
INSKEEP: And Peter Morici, you get the last word here.
MORICI: I would agree with that. I have a lot of problems, and I think that my moderate friends on the Hill share them. Increasing the deficit - 15 percent corporate rate, not liftable (ph).
INSKEEP: OK. All right. Peter Morici is a conservative economist at the University of Maryland and Jared Bernstein, a former chief economist for Vice President Biden. Gentlemen, you can take off the gloves now and towel off. Thank you very much for taking the time.
BERNSTEIN: Take care.
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