Republicans have both an arithmetic and a messaging problem as they try to enact Donald Trump’s second-term agenda via a giant budget-reconciliation bill. The former involves finding a way to pay for the $4 trillion-plus tax cuts Trump has demanded, along with a half-trillion or so in border security and defense spending increases. And the latter flows from the necessity of hammering popular federal programs (especially Medicaid) to avoid boosting budget deficits that are already out of control from the perspective of conservatives. This sets up Democrats nicely to deplore the whole mess as a matter of “cutting Medicaid to pay for tax cuts for Trump’s billionaire friends,” a very effective message that has vulnerable House Republicans worried.
To interrupt this line of attack while making the overall agenda slightly more affordable, anonymous White House sources lofted a trial balloon earlier this month via a Fox News report:
“White House aides are quietly floating a proposal within the House GOP that would raise the tax rate for people making more than $1 million to 40%, two sources familiar with discussions told Fox News Digital, to offset the cost of eliminating taxes on overtime pay, tipped wages, and retirees’ Social Security.
“The sources stressed the discussions were only preliminary, and the plan is one of many being talked about as congressional Republicans work on advancing President Donald Trump’s agenda via the budget reconciliation process.
“Trump and his White House have not yet taken a position on the matter, but the idea is being looked at by his aides and staff on Capitol Hill.”
The idea wasn’t as shocking as it might seem. Trump’s 2017 tax cuts reduced the top income-tax rate from 39.6 percent to 37 percent, so just letting that provision expire would accomplish the near-40 percent rate without disturbing other goodies for rich people in the 2017 bill like corporate-tax cuts, estate-tax cuts, and a relaxed alternative minimum tax for both individuals and corporations. One House Republican, Pennsylvania’s Dan Meuser, suggested resetting the top individual tax rate at 38.6 percent, still a reduction from pre-2017 levels but a “tax increase on the rich” as compared to current policies.
Crafty as this approach might have been as a way of boosting claims that Trump had aligned the GOP with middle-class voters (the intended beneficiaries of his recent tax-cut proposals) rather than the very rich, the idea of backing any tax increase on the allegedly super-productive job creators at the top of the economic pyramid struck many Republicans as the worst imaginable heresy. You could plausibly argue that total opposition to higher taxes, or even to progressive taxes, was the holy grail for the party, more foundational than any other principle and one of the remaining links between pre-Trump and MAGA conservatism. At the very idea of fuzzing up the tax-cut gospel, old GOP warhorses like Newt Gingrich and Americans for Tax Reform’s Grover Norquist arose from their political rest homes to shout: unclean! Gingrich called it the worst potential betrayal of the Cause since George H.W. Bush cut a bipartisan deficit-reduction deal in 1990 that included a tax increase.
As it happens, it was all a mirage. In virtual unison, both Trump and House Speaker Mike Johnson have said a high-end tax cut won’t happen this year, as Politico reports:
“President Donald Trump and House Speaker Mike Johnson on Wednesday came out against a tax hike on the wealthiest Americans — likely putting the nail in the coffin of the idea.
“Trump told reporters in the Oval Office that he thought the idea would be ‘very disruptive’ because it would prompt wealthy people to leave the country. …
“Johnson separately knocked the idea earlier in the day, saying that he is ‘not in favor of raising the tax rates because our party is the group that stands against that traditionally.’”
Trump’s real fear may be that wealthy people would leave the GOP rather than the country. Many are already upset about Trump’s 19th-century protectionist tariff agenda and its effects on the investor class. Subordinating the tax-cut gospel to other MAGA goals might push some of them over the edge. As for Johnson, the Speaker is having to cope with the eternal grumbling of the House Freedom Caucus, where domestic budget cuts are considered a delightful thing in itself and the idea of boosting anyone’s taxes to succor the parasites receiving Medicaid benefits is horrifying.
If Trump’s “big, beautiful” reconciliation bill runs into trouble or if Democrats set the table for a big midterm comeback wielding the “cutting Medicaid to give billionaires a tax break” message, squashing the symbolic gesture of a small boost in federal income-tax rates for the wealthy may be viewed in retrospect as a lost opportunity for the GOP. For the time being, that party’s bond with America’s oligarchs and their would-be imitators stands intact.
My memory of Rubinomics associates it with bringing down the interest rate and reducing the deficit, rather than free trade. This apparently has changed in the post-election discussion.
The benefits of free trade have not been shared, no doubt. The “free” part has been taken by opportunists to mean free from the need to share gains or mitigate pains. Populists are right to shut down the store until accounts are set up correctly.
But the other side of Rubinomics is no less difficult. Getting the budget under control. Debt service and the retiring baby boomers are going to set up an impossible situation. Remember, off-the-books borrowing from Social Security and Medicare funds is not only going to stop, but will need to be reversed simultaneous with the ballooning debt service.
Clearly fiscal responsibility means revenue increases. Tax increases? Not on the middle class. That is the Democrats bargain with the voter in the past election. And we’d better not renege on that. The 1994 election, if you’ll recall, was demagogued by the Gingrich and the Republicans using very meagre tax increases.
Where then? I’d like to see somebody else’s ideas. I would first end the cap on payroll taxes. This would have the effect of increasing the top marginal rate by 16% or so for earned income, earmarked for the entitlements that will be needing it.
Symbolically, it might be neat to institute a new top marginal rate of 80 or 90 percent on income over $3 million.
An idea that is not mine, but I forget where I saw it, was to get rid of all the income tax deductions and credits and bells and whistles in favor of five: children, pensions, health care, education, mortgages. This might net the most, while holding the middle class harmless.
“Taxes” won’t be such a dirty word if it is applied to the other guy.
“Free” vs. “Fair” Trade
As the Rubinites and the economic populists square off on a number of issues which includes the free versus fair trade debate, the narrow use of the term “fair” trade by some Democrats borders on a disguised and thus disquieting form of rank economic nationalism.
Free trade is not fair trade when our government, thanks to powerful and well-heeled lobbies, refuses to couple “free” trade with the abolition of the patently inefficient subsidization of cotton, wheat, and sugar production in this country, among other such supports. These subsidies underwrite a monied elite while increasing the price of these products for consumers, not to mention the denial of economic opportunities for foreign workers. (Here in Florida, for example, we not only subsidize “big sugar” and thus pay more for our sugar, but we also subsidize their cost of doing business by using tax dollars to clean up their despoilment of the Everglades.)
An example of this “fairness” is reflected in the draft free trade agreement with Peru. As drafted, its implementation would demolish the Peruvian wheat, cotton, and sugar industries, for even with their lower wage rates, they cannot compete with the artificially supported low prices for these products.
Some Democrats are calling for better labor and environmental laws and their enforcement, which in Peru’s case could be strengthened, but this call is being made without any discussion whatsoever of the “unfair” destruction of three Peruvian industries.
The money we waste on welfare for industries that don’t need protection could be better spent on the social nets necessary for a fair trade driven economy.
In short, if the economic populists are going to argue for fair trade then they should use that term consistently to apply not only to our trading partners but to ourselves as well.