Leading Republican presidential candidate Donald Trump stole headlines yet again by introducing his potential tax reform agenda. The plan contains several provisions, such as closing various loopholes, cutting nominal rates at the highest tax brackets, and most notably, his introduction of negative income tax geared toward the benefit of the low and middle class. With varying opinions and expert testimony flying on both sides of the aisle, it’s time to take a hard look at this new proposal.
Trump’s plan would slash the highest rate for those who earn over $413,200 as a single filer ($464,850 for married couples) from 39.6% to roughly 25%. Additionally, the plan would also lower the corporate tax rate, currently at 35%, to just around 15%. These particular changes come with the promise of economic stimulus, job creation, and growth that the nation "hasn’t seen for decades."
History has shown, particularly within the United States, that trickle-down economics like these proposed cuts are simply not feasible, practical, or beneficial in our current economic, political, and social systems. In a perfect world, it makes nothing but pure economic sense that cutting rates at the highest brackets would result in that newfound disposable income being injected back into the economy. But we, unfortunately, do not live in a perfect world, we live in a world where the 400 richest Americans own more wealth than the bottom 150 million combined. Infusing even more wealth into the already wealthiest of us, the hedge fund owners, the CEOs, etc., leads not to raw job creation or discernible increases in total output, but to a further tipping of the scales.
Typically, these folks at the top will take these cuts and invest their new earnings into various financial markets for personal gain, and not back into where it is needed most and most urgently. Where we could and should see private investments into decaying schools, crumbling infrastructure, and impoverished communities, we instead see endlessly cyclical investments in money markets and financial institutions through pure profit-driven speculation. While these institutions do have their place in our extraordinarily intricate economic system, yield certain benefits, and can spur legitimate growth when used properly, the system is not built to naturally promote such mutually beneficial activity.
In a time of record economic inequality predicated by growth in top earners' wealth — while the rest continue to experience perpetually stagnant wages and real earnings — this is a portion of Trump's plan that we absolutely can't accept.
Where things get interesting, however, is in the suggestion of a negative income tax. It must be clarified that this proposal is not Trump’s brainchild, and has in fact been an idea that has varied in popularity and viability for decades. This particular tax was first formulated in the 1940s by Juliet Rhys-Williams, and later supported by the father of monetarism Milton Friedman. Essentially, a negative income tax sets an income level that, below which, is not subject to federal income taxes. Trump’s plan would establish a $50,000 break point for married couples, $25,000 for single folk — i.e. all of their earnings below that point will not be taxed.
At first glance, this type of policy has the immediately recognizable advantage of putting considerably more disposable income directly into the pockets of millions of low- and middle-class citizens. This guaranteed minimum level of income would directly and expressively increase overall consumer spending. As a strong level of consumer spending is by far the most significant component of an economy looking to grow and expand, the benefits of this particular part of the proposal are plentiful, legitimate, and cannot be overlooked.
But consider for a moment the prospect of millions of folks suddenly no longer paying any form of federal income taxes, which include, among other provisions, benefits like Social Security, Medicare and Medicaid, and other social welfare programs. In concurrence with the proposed corporate and top marginal rate cuts, this will mean a sizable blow to the federal government’s coffers.
In addition to the potential risk to these integral social welfare programs, the federal government’s ability to properly fund incredibly important measures like health care, public education, military expenditures, veterans’ benefits, farm subsidies, and much more would be threatened as well. How can we realistically, practically, and logistically afford such a loss in total tax revenue? Significant cuts would have to be made elsewhere to compensate, most likely in cherished social welfare programs like Medicare or Social Security. This is the ugly side of budgeting that brews political unpopularity, and is often avoided when proposing such plans, especially by hopeful presidential candidates.
While I unequivocally support any means to support the low and middle class, a negative income tax is the wrong approach given its negative consequences and impacts on essential government functions and funding capacity. I would much rather see legitimate and substantial growth in real wages and earnings, along with measures taken to reduce across the board various critical expenses such as health care, education, and housing costs. Moreover, this package comes with various cuts to corporate, estate, and the top marginal tax rates, which I emphatically disagree with. Cutting rates at the top in the name of creating jobs and stimulating growth has proven time and time again to be well-intentioned, yet resoundingly ineffective.
Economic growth does not trickle down from the top, it is derived from the bottom-up with a healthy, wealthy middle class. While this proposal contains a provision that would demonstrably benefit the purchasing power of the middle class in a real way, it is sadly packed in with several measures that would do nothing but amplify the already outrageous earnings gap.
We must categorically condemn this proposal. We cannot in good conscience further exacerbate the most prevalent and problematic socioeconomic issue of our time.
