Trump turnaround puts new tax-cut writing on the wall
Financial markets and most media pundits are missing the new writing on the wall. For a variety of reasons surrounding shrewd moves by President Trump, the chances for significant tax cuts in the next 10 weeks have risen sharply.
Since the Charlottesville blowup in mid August, when the president's fortunes were at low ebb -- and I'll repeat my view that there's not a racist, hateful, white supremacist bone in Trump's body -- we've witnessed a dramatic executive turnaround. Trump beautifully handled the Harvey and Irma emergencies. His bipartisan political pivot to Senate Minority Leader Chuck Schumer and House Minority Leader Nancy Pelosi to keep the government open and raise the debt ceiling was clever indeed. As economist Steve Moore puts it, POTUS publicly spanked Republican leaders House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell. And though there's plenty of confusion about immigration reform, it's clear now that 800,000 recipients of the Deferred Action for Childhood Arrivals program won't be deported for at least two years, if ever.
Some polls show the president's approval nearing 50 percent. The public likes what it sees.
And, most importantly, Trump has cleared the decks for tax cuts and reform.
Make no mistake: Trump is absolutely committed to tax cuts. This is completely unlike the health care muddle. And critical here is the argument Trump is making: A big drop in large- and small-business tax rates will mostly benefit middle-class wage earners.
Research from Kevin Hassett, formerly of the American Enterprise Institute, or AEI, and now chairman of the White House Council of Economic Advisers, shows that about 70 percent of the benefits of business tax cuts going to wage earners. This is not a tax cut for the rich, as Johnny-One-Note Democrats insist.
There are two big numbers standing atop Trump's tax plan: 3 percent and 15 percent. Three percent is the new growth path that will normalize America's economy and generate at least $3 trillion of additional revenues over 10 years (or sooner). This is the mother of all pay-fors. Fifteen percent is the corporate rate that will spur increases in capital formation, business investment, productivity and real wages.
The Republican establishment says it can't be done. It'll only risk dropping the business rate from 35 to 25 percent. But Trump wants the full 15. So does his Treasury secretary, Steven Mnuchin. Other than the president, Mnuchin, whom I call the "apostle of growth," is the only administration official to keep up the drumbeat for 3 and 15 percent.
Aparna Mathur of AEI notes that at 39.1 percent, including state taxes, the U.S. has the highest statutory rate among G-20 nations. (China is 15 percent.) And our average corporate rate, which is total taxes paid as a share of income, is 29 percent, third highest in the G-20.
So, echoing the president, if we want to build out investment, jobs and wages, bring back overseas profits, stop American companies from going overseas and make the investment climate in America top in the world, we need a big-bang slash of our business tax rate.