OCTOBER 22, 2018
Call it the mystery middle class tax cut.
In recent days President Donald Trump has twice promised a new “major tax cut” ahead of the November midterm elections, mystifying White House officials, congressional leaders, and tax wonks around town who mostly have no idea what he’s talking about.
The pledge — which Trump repeated Monday afternoon — came as news to House and Senate lawmakers, who’ve already returned to their home states to campaign for the elections and have no plans to consider new legislation before then.
White House officials spent the day trying to decode what Trump meant because no one knew the substance of any such tax cut, or had seen any policy proposal related to it. Aides were left wondering what Trump had read in newspaper clippings, or seen on Twitter, to inspire this grand promise from his rally podium.
One senior administration official on Sunday night had not even heard about the president’s tax cut remark on Saturday in Nevada and said they had no idea what he was talking about. “I guess I’ll hear about it when I get to work on Monday,” the official said.
Trump said that House Speaker Paul Ryan was involved in crafting the plan. But Ryan’s office shed no light, referring questions back to the White House.
Trump first floated the idea on Saturday, saying that his administration is “studying very deeply right now round the clock a major tax cut for middle income people.” He upped the ante before leaving for a campaign trip to Texas on Monday, telling reporters at the White House that the administration plans to produce a “resolution” calling for a 10 percent tax cut for middle income earners. It was not clear what he meant by resolution. There are no current plans in Congress for any kind of large new tax cut for the middle class.
The GOP is already scrambling to avoid criticism for the ballooning debt and deficit under Trump’s watch. The president’s own Treasury Department reported last week that the deficit hit $779 billion in the 2018 fiscal year, the highest level since 2012, following the GOP tax cut bill and a massive spending increase in Congress. Jason Furman, who served as chair of the Council of Economic Advisers under President Barack Obama suggested a 10 percent middle class tax cut would cost roughly $2 trillion over ten years.
“This is the height of cynicism,” Greg Valliere, chief global strategist for Horizon Investments, said of Trump’s tax cut talk. “Number one, I think even Republicans would be gun shy about adding this much more to the deficit. And the public actually seems pretty indifferent to tax cuts. This doesn’t pass the smell test or the laugh test.”
One potential clue to Trump’s thinking: Sen. Kamala Harris (D-Calif.) released a tax proposal aimed at the middle class late last week. Some Republicans close to the White House speculated that Trump is trying to one-up his potential 2020 presidential rival.
Regardless of the origin of the president’s comments, they nonetheless set off a scramble in official Washington to de-code his exact meaning.
One senior administration official stressed that the president was left hungry for more even after his White House pushed tax reform legislation through Congress for the first time since 1986. “He’s wanted to do more,” the official added. “But on those specifics, you may have to wait a bit because they have to go through Congress.”
House Ways and Means Committee Chairman Kevin Brady already unveiled a tax reform 2.0 bill earlier this fall, which now must wait for consideration from the Senate. Brady’s bill contains many of the tweaks and fixes to the individual side of the tax code, so much so that one Republican congressional staffer said: “What else can we really do?” when asked for reaction to Trump’s comments.
Tax wonks, too, were left to speculate about the policy machinations. Some suspect Trump was referring to a proposal from the Treasury Department to index capital gains to inflation, a move the department could do unilaterally.
“We think Mr. Trump could have been hinting that the administration may propose indexing capital gains for inflation,” Brian Gardner, an analyst at Keefe, Bruyette & Woods wrote in a note to clients on Monday. “While indexing capital gains for inflation might not meet many people’s definition of a ‘middle class tax cut,’ it is an idea that National Economic Council Director Larry Kudlow supports and has pushed for many years and which the administration floated during the summer.
Or Trump could have been referring to a proposal out of his Department of Labor that would expand access to 401(k)’s for people who work for small businesses, said Stephen Moore, an informal economic adviser to the Trump campaign and distinguished visiting fellow at the Heritage Foundation who, despite his own deep relationships in the White House, was also left wondering about Trump’s ‘major tax cut’ rhetoric.
The specifics may not matter, though, in the days before an election — especially as the media echoes his message, often uncritically.
“Trump says ‘major tax cut’ on the way for the middle class” read one headline on Fox News business on Oct. 22. “Trump: Working on tax cut for middle class,” an MSNBC chyron declared during his remarks Monday. Making headlines like those may have been Trump’s clearest plan all along.
And for Republicans making the final sprint to the midterms, Trump talking about tax cuts – even fanciful ones with no chance of happening – is better than Trump talking about much of anything else.
“It’s not a serious proposal. It wasn’t kicked around a whole lot, he just tossed it out there,” said one conservative lobbyist with close ties to GOP leaders on the Hill. “Nobody is taking it seriously, but we’d rather have him talking about tax cuts than some of the crazy stuff he usually talks about.”