The Presidential Tax Plans (and the Fiscal Sandwich)

I was asked to talk about presidential candidates’ tax plans today on Trish Regan‘s FoxBiz show. As usual, I prepared more content than the video medium allows, so let me share some thoughts with you here. Disclaimer: I am not advising any candidate. I speak for myself here, not for Glenn, or anyone else.

Now the way media invites go for a guest is that I will get a call or email asking if I would be able to talk about topic X at time Z. I usually take those for TV if I have something to say. Often I decline when the topic is outside my range of economics, national security, or (hoping someday) superhero movies and how to be an awesome dad/husband/dog owner/soccer coach/Spurs fan/garage organizer. This time the producer said the topic was “presidential candidates’ tax plans.” Cool!

Since I am in DC on a work trip, this was an opportunity to appear in studio, or at least in the FoxBiz side studio. Cool. I said yes, did about an hour of homework to study up on who has said what lately, and off we go.  I arrived early so got made up by the team there, then waited in the “green room.”  Being early, I switched channels from FOX to FOX Business so I could see what others are seeing for the ten minutes before I appear.

Trish is a great host, and my bet is that she will become a bigger star in the years ahead. But this was my first time talking with her, and I knew it would be wise to get a gist of what was happening now and what was on her mind. Good tip: always do this preview if you can. Some green rooms are less organized. I’ve been in major network green rooms where the remote TV control is broken. Anyway, on this day, Trish says right before the commercial break something to the effect, “When we come back, we will talk electionomics and what the Trump tax plan is all about.”

Uh oh.

There is no Donald Trump tax plan. There’s some bravado about how he knows the tax code better than anyone and how he’s going to go after hedge fund guys. That’s it. Pitchfork populism and the fact that he knows how to abuse loopholes in the tax code. Those seem like disqualifiers in my opinion, but, I really had nothing in the tank if Trish wants to ask follow-up questions.

Thank God for the iPhone. Thank God for mobile Google searches. And thank God for Miss Collins who taught me to read quickly in 5th grade at Prarie Lincoln Elementary.

Two minutes later, I am in the studio. Earpiece in, Mic on the lapel. Smile and think about talking to my sisters about policy issues. (That’s how I get ready for any media talk. My sisters are brilliant, but they are not swimming in the econ literature nor are they up to speed on policy wonk world. So I figure if I can explain to them, especially with a splash of humor, that should work for everyone in the USA).

What I WANTED to say is that Marco Rubio, Jeb Bush, and Rand Paul have put out serious, important, and substantive tax plans (Check Dan Mitchell’s analysis here and this superb dynamic candidate plan overview at the Tax Foundation). Nobody else has put out real policy plans, although a few candidates such as Ben Carson have established important principles. I was going to say, “Well, Trish, Electionomics is much more about establishing what your principles are rather than serious policy plans. So when a candidate like Jeb puts out a serious plan, it opens him up to attack, and we should respect the political courage it takes to be serious. So give credit to Rubio, to Bush, and to Paul.”

I anticipated some questions about how those plans have been estimated to create bigger deficits. Critics say Jeb’s plan will cost 1.2 trillion dollars of lost tax revenue over ten years. Paul’s will cost $3T, and Rubio’s will cost $4T.

We should all challenge the premise here. Saying any tax plan will “cost” something is false. Every cost means more Americans keep their money instead of Uncle Sam. More importantly, why the 10 year benchmark? A good tax plan will dramatically increase GDP growth, not to mention personal incomes. Beyond ten years, a good tax plan should narrow the deficit path.

I WANTED to say something else, that needs to be said, which is:

It is a mistake to link fundamental tax reform to budget deficits in isolation. Look at what President Obama has done. Obama increased tax rates, tax revenues, and tax complexity. The man is 3 for 3 on increasing the tax burden, year after year. Yet the six largest deficits in US history have all occurred with Obama in the White House. The annual deficit during Obama’s first term was over One Trillion Dollars each year. Even though CBO reports the deficits in the current year to be a third of the peak, they also project that Obama fiscal structure will cause deficits to rise toward One Trillion Dollars per year within ten years. That is a terrible legacy being left by this White House to the American people.

I should end the blog post there, because that structural deficit legacy is so important, but let’s think about why. Higher deficits seem to correlate with higher tax complexity. That is because tax policy is only half of the fiscal sandwich. (Yes, I really wanted to say fiscal sandwich on live TV. I know it is stupid, but it sounds like a nice blend of wonky good point and something that the sisters would laugh at. One can hope.) The other half of the fiscal sandwich is federal spending. And if a candidate – a serious candidate – has a plan to slow the growth rate of federal spending, then you’ve got yourself a president.

In the end, Trish gave me a lot of air time. I tried to introduce some reality to the Trump TV bubble. But there was much left unsaid. As for things unsaid on tax plans, Hillary and Bernie are offering even less substance than Trump. That’s electionomics for you!

One response to “The Presidential Tax Plans (and the Fiscal Sandwich)

  1. Hi Tim “stupid question”. Why is a deficit bad? Doesn’t a deficit mean that the government is spending more into the private sector than it is removing (with taxes) from the private sector – a net benefit to the private sector? That is = public sector deficit = private sector surplus (this is an identity in economics). Thanks much for any thoughts. .

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