Can Trump's Tax Reform Raise Household Income by $4,000?

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  October 12, 2017

Can Trump's Tax Reform Raise Household Income by $4,000?

During a rally in Harrisburg, PA, Trump claimed that his tax reform would raise incomes by $4,000 per household. Economist Dean Baker disputes that tax breaks generate greater economic activity and thus raise incomes as Trump claims
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Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being "Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer".


GREGORY WILPERT: Welcome to The Real News Network. I'm Gregory Wilpert joining you from Quito, Ecuador.

President Donald Trump held a speech in Harrisburg, Pennsylvania today where he addressed thousands of truck drivers. And during his speech, Trump laid out his arguments for why tax reform would be a good thing for workers such as the truck drivers in his audience. Here's what he said:

DONALD TRUMP: We will totally eliminate the penalty on returning future earnings back to the United States and we will impose a one-time low tax on money currently parked overseas so it can be brought back home to America where it belongs, and where it can do its job. My council of economic advisers estimates that this change along with a lower tax rate would likely give the typical American household a $4,000 pay raise.

GREGORY WILPERT: Joining me to examine Trump's latest arguments for tax reform is Dean Baker. Dean is the co-director of the Center for Economic and Policy Research. Good to have you back, Dean.

DEAN BAKER: Thanks for having me on.

GREGORY WILPERT: Let's delve right into Trump's main claim. He says that a typical American household would get a $4,000 raise. What's the fact check on this claim? Would this be possible under that tax plan as we know it so far?

DEAN BAKER: This is an incredible stretch, and then being generous to call that as opposed to an outright fantasy. Trying to tell the story that you're going to have this huge surge in growth, which is what they're claiming and this is where you get the raise that there'll be this big surge in investment, huge surge in growth, and that will have a payoff, and that we're going to be more productive, and therefore, workers will get this huge wage increase. There's basically no evidence to support that. We have a lot of research of the impact on taxes, on investment..has little impact.

We've actually done this experiment. We had a big cut in taxes while we had overall cut in taxes under both George W. Bush and Ronald Reagan. But also under Ronald Reagan, there's a big cut in the corporate tax rate. We went from a 50% corporate tax rate to the current 35%. Investment was actually very low in the late 80s. I'm not going to say that was all because of this tax cut. I wouldn't say it necessarily slowed the investment. But you're very hard-pressed to make the case that it sped it up. So, this idea that he's going to have his tax cut and they're going to be some investment boom, that's basically pure fantasy.

GREGORY WILPERT: One part of the argument I think is probably the whole point about growth. But I think another part of the argument, which we haven't touched yet on that he's going to reduce, while the increase in deductions for many of the people, doubling the individual deduction. How big an impact will that have? Is that any way that that could add up to $4,000 in some way?

DEAN BAKER: Not unless you do your arithmetic really badly. I mean, he's proposing to double the standard deduction, so it's currently roughly 6,300 and he wants to double it to 12,600. So, that means if you're a single individual and say you have an income of $30,000, currently, the first $6,300 is not taxed then it'll be $12,600. It sounds like a good deal. But offsetting that is he wants to give them the personal exemption, that's roughly $4,600 a person and that rises in step with inflation, whereas the standard deduction does not. That ends up to being a very little difference. He also wants to raise the bottom tax bracket from 10% to 12%, so this approximate we still haven't seen. They're criticizing people for trying to analyze when they haven't seen everything but this is what we have on the table. Most of that looks like it's going to be pretty much a wash, which isn't to say someone earning 30, 40,000 might not see a small reduction in their taxes but we're almost really talking in hundreds not thousands. So, that really is a fantasy.

GREGORY WILPERT: Okay. We'll definitely come back to it once we get more details about this tax plan. I’m speaking with Dean Baker, the co-director of CEPR. Thanks Dean for having joined us again.

DEAN BAKER: Thanks a lot for having me on.

GREGORY WILPERT: And I'm Gregory Wilpert for The Real News Network.


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