Trump’s trumpeted tax plan is a dud

published 5 May 2017

Last week, we finally learned a bit more about President Donald Trump's well-trailed "massive" programme of tax cuts. Not a lot more, however. The plan designed to grapple with a tax code of 70,000 pages amounted to just a one-page briefing. This back-of-the-envelope scribble contained "rough principles around which the administration can negotiate with Congress", said the Financial Times. No wonder stocks slipped.

The main features include a cut in corporation tax from 35% to 15%, along with a one-off offer to induce US firms to move their money back from overseas. The number of individual tax brackets falls from seven to three: 10%, 25% and 35%.

All tax exemptions would be abolished except for mortgage interest and charitable donations. Trump appears to have been far too busy to add up the cost of these measures, although the government seems to think that the tax cuts will juice growth enough to produce the revenue to pay for them.

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The extent to which Reagan's tax cuts in the early 1980s were self-financing is one of the eternal debates of economics, but one thing's for sure, as Jeremy Warner points out in The Daily Telegraph: in the 1980s growth soared as the economy leapt out of the doldrums.

Today, by contrast, it is already growing solidly and appears to be at full employment, so there is scant scope for producing the sort of growth boost whereby tax cuts could conceivably pay for themselves.

No wonder that fiscal hawks say Trump's plans imply trillions more in borrowing. "Trump built his business empire on debt, and got away with it," notes Warner. "Now he hopes to repeat the trick with an entire economy. Good luck with that."

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.