Reading Between the Lines: POTUS Leans in on Tax Reform

Editor’s Note: Beginning this week, Sandra Swirski and Sara Barba of the Washington, D.C., advocacy firm Urban Swirski & Associates will offer regular analysis of public policy developments of interest to Southern grantmakers – reading between the lines so you don’t have to.

On Wednesday, President Trump kicked off his administration’s full-throated support for tax reform, seeming to position it as a silver bullet to shake off sluggish growth and kick the country’s economy into a higher gear. As has been the case for several months, policy details were scarce – and there was no mention of changes to the charitable or standard deductions.

While his speech wasn’t long on specifics, there were hints at what is to come if you listened closely. Reading (and listening) between the lines, we heard three new, notable developments about where tax reform is heading.

Benefit the Middle Class

First, he wants tax cuts to benefit middle-income working Americans, rather than wealth creators à la President George W. Bush. In 2001 and 2003, Bush ushered in massive tax cuts and about 70 percent of those tax cuts benefitted the top 20 percent of earners. Trump made clear he wants to go in a different direction. 

The appeal to the middle class is on par with the campaign trail rhetoric that he’s carried into his administration. We suspect middle-class tax relief will remain a priority for him, although higher-income earners could also see some tax relief.

Paying for Tax Reform

The second development we gleaned is that Trump gave a big hint about a sizable revenue raiser for tax reform. Remember that Speaker Paul Ryan (R-WI) and House Ways and Means Chairman Kevin Brady (R-TX) were pushing a Border Adjustable Tax (BAT) that had few fans because it taxed foreign goods coming into the United States. Retailers screamed and the BAT is dead, which means Republicans are looking to identify alternative revenue raisers – to the tune of $1 trillion – to help pay for all these middle-class rate cuts.

On Wednesday, Trump put his finger on at least one alternative. He talked about encouraging companies that hold “trillions” abroad to bring that cash home to invest here and create jobs. That sounds a lot like the rationale back in 2004 for a (one-time) steep rate cut for American companies that brought back big foreign profits. In 2004, that tax holiday meant an 85 percent tax cut for whatever you brought home. It worked as expected. Companies brought home almost $400 billion.

Leverage with Democrats

Finally, the president is hoping to “encourage” Democrats to participate in crafting and voting for tax reform. The president’s choice of Springfield, Missouri, for his first address on tax reform to the American people wasn’t coincidental. The Show Me State is home to Democratic Senator Claire McCaskill, who is up for re-election in 2018 in a state Trump won by 18 points. So, what did Trump say in his speech about lowering rates? “…She must do this for you. And if she doesn’t do it for you, you have to vote her out of office.” Now that’s one way to woo Democrats.

Next up, Vice President Pence is traveling to states with similarly situated Democrats, including West Virginia Sen. Joe Manchin, who represents a state Trump won by 41 points, and Indiana Sen. Joe Donnelly, in a state Trump won by 19 points. Different targets, same message: Join Republicans on tax reform or face your voters next November.

Sandra Swirski is a partner at Urban Swirski & Associates; Sara Barba is assistant vice president at the firm.


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