Less Costly ‘Trump 2.0’ Tax Plan Urged by Reagan-Era Economists

  • Guest list at Trump Tower suggests tax plan under discussion
  • Earlier suggestions meant less benefit for middle class

Donald Trump has said his main tax-policy goal is a cut for the middle class, yet his guest list for a series of policy presentations at Trump Tower included a Reagan-era economist who has suggested revamping that plan.

Lobbyists and business leaders, including oil billionaire and Trump ally Harold Hamm, gathered June 9 at the presumptive Republican nominee’s New York headquarters to present their policy wish lists. Among them: economist Stephen Moore, who has been offering Trump advice on tax policy -- particularly suggestions for cutting his plan’s estimated cost of $10 trillion over 10 years.

But Moore and fellow conservative economist Lawrence Kudlow have recommended changes that would “all but erase” the middle-class benefits Trump favors, according to Kyle Pomerleau, a senior policy specialist at the right-leaning Tax Foundation in Washington. The foundation, a non-profit research group, reviewed the revisions at the request of Moore and Kudlow.

‘Pro-Growth Juice’

Trump hasn’t committed to any of their suggestions, and spokeswoman Hope Hicks told the New York Times last month that Moore and Kudlow don’t speak for the campaign. Nonetheless, Moore’s appearance at Thursday’s Trump Tower conclave -- where he said he was one of the presenters -- suggests that the final contours of Trump’s tax plan remain under discussion.

“At some point, there will be a ‘Trump 2.0’ tax plan with the basic integrity of what he proposes, but with some refinements so that it has pro-growth juice in it,” said Moore, a visiting fellow at the conservative Heritage Foundation in Washington. Trump’s campaign didn’t respond to repeated requests for comment.

The candidate called his own tax plan into question last month when he described it as merely a starting point for negotiations with Congress and said taxpayers with higher incomes might have to pay more than he has proposed. “I am so much more into the middle class, who have just been absolutely forgotten in our country,” Trump said on CNBC.

Three Brackets

His published plan calls for large across-the-board cuts for individuals and businesses. Trump wants to consolidate the current seven individual income-tax brackets to three. At the bottom, married filers who earn less than $50,000 a year would pay no federal income tax. At the top, individuals who earn $150,000 or more would pay a top rate of 25 percent, down from the current 39.6 percent.

But the cost of Trump’s plan has stirred concern across the political spectrum; it’s been Moore and Kudlow’s challenge to try find ways to cut it. By contrast, presumptive Democratic presidential nominee Hillary Clinton’s tax plan, which includes tax increases on those with high incomes, higher tax rates on certain types of investment income and a higher estate-tax rate, would mean $191 billion in new federal revenue over a decade, according to the Tax Foundation’s analysis. The foundation is a research center whose board includes tax officials from Eli Lilly & Co., PepsiCo Inc. and Microsoft Corp.

“One thing Mr. Trump has made clear is that he wants this to be a middle-class tax cut,” Moore said Friday, the day after the Trump Tower meeting. “What he has told us is that you have to get the cost down, and we have to do it in a way that benefits middle-class voters and families.”

Standard Deduction

By last month, they’d whittled the cost to $3.8 trillion -- but at the expense of some middle-class benefits, according to the Tax Foundation’s Pomerleau. First, they bumped up Trump’s proposed tax rates -- the top rate went from 25 to 28 percent, and the lowest from 10 to 15 percent. They also scaled back Trump’s proposal to quadruple the “standard deduction,” which tends to benefit middle- and low-income taxpayers. Trump proposed to raise it to $25,000 from $6,300; Moore and Kudlow suggest $10,000.

The smaller increase “would drastically shrink any benefits to the middle class,” Pomerleau said. Overall, the Moore and Kudlow changes “erase one of the big selling points Trump has had, which is cutting taxes for the middle class,” he said.

Moore shrugged off a question about whether Trump has rejected the suggestion. He said he and Kudlow still recommend it.

Laffer Curve

Both men served as advisers to President Ronald Reagan. Their work for Trump is backed by economist Arthur Laffer, whose “Laffer Curve” provided much of the underpinnings for Reagan’s tax policies. With Moore and Kudlow’s input, Trump’s plan “will be a humdinger,” Laffer said in a telephone interview.

Moore specified one suggested tweak that would hit higher-income taxpayers: capping itemized deductions. Trump has called for “reducing or eliminating most deductions and loopholes available to the very rich” but his plan provides few details. Moore said he and Kudlow have suggested capping deductions at $50,000. “It wouldn’t affect middle-class people,” but when people like Warren Buffett or Bill Gates “make a billion-dollar giveaway, they can only write off $50,000,” he said.

“The Trump team has said, ‘You might want to keep the charitable deduction,”’ Moore said. Whether Trump will accept that change “hasn’t been decided,” he said.

Another Trump proposal would impose a flat 15 percent income tax on all businesses -- from mom-and-pop groceries to Fortune 500 corporations -- down from the current top corporate tax rate of 35 percent. “I can’t really say whether that’s set in stone or not,” Moore said.

Policy Meeting

Thursday’s meeting, where representatives from various industries presented briefings on policies the next president should pursue, signals that Trump’s campaign is soliciting fresh policy input. The campaign hasn’t released names of attendees. Hamm, the chief executive officer of Continental Resources Inc., said he spoke at the gathering, “exclusively about energy.”

Hamm, who served as Mitt Romney’s energy adviser during the former Massachusetts governor’s 2012 presidential run, refrained from discussing any other presentations, saying, “I don’t think we’ll go there.”

Trump has sought relatively little input on tax policy to date. For example, Megan Van Etten, a spokeswoman for the U.S. Chamber of Commerce, said: “We have not provided any input to Trump on taxes.”

Congressional Plans

Congressional Republicans have pledged to release a blueprint for overhauling the U.S. tax code in the coming weeks -- and the lack of detail so far in Trump’s proposals suggests he may be willing to defer to Congress, said Dean Zerbe, the national managing director of Alliant Group, a Washington lobbying firm.

“At the end of the day, you’d want a detailed legislative product,” said Zerbe, a former tax counsel for the Senate Committee on Finance. “It does suggest they’ll be looking for the details from Congress.”

Regardless, advice on tax policy may not matter much to Trump, said Kenneth Kies, a tax lobbyist and managing director of Federal Policy Group, a Washington lobbying firm.

“It really doesn’t matter what these guys think, because Trump probably doesn’t care,” Kies said. “He doesn’t talk about his tax plans in his stump speeches, which should tell you how much a core issue it is for him in the election.”

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE