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How Democrats Might Respond to Trump’s Tax Plan

Democrats have spent a long time as the party advocating tax increases, a position that used to be derided as “root canal Republican.” It’s not much of an election platform (ask Walter Mondale).

The instinctive Democratic reaction to Trump’s ridiculous tax plan is to decry it as a “giveaway to the rich.” Which it is.

But then Democrats again occupy the scold position. Nobody votes for a scold—even if she’s the only adult in the room.

In the Age of Frump, better to respond with a form of tax aikido.
Nancy Pelosi would announce as follows:

“I’m intrigued by the idea of doubling the standard deduction for families to $25,000. But I don’t think it goes far enough. I might look with favor on a proposal that took the standard deduction to $50,000 and raised the personal exemption to $10,000. On that path, a family of four making $90,000 wouldn’t pay a dime in Federal income taxes. That’s a proposal I might be able to support.”

Oh horror—wouldn’t that tax change enormously increase the deficit? Sure; but, and very important: that is not an argument that a Republican can make. Tax cuts lead to compensating economic growth—every Republican legislator swears an oath of fealty to that clause. If they argue against the Pelosi tax cut, they argue against their own tax cut. Checkmate!

Ms. Pelosi might continue:
“I also like the idea of a simplified set of tax brackets. I might be able to support a new system where the 10% rate applied to the first $100,000 of income, after the standard deduction and personal exemptions; a 25% rate applied to the next $200,000; and a 35% rate applied above that point.”

That would really, really bust the deficit; but Republicans are going to do that anyway. This Democrat proposal would at least harvest some of the spoils of that irresponsibility for ordinary middle class folks—especially the educated, upper middle class families that make up the heart of the blue state Democratic coalition. Millions of voters would see their federal income tax burden cut by 80%, 90% or even 100% under this tax jujitsu.

How can Republicans object to that? Well of course they can; but the objection will have to take the form of, “the Pelosi proposal doesn’t give enough of a tax break to our rich donors!” Great election platform, welcome to it.

Yes, such a deficit-boosting tax plan will ultimately result in huge deficits demanding either severe cuts—or substantially higher taxes, presumably levied on the wealthy by the Democrats when they retake power. Just add a new top rate of 50% for incomes over $1,000,000.

In the meantime, bond holdings of wealthy families will be decimated by much higher interest rates, even as middle class savers see the (nominal) rates on their bank accounts climb back to something noticeable, as ballooning deficits force up interest rates. And that interest will now be tax free for many.

The beauty of a really high standard deduction is that it automatically makes all kinds of income tax free—but only income received by what Leona Helmsley described as “the little people.” Interest paid on saving accounts, dividends, long term capital gains—all become tax free for tens of millions of … voters.

Why should Republicans have all the fun?  Time for Democrats to join the festival of tax giveaways!

Published inModest proposalsPoliticstax planning

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