332. Why the Trump Tax Cuts Are Terrible/Awesome (Part 2)

Episode Summary

Executive Summary: The episode examines the 2017 Republican tax overhaul through the eyes of three former Council of Economic Advisers chairs—Glenn Hubbard, Austin Goolsbee, and Jason Furman. They agree the bill is a major, complicated shift centered on corporate taxes, but sharply disagree on design, fairness, deficit impact, and whether its promised wage gains are credible.

Main Topics: Why the Trump tax overhaul was pursued (Priority: 5/5): Kevin Hassett argues the tax code addressed slow wage and productivity growth; the administration saw lower corporate taxes as a long-run competitiveness and investment strategy, not short-run stimulus. Corporate tax cuts and investment theory (Priority: 5/5): The central economic justification was that lower corporate taxes would raise investment, capital deepening, productivity, and ultimately wages. Hubbard largely accepts this logic; Furman and Goolsbee doubt the empirical case and distributional effects. Deficit and fiscal sustainability (Priority: 5/5): The economists debate whether the bill’s revenue loss and added deficits are acceptable. Democrats stress the plan was not paid for; Hubbard acknowledges revenue loss but frames the issue as long-run growth and policy tradeoffs. Distributional winners and losers (Priority: 4/5): The panel dissects provisions favoring high-income households, pass-through businesses, estate tax cuts, and salt deduction limits, with critics arguing the law disproportionately rewards the wealthy and adds complexity. Complexity vs. simplification (Priority: 4/5): Republicans promised simplification via a higher standard deduction, but the law also adds new carveouts, expensing rules, pass-through treatment, and phase-outs that complicate compliance and planning. Health policy and the individual mandate repeal (Priority: 3/5): The bill’s repeal of the Affordable Care Act mandate is criticized by Furman as likely to reduce coverage and raise premiums, showing how tax legislation can reshape health insurance markets. Partisanship in economic policymaking (Priority: 3/5): The episode closes on the idea that modern tax and health reforms now pass almost entirely on party-line votes, reflecting deep polarization rather than bipartisan policy-building.

Key Arguments: Hassett and the Trump team argued that the U.S. suffered from weak wage growth and underinvestment, so a corporate tax cut was needed to revive capital formation and productivity. Hubbard contends the corporate rate cut was economically sensible because the U.S. had become uncompetitive in locating business investment, even if the bill was too large and some provisions were inefficient. Furman argues the administration’s empirical case was overstated and often misleading, pointing to cherry-picked data and claiming the core Republican claims about wages, growth, and deficits were false. Goolsbee accepts lowering the corporate rate in principle, but says the legislation was badly designed because it was not paid for, not permanent, and included low-return giveaways. The bill’s pass-through deduction is criticized across ideological lines as distortionary because it encourages tax planning and arbitrary entity reclassification rather than real investment. The SALT cap is presented by Hubbard as a mathematical necessity for financing rate cuts, while critics see it as politically targeted and inequitable. Furman says repealing the individual mandate is harmful because it will reduce coverage and raise premiums, and it undermines a conservative policy solution to a market failure. The episode suggests the law’s larger political significance is not just tax policy but the collapse of bipartisan coalition-building in major economic legislation.

Data Points: Corporate tax rate: Reduced from 35% to 21% - Core element of the Tax Cuts and Jobs Act discussed throughout the episode. Trump campaign corporate rate proposal: 15% initially proposed; settled on 21% - Shows the administration’s original ambition and final compromise. Obama corporate rate proposal: 28% - Referenced as a prior bipartisan-friendly attempt to lower the corporate rate. Individual tax cuts expiration: Set to expire after several years - Used by critics to argue the bill could raise taxes later or be extended at greater cost. Static revenue loss estimate: About $1.5 trillion - CBO/estimates referenced as the bill’s projected cost over 10 years. Alternative cost if individual cuts are extended: About $3.5 trillion - Goolsbee’s point that making temporary cuts permanent would greatly increase the price tag. National debt projection: From $21 trillion to $33 trillion over 10 years - CBO projection cited to frame fiscal concerns. Apple repatriation cash: About $225 billion after tax - Used as an example in the debate over repatriation and overseas profits. Repatriation tax rates: 15.5% on cash holdings and 8% on non-liquid assets - Described as the one-time tax treatment for overseas earnings. Standard deduction change: Nearly doubled - Presented as the bill’s main simplification measure. Potential simplification impact: About 25 million itemizers could switch to the standard deduction - Hubbard’s estimate of the simplification benefit. Pass-through deduction: 20% of qualified business income - Feature criticized for distortion and tax avoidance incentives. Estate tax: Cut for estates over $20 million - Highlighted as a provision favoring high-income households. Making Work Pay tax credit: Reached 120 million families and $120 billion - Referenced as part of Obama-era stimulus and tax policy. Congressional support history: Social Security 90% Democrats / 75% Republicans; Civil Rights Act 60% Democrats / 76% Republicans; Medicare 81% Democrats / 50% Republicans - Used to contrast past bipartisan legislation with today’s party-line policymaking.

Pivotal Quotes: "The core arguments the administration made over and over again were completely false." — Jason Furman: His broad critique of the Trump administration’s case for the tax bill. "The worst thing is something that isn't in it." — Glenn Hubbard: Hubbard says the bill should have included wage supports or an expanded earned income tax credit. "The problem of the deficits is you have to pay back the money." — Austin Goolsbee: His framing of why deficits matter even if markets do not immediately react.

Implications: The episode suggests tax policy is now a deeply partisan, high-cost instrument with contested evidence on growth effects. Listeners should expect continued fights over deficits, inequality, health coverage, and whether corporate tax cuts truly raise wages.