In the increasingly unlikely circumstance that nothing else should doom him politically first—a big if given the ensnarling Robert Mueller investigation, his increasingly lecherous Twitter decorum, and his vexatious game of chicken with Kim Jong Un—the now mostly reconciled tax plan that Donald Trump is aching to sign into law before the end of the year will surely seal his fate as one of the biggest political losers of all time. Given Trump’s short attention span and deliberate fixation on the news cycle immediately in front of him, he seems generally oblivious to the bill’s many egregious philosophical and economic flaws. But its contents almost certainly presage a recession on account of higher annual deficits, higher national debt, and lower consumer spending—not to mention the inane decision to limit the deduction for state and local taxes and cap the deductibility of mortgage interest, both of which will make the cost of owning a home higher and chew up more of the average American’s disposable cash.
As a pathetic, single-page memo from Treasury Secretary Steve Mnuchin makes clear, the underlying premise of Trump’s tax plan is that lower corporate tax rates—the current compromise is 21 percent—will somehow stimulate G.D.P. growth of around 3 percent a year, or higher. That’s the linchpin to avoiding adding some $1 trillion or more to the national debt—now around $20 trillion—over the next 10 years. The Trumpian alchemy goes something like this: higher corporate profits will be re-invested in plants or equipment, or research and development facilities. Those investments will lead to higher productivity, which, Republicans assume, companies will decide to share with workers by increasing their wages. The whole trickle-down concept is a fantasy, of course. But there’s more sinister hypothesizing to the scheme: if somehow those higher corporate profits don’t lead to said higher productivity, the Trump folks simply expect that corporations will return the newfound profits to shareholders in the form of dividends or stock buybacks. And that the shareholders will then subsequently spend that money buying things—a new car, a new refrigerator, perhaps—and abracadabra, the economy will be set on fire for the first time in more than a decade. (“That connection is real,” Jamie Dimon, JPMorgan Chase’s chairman and C.E.O, told me last week. “It’s indirect. I can’t prove it to you, but I know it’s true.”)
This is all just so much fluff for so many reasons. Last time I checked, there wasn’t exactly a dearth of corporate profits. In fact, for the last five years, corporate profits have been roaring along with the stock market. (There is a correlation between the two.) For instance, at JPMorgan Chase, the nation’s largest bank, profits have been chugging along at $7 billion a quarter—a record. Unsurprisingly, its stock is also near its all-time high, and its market capitalization is $366 billion. Corporate America is not crying out for a tax cut, but of course it will take it and bask in the glorious flow of increased profitability. Still, it’s fantasyland to think that higher corporate profits will mean higher wages or benefits for the American worker. What it will likely mean is more money in the pockets of guys like Dimon, who already has more money than he can spend in a lifetime or two. Dimon’s heirs, who also have plenty of money, will also benefit from the elimination of the estate tax. They—and not Uncle Sam—will also get the lion’s share of the old man’s fortune when he passes. The rich get richer.
Who else benefits from the Trump tax cut? Other rich people like him—people who have partnership income will pay tax on that income at a 20 percent rate. That means private-equity moguls and hedge-fund managers clean up again. Trump and his real-estate buddies, who often own their assets in partnership, will also get a tax windfall. Ordinary working Americans—those who get paid wages, either by salary or because they are self-employed, are going to get hosed.
Then, of course, comes the higher cost of home ownership. For most Americans, their home is their single largest and most valuable asset. When its value goes up, homeowners feel wealthier and traditionally spend more. When the value goes down, they feel poorer and their wallets snap shut. Lower consumer confidence and spending can easily push our economy into a recession. Once upon a time, homeownership was considered the pillar of the American Dream. Presidents have routinely preached the value of homeownership. Not Trump. With caps on the deductions for mortgage interest and on the deductibility of state and local taxes, the cost of owning a home will rise and the value of a home will fall. And that is a recipe for a recession.
Not surprisingly, there is a lot of concern on Wall Street about the Trump tax plan. Aside from Dimon, who seems to love it, Wall Street bankers, traders, and executives—most of whom live in New York City—are lamenting Trump’s cynical punishment of voters in high-tax states, such as New York, California, New Jersey, Connecticut, and Illinois, where the support for him is minimal and always will be, and wondering by what convoluted logic a plan that will increase the national debt, and that depends on the mirage of hoped-for G.D.P. growth, could ever become law. But Wall Street is also thinking of how it, too, may suffer. From what I hear, some financial executives are worried about losing their best and brightest, many of whom are thinking about moving out of New York and forming limited partnerships.
