Trump's base may have won Alabama, but the Goldman guys won the battle over his tax plan

  • The populists were nowhere in sight during the crafting of President Donald Trump’s tax bill, and that’s reflected in every measure.
  • That should have been clear to everyone once they saw who was crafting the bill, but some thought White House Economic Adviser Gary Cohn and Treasury Secretary Steve Mnuchin might swing the bill to the left.
  • That thought was, and is still, just totally laughable.

The conservative wing of the Republican party may have won the party’s nomination for an Alabama Senate seat on Tuesday, but by Wednesday it was clear who won the battle for President Donald Trump’s tax code.

It was the Goldman guys — the guys the far-right jeers as “globalists” and coastal Democrats — White House Economic Adviser Gary Cohn and Treasury Secretary Steve Mnuchin. If anyone wins out in this plan, it’s guys like them — the wealthy and massive corporations.

For one example, the plan completely wipes out the estate tax, which Cohn once dismissed by saying “only morons” pay. He’s not wrong, but wealthy people avoid paying it by hiring fancy accountants who find loopholes for them. A better idea than repeal would be to close the loopholes, raise some revenue, and help the middle class. Tax writing should be about making the world more equitable, not just copping out to the realities of wealth and class.

As my colleague Josh Barro succinctly put it in his piece comparing this plan to the Bush tax cuts in 2001:

“Bush knew that the way to sell a tax cut was to convincingly say that nobody would lose and everybody who paid income taxes would win. Today’s Republicans have not only forgotten that — they have decided to take tax benefits away from middle-income people to give them to the rich.”

Spoiler alert, Barro doesn’t think this plan will pass, but that’s another discussion.

The topic at hand is that populism is nowhere near this tax plan. The only person in Trump’s White House who was really championing the middle class, and, in particular, who favoured raising rates on the rich, was ousted adviser Steve Bannon. But instead of protecting Trump’s base and putting his ideas in this plan, Bannon was in Alabama stumping for a guy who insists Sharia law is coming to America.

Now to be fair, Cohn and Mnuchin went out and gave populist ideas lip service, teasing the idea that higher earners may have to pay more. Mnuchin even said the rich would not get a tax cut in Senate testimony back in February. This was called the “Mnuchin Rule” and introduced America to the Treasury Secretary’s extraordinary ability to say absolutely anything anyone wants to hear at any time.

Meanwhile, Cohn did such a good job pretending that he would advocate for the middle class that Republicans still don’t trust him in negotiating the tax plan with Congress, according to a Politico report.

Republicans don’t trust these Goldman guys, but if their agenda is to help the rich and big corporations (which it seems it is based on this plan) then they should. At the end of last month, Mnuchin and Cohn started signalling that any populist talk around taxes was all a ruse, and that their Wall Street friends would be pleased with the plan.

Of course, that doesn’t mean the plan doesn’t throw out platitudes about helping middle class Americans and small business owners, such as:

“Small businesses drive our economy and our communities, and they deserve a significant tax cut. This framework creates a new tax structure for small businesses so they can better compete.”

But those are just words. People looking at the numbers, like Small Business Majority Founder & CEO John Arensmeyer, disagree:

“…cutting the top individual rate from 39.6 per cent to 35 per cent and the top pass-through rate to 25 per cent will help very few small business owners. It is a myth that top individual tax rates adversely harm Main Street small businesses. In fact, the current top rate is paid by less than 2 per cent of pass-through business owners. Nearly 9 in 10 businesses that pass through their income already pay at the 25 per cent rate or less. Instead, this proposal would primarily help Wall Street hedge fund managers and wealthy lawyers rather than small businesses.”

Once Bannon was out of the White House, he didn’t really have a shot at getting his ideas in this tax plan. There was simply no one else to advocate for them — certainly not the president.

The thing is, Bannon’s input and a push for a more populist plan probably would have made this bill more popular. A recent WSJ/NBC poll shows that 42% of Americans don’t want a tax cut. Only 24% want a tax cut for individuals, and 37% want them cut for businesses.

Instead, Americans want the complete opposite of this plan. The poll showed 62% think the wealthy could use a tax increase, and 55% thought the same for corporations. In fact, it almost looks like the only person who thinks corporate America needs a tax cut are these guys and JP Morgan CEO Jamie Dimon.

Get the latest Goldman Sachs stock price here.

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