The following article by David Haggith was published on The Great Recession Blog:
Is coming up with a Trump tax plan overtaxing the maestro of negotiation as he tries to conduct his way through congress? An initial clue can be found in his tax-related repeal of Obamacare. The all-important Obamacare repeal got repealed by Paul Ryan — the very person who proposed it — in a matter of days. Who could have guessed reforming healthcare could be so hard? (Everyone but Trump?)
“We learned something,” Trump said defensively. No. TRUMP learned something. Never did I think reforming Obamacare would be the hundred-day slam-dunk that Trump promised over and over. (Now, he’s trying with Obamacare again, after warning Republicans in read-my-lips style that he wouldn’t … but without a lot of evidence of progress.)
There is this thing called “congress,” President Trump, and you’re stuck with it. Sad to hear you are learning that on the job — sad for all of us — but that’s the way it is with people who endlessly shoot their mouths off with a lot of (apparently) hot air about all they’re going to do and how great it will be. They are almost always bigger on talk than they are on delivery.
Because Trump has zero influence with congress, the maestro of negotiation has been doing most of his work by decree, rather than by negotiation. Even that has, as I warned in my articles about euphoria in the stock market, largely failed. (My claim having been that the Trump Rally is continually in peril because it is built on imagination of what will happen.)
Where Trump has done what he promised, he’s largely failed so far, and where he is succeeding it is by doing the opposite of what he promised. To wit, President Trump’s first decree issued on his first day in office in order to look like rapid progress was a hiring freeze on all federal government offices.
It made for nice show and tell, which Trump loves, but government turned out to need those new people, and so government work started backing up badly in departments that Trump likes, such as Veteran’s Affairs. Prisons started running short on guards. The backlog of work that wasn’t getting done became so bad in less than Trump’s first hundred days, that the president lifted the hiring freeze this month even though none of the restructuring that was supposed to have been planned during the freeze has taken place.
The word that’s out says that making those staffing cuts will take more time … maybe a lot more time. Team Trump is now postulating savings will be seen in the 2019 budget! (Do we ever see savings that far out actually materialize? The savings are always promised to happen in the days of a new congress that will decide for itself what is going to be cut, thanks.) Who could have guessed reforming government would be so hard, right? When the reform does happen, though, “it’s going to be a beautiful thing.”
Then there was the travel ban, done in a ham-fisted manner that created momentary chaos and alarm, though it has gone nowhere since then.
So far, the few areas where Trump has actually attempted to do what he said he would do have either failed to work out at all, or they have certainly not worked out “great,” as promised. It is not those total failures or tilting successes that bother me, given that we don’t even reach the close of his first hundred days until the end of this week, so much as it is all the areas in which Trump has completely reversed himself. (See the lead article in this series: “You Got Trumped! Winning horse in presidential race was Trojan.”)
Trump Tax Plan bounces around on the Trumpoline
The Trump Tax Plan is one of the areas where Trump has not quite reversed himself and seems to be trying to do what he said he would, but he also seems to be bounding all over the place. Today, we are promised we will finally see progress on a Trump Tax Plan, but the faltering has already been considerable:
This new Trump Tax Plan will be Trump’s fourth tax plan in one year. The flaws in the first plan, which he put up during his candidacy, were so roundly ridiculed and beyond argumentative support, that Trump trashed that plan and came up with a new plan while he was still just a candidate. After he was elected, he had Larry Kudlow, the idiot, and Steven Moore build out the new plan into a new, new Trump Tax Plan. Now that he’s been inaugurated, he’s also trashed Kudlow plan or is substantially revising it by having his Goldman-Sachs boys come up with something else.
I have no problem with trashing the Kudlow plan because I think capital-gains tax breaks are stupid anyway. Why give the people who work the least and make the most the biggest breaks just so they can go speculate their savings back into pumping up an over-pumped stock market? (And why on earth would they invest that money in factories when the savings are in capital gains, and the fastest way to those are through buying and selling stocks, not building factories?)
However, even Trump’s big tax planners are wondering what is taking so long:
Larry Kudlow, a veteran economist who advised Trump’s campaign, expressed dismay that the president hadn’t yet released a tax plan. He said he was beginning to wonder whether the president is about to walk back his pledge to cut taxes. “What is their product?” Kudlow asked. “It doesn’t make any sense to me. I’m not giving up hope. But it’s looking very shaky to me.” (Politico)
Michael Moore, who partnered with Kudlow on crafting the president’s previous tax plan, said,
They’re all over the map. I don’t know if they’re listening or not.
Hopefully, they’re not listening to Crazy Larry or Mister Moore because the new, new Trump Tax Plan was an idiotic return to trickle-down economics, which has never worked as promised, as I wrote about in an article titled “Trump Tax Plan Turns the Donald into Trickle-Down King.” So, while it may be good for Trump to take more time and revisit this, his refusal to put that plan forward also indicates I was right in that article to criticize the plan. It was another mistake caused by putting, as I wrote then, total establishment shills in charge of the new, new tax plan. (Whether Trump will come up with anything better now remains to be seen later in the day.)
None of these plans have yet made it to congressional debate, and the necessary delay makes me wonder if Trump’s pivot back to working covertly on Obamacare Repeal II — even after he boldly warned the Republicans that the last repeal act was their only chance this year — was because he needs to stall for time for Gary Cohn and Steven Mnuchin, the former Goldman-Sachs Execs. to come up with a new master plan. Hence Kudlow and Moore profess to being in the dark about what is happening because Trump is ditching that plan and doesn’t want more input from them. That would explain why Trump keeps saying its essential to work out Obamacare first. (Let’s watch to see if Obamacare comes to another failure once the new tax plan is released.)
Trumpeting the Trump Tax Plan
Clearly, Trump is not a leader with ideas of his own. He has built his reputation and his candidacy by blowing his own horn as great leader because he hires the best and the brightest and right people to do the job. Apparently, he failed on that, or we would have received the Kudlow-Moore tax plan. I’m equally concerned about the next people he has chosen to create his fourth tax plan. I don’t trust GS executives to come up with a tax plan that is good for the little guy and the middle guy. Cohn claims his completely new plan will focus on the Middle Class (meaning it won’t just be trickle-down where you hope to catch the drips that slip through the fingers of the wealthy). Great if it does, but that will surprise me.
The point for this article is not whether the Cohn plan will be better than the Kudlow plan, but that Trump is massively switching all over the place all the time and putting the wrong people in charge. That’s what people do who sailed in as the anti-establishment champion once the mighty establishment goes into its brilliantly smooth mode of remaking them and grooming them.
Trump knows the clock is not on his side when it comes to his stock rally holding, given that it’s been slipping impatiently the entire time he’s been redrafting his fourth plan, so he wouldn’t start over from with Cohn unless he either came to see that the Kudlow plan was a disaster (as the congressional accounting office said it was) or his Goldman Boys wanted something different. (The market’s spike back up in the last few days has nothing to do with Trump and everything to do with France.)
To buy more time, Trump promised us, exactly as he said in advance of the Kudlow plan, that he’ll be coming out with a great plan on Wednesday … “or a little later.” So here we are, but remember that Mnuchin once said he hoped to get his plan all the way through congressional approval by August? That has now been revised to his saying he hopes they will get it passed by the end of the year. Remember that Trump’s original big promise was to have a complete overhaul of the the tax system before congress within his first two or three weeks in office. Time keeps on slipping….
If the plan does make it out today, let’s hope this new, new, New Trump Tax Plan is greater than all the previous great plans because the law of diminishing returns is rapidly applying to Trump’s mouth. His announcement last week that the new, new, new plan will be “the biggest tax break ever” got only a whimper of a rise out of the stock market.
Even the euphoric Wall St. Casino seems to be getting weary of big talk with no delivery. (Perhaps that is the true significance of a big mouth with small hands.) It would be better to follow the Teddy Roosevelt principal of small talk and big delivery where your words gain power over time, rather than lose power because people get used to your delivering less than you promise … or nothing at all. Trump is losing power because he over-promises and under-delivers. That usually is the downside to a lot of bragging.
Is tax triage about to begin in order to save the Trump Tax Plan?
The next few days should be telling. Two months ago, I warned,
Where we will start to get into trouble is if the red meat Trump offered to stockholders in the form of mountains of tax breaks starts to fade toward a more distant horizon. Then his red-hot tongue may become the dominant market influence. The market may stop breathing helium and floating ever higher…. Things [will] start drifting downward unless we start seeing accomplishments on taxes, infrastructure and Obamacare.
Trump has huge opposition even within his own party, so “divide and conquer” leaves all democrats and half the Republicans against him. [Trump’s divide and conquer] will not likely put any meat on the table in the next year or two (in terms of either his infrastructure stimulus plan or his tax plan). Trump’s tax changes may simply come too late to save the deeply flawed economy from its own more deeply flawed recovery.(“Will Trump’s Talk Turn the Trump Rally into Lasting Gold or End in the Trump Dump?”)
So far, that is what we are seeing as the date for anticipated approval moved to the end of this year, and the market started to cool. Many were hoping something would be in place in the first half of the year. Even the tax planners were dismayed by the delays of their brilliant craftsmanship.
A few days later, I wrote,
The euphoric rise of the US stock market has formed almost entirely from speculation about Trump’s tax cuts and infrastructure spending, so it is likely to lose steam now that postponement of those plans shows sentiment outpaced reality. (“2017 Economic Forecast: Global Headwinds Look Like Mother of All Storms“)
While I still believe, as I did in January, that Trump will get some form of tax reduction in place this year, I’ve said all along that the market is irrational for banking up so high because it will all be too little too late to save the Fed’s failing recovery. I would expect, if Trump’s plan today contains enough red meat for the market dogs, that the rally will resume for a short time. If Trump fails to deliver a plan, it will start to fall again. If the red meat does get thrown to the dogs in congress, it will get chewed up, and the dog fight will give plenty of time and reason for the market to falter again … and again.
Consider how the Obamacare repeal failed because only a few people developed the plan while keeping it out of view of most Republicans who would have to vote for it until the last minute. That wasn’t exactly the masterful negotiation about which the maestro has long blown his horn. It was more of a pathetic cacophony. That same strategy has been used for the new, new, new tax plan. So, why expect different results? The Senate panel that will have to vote on it just to get it before the entire senate was only given a peak yesterday.
Let the wild ruckus begin!
Already, we are being told that the border-adjustment tax has been removed in order to help the plan get through congress, and we learned in the last few days that the separate spending bill for this year, which must happen by the end of the week, will include no funding for a border wall. Trump merely used the border wall as a negotiation chip, and said he may bring it up again in September. As what? A handy chip to be used again?
So, in the very least, this tax and budget negotiation is showing us that changes at the border are taking a back seat, even though those are the things Trump talked about most. And that kind of give-and-take that is essential to negotiation demonstrates why I’ve said the market rally was nothing but irrational exuberance. There will be many months in finding out what survives negotiation, and Obamacare demonstrated that the maestro may be a little tone-deaf when it comes to conducting his score before congress.
It’s too early to actually say you got Trumped with the Trump Tax Plan (by a few hours perhaps), but it’s been a bouncy path trying to get to a plan and slower than Trump promised. So far, every Trump plan has included a large capital-gain tax cut, and one thing is certain about that kind of cut: it will never trickle down to you unless you make most of your money speculating in stocks, bonds, and real estate, but it will make a LOT of money for real-estate developers like Donald Trump.
Supply-side tax cuts are the biggest reason the rich have gotten so much richer while the middle class has dwindled. If Cohn is true to his word about retargeting the new, new, New Trump Tax Plan to help the middle class, the new plan will contain no special tax rate for capital-gains income, treating it equally with everyone else’s class of income; but it’s hard to believe a Goldman boy would not include a lovely cap-gains tax cut for the people in his world with some candy thrown in for the middle class to win their approval.
(If the plan does come out today as promised, I may add an addendum to this article on my own blog, so check the version of the article on the blog later to see where the end of the day takes us. Maybe I’ll have to recant some things, or maybe the next cacophony will begin. I decided not to wait and see what comes before publishing this because it is much more fun to step out on a limb. You can watch me saw off the limb I’m standing on if the new, new New Trump Tax Plan turns out to be a masterplan for the middleman. I hope I’m wrong. I'm betting that the best we’ll see, given all the delays so far, is a general synopsis of where the plan is going, but we won’t see a detailed plan that congress can start working on.)