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Trump Advisers Consider Lowering Middle-Class Tax Rate to 15%

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Trump Advisers Consider Lowering Middle-Class Tax Rate to 15%

2019-11-13 17:29:001 Oct 2018 01:53 AM EST

By Laura Tucker, Staff writer; Image: Larry Kudlow (Image source: Gage Skidmore via Wikimedia Commons)

Much was said about the Trump administration’s tax cut that was passed at the end of 2017 and went into effect for 2018. It was supposed to provide economic relief to the middle class. While it did offer some relief, it doesn’t seem to have panned out the way it was promised to.

Trump is relying on the state of the economy, however, for his 2020 reelection campaign. Therefore, he needs to get the middle class to still see him as the economic savior. This makes it no surprise that the Trump administration is considering another tax cut for the middle class, one that has been dubbed “tax cut 2.0.” 

According to multiple people who are involved in the discussions, the administration is exploring whether the president should include a 15 percent tax rate for the middle class as part of his reelection campaign package. Some see it as a way to sell the idea that the Republican agenda is not about only being beneficial to the wealthy.

White House National Economic Council director Larry Kudlow is behind this effort to push the new 15 percent rate. It’s not known if the president approved of this idea, but he is known to have pushed aides to create some type of simple tax message for the middle class for his reelection campaign. Yet, any plan would have to pass Congress to go into effect, and it’s unlikely to do so before next year’s election. 

The White House is still facing criticism for the 2017 tax law, as the tax cuts for individuals and families will expire in a couple of years, but for businesses, the reductions will be permanent.

There are, of course, positives and negatives to reducing the tax rate for the middle class. Budget experts believe it would lower taxes by hundreds of billions of dollars, yet with vague details about the plan, the estimates are just that, an estimate. While this would free Americans to spend more money to help the economy, it would also add to the deficit unless there were reductions to federal programs to counter it. The 2017 tax cut already added more than $1.5 trillion to the national debt. 

Kudlow will not comment on exactly what the administration is planning but pointed out in an interview that final decisions have not been made with the plan in its preliminary stages. “[Trump] wants to afford as much relief and simplicity as possible for middle-income taxpayers,” he commented.

According to conservative tax expert Stephen Moore of the Heritage Foundation, who worked with the White House on tax policy, other ideas to push the economic message for 2020 include a payroll tax cut, changing how capital gains are taxed, a savings exemption for taxes, and reducing the current seven tax brackets to three or four. A senior administration official doubts the payroll tax cut will be included in the final package because of its potential to impact Social Security. 

Democrats see a potential second round of tax cuts as Trump’s way of deflecting the outcome of the 2017 tax cut that limited the number of years individuals and families would be helped while adding permanent effects for businesses.

Trump defended his 2017 tax cut, insisting it provided “massive relief” for the middle class, adding, “We think we can bring it down still more,” regarding the effect of taxes on the middle class. 

When CNBC asked Kudlow on Tuesday if the White House is considering a 15 percent tax rate for the middle class, he said, “I don’t know, sounds like a pretty good idea to me. But I’ve got to consult with a lot of people, and I’ve got to get the president’s sign-off before anything comes out. ... Those conclusions will not come for many months.”

To those who followed the 2018 midterm elections, this all may sound very familiar. Trump discussed a 10 percent tax cut for the middle class, promising he was working on a “very major tax cut for middle-income people.” Nothing ever materialized after the elections, however. 

Roosevelt Institute tax expert Michael Linden believes a 15 percent tax rate for the middle class would be a “relatively small tax cut.” He added that the second round of tax cuts is “an acknowledgement that Republicans’ original tax plan was heavily skewed to the wealthy, the middle got almost nothing, and people at the bottom got literally nothing. I’m not sure having a second go at it is going to solve anything.”

It’s not known if congressional Republicans will sign on to a 15 percent tax rate that would most likely add to the national debt. Kudlow is using as his backdrop for the plan the late President Ronald Reagan’s 1986 tax legislation that would create federal taxes of 15 percent and 25 percent. “He mentioned that again and again and again,” said a Republican tax consultant in the room when Kudlow was pushing the new plan. 

As an understanding of where Trump stands on taxes and the American public, he operates on the belief that the average citizen does not understand taxes, precisely the term “tax reform.” Because of that, he wanted to call the 2017 tax cut the “Cut, Cut, Cut Act.”

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