The Memo: Trump tax reform nears crunch time

President Trump faces a stark question as he and Republicans in Congress move ahead on tax reform: Can he come up with a plan that helps the people who elected him, or will most of the rewards go to the richest Americans?

The president ran for the White House as the voice of working- and middle-class Americans. His populism, stoked by close aides like erstwhile chief strategist Stephen Bannon, helped carry him to victory last November in struggling states across the Rust Belt.

But now the rubber is hitting the road for Trump on the economy. 

{mosads}Congress passed a budget on Thursday, clearing the way for a full tax-reform plan to be released next week. Trump and the Republicans are aiming for the first major reform of the tax system since 1986, when Ronald Reagan was president.

Liberal critics are lining up to insist that Trump will betray the faith that Americans on modest incomes placed in him.

“It will leave the top 1 percent of households with pretty high incomes, it will leave deficits quite a bit larger than they were before, and it will leave the incomes of the bottom 70 percent either unchanged or maybe changed in a minor way, by a couple of hundred dollars,” said Josh Bivens, director of research at the liberal-leaning Economic Policy Institute.

Bivens was referring to the blueprint that was laid out a month ago by the president. 

Much will depend on the specifics. But the president has insisted that he will deliver for the middle class.

Launching last month’s blueprint in a speech in Indianapolis, Trump insisted that his plan was “revolutionary” and that “the biggest winners will be the everyday American workers as jobs start pouring into our country, as companies start competing for American labor and as wages start going up at levels that you haven’t seen in many years.”

But some of the most striking elements in the outline are aimed at benefitting corporations and wealthier Americans rather than factory-floor workers. Defenders of the plan argue this will help spur job growth. Detractors say it amounts to a giveaway to the rich.

The outline calls for a reduction of the corporate tax rate to 20 percent from its current rate of 35 percent. It also proposes a rate of 25 percent on “pass-through businesses” — often small businesses or sole proprietorships — that are at present taxed at the same rate as their owners.

Conservative activist Grover Norquist, the president of Americans for Tax Reform, argued that “the broad outline is fine. They are dedicated to keeping taxes low.” 

Norquist also mocked “the idea that they could take the corporate rate down from 35 percent to 20 and not have dramatic growth.”

The overall plan, he added, was as “dramatic” as the Reagan tax reforms. The Trump version, he enthused, “is even more directly focused on job growth.”

If the measure passes, and supporters like Norquist are proven correct about its benefits, it could supply a much needed boost to Trump. 

A Fox News poll released on Wednesday saw Trump’s overall approval rating slip to 38 percent — its lowest-ever point in the Fox survey — and also revealed slippage with some of the demographic groups that the president depends upon.

The survey showed approval of Trump among white men without a college degree had dropped 12 points in a month, from 68 percent to 56 percent.  

The Trump tax outline does include some measures that would ostensibly help voters on more modest incomes. It doubles the standard deduction, increasing the number of people who do not have to pay income tax at all. 

But his proposal, in outline, also includes an abolition of the estate tax. That levy, labeled the “death tax” by many Republicans, only affects estates with a value exceeding $5.49 million.

Even with just days to go until the release of the more detailed tax plan, Republicans, including the president, are grappling with how to pay for it.

In essence, any changes to the tax code can increase the deficit by $1.5 trillion over a decade but no more. At present, the cuts are projected to cost much more than that — though how much is disputed. A rough analysis from the Committee for a Responsible Federal Budget put the tag at $5.5 trillion.

Whether the GOP can close that gap at all is a huge question. And the attempt to balance the books holds its own political dangers.

One suggestion is to cap the amount of money workers can put into 401(k) plans, which let employees invest pre-tax income. 

But at the start of this week, Trump seemed to close the door on that option, tweeting, “There will be NO change to your 401(k). This has always been a great and popular middle class tax break that works, and it stays!”

Another suggestion is to do away with the federal deduction for state and local taxes. 

But Republican lawmakers from higher-tax states such as New York are resistant to that idea. Eleven GOP House members from New York and New Jersey voted against the budget on Thursday, largely because of objections on this point.

Other options, such as a smaller corporate tax cut or a reversal on the estate tax, would likely run afoul of many Republicans — and could meet with resistance from the president himself.

For now, Trump remains bullish. “This will be the biggest TAX CUT in the history of our country — and we need it!” he tweeted on Wednesday evening.

But he, and his party, will have to navigate some very dangerous political currents if they are to finally notch a success.

The Memo is a reported column by Niall Stanage, primarily focused on Donald Trump’s presidency.