How Trump's Very MAGA Tax Cuts Break with GOP Tradition

Politico

2 days ago

For decades, Republicans have extolled the virtues of removing loopholes and carveouts from the tax code, arguing it would make the system fairer and more efficient, while allowing for lower overall tax rates.
'The tax code is littered with hundreds of preferences and subsidies that pick winners and losers and create complexity,' House Republicans led by then-Speaker Paul Ryan and then-Rep. Kevin Brady, said in their 2016 tax plan. 'Instead of free-market competition that rewards success, our tax code directs resources to politically favored interests, creating a drag on economic growth and job creation.'
Fast forward to the present day, and one thing is for sure: President Donald Trump's One Big Beautiful Bill is not an exercise in tax simplification.
Instead, it began with a push to extend the party's 2017 tax cuts — which despite some streamlining also introduced some complexity — and piled more on top, in line with a slew of presidential campaign promises. Add in a heavy dose of congressional politics, and the result was a sprawling and quirky piece of legislation that is distinctively Trumpy: lower taxes and a bigger pile of tax breaks.
'It's certainly a departure from what Republicans were trying to do in 2017 and broadly a departure from what Republicans have been arguing for decades about tax reform,' Kyle Pomerleau, a senior fellow at the conservative-leaning American Enterprise Institute, told me.
The question, though, is not just whether doing your taxes is complicated and annoying. It's whether that complexity serves a particular purpose. For example, a provision in the GOP bill allows businesses to deduct expenditures on machinery and equipment entirely from their taxes, which could both encourage investment and support Trump's reindustrialization goals.
For other key parts of the bill, several economists I spoke with worried it is the worst of all combinations: increasing the debt to pay for tax breaks that lead to neither growth nor other economically useful outcomes.
'I don't want to say it's vote-buying because that's probably a normative statement that is outside of my wheelhouse, but … there's not a lot of pro-growth stuff,' said Kent Smetters, a University of Pennsylvania business professor who serves as the faculty director of the Penn Wharton Budget Model.
Take, for example, Trump's popular campaign promises of no tax on tips and no tax on overtime. In some cases, those provisions simply reward people for their existing lifestyle. In others, it might lead businesses to restructure how they pay their employees.
It's obviously great news either way for the employees who benefit. It's just unclear why the government is choosing to reward these particular subsets of workers over others. (It is presumably not an accident that Trump promised this tax perk to voters as he was pushing in the last election to win Nevada, a state where many hospitality and gaming industry workers rely on tipped income.)
And cutting taxes without finding some way to offset the lost revenue — either by closing loopholes to broaden the scope of people and businesses that are taxed, like in 1986, or through some other method — leads to increased debt that can itself be a drag on growth. After all, investors are lending the money to the U.S. government rather than doing something else with it. And even after spending cuts, the new GOP tax law is still expected to add trillions to deficits over the next decade.
'The money has to come from somewhere,' said Alan Auerbach, a professor at the University of California at Berkeley.
In that sense, the tax cuts under President George W. Bush weren't the ideal way to structure policy either, as they mostly just lowered rates while increasing the debt. But this bill? 'It's worse than the Bush tax cuts because the scale is so much bigger, and there's a lot more weird stuff in it,' Auerbach said.
The gargantuan scale and eccentricity of the tax package is a reflection, above all, of the president who propelled it into law, and it reveals how much the Republican Party has changed under his leadership. In the 2016 GOP policy document, under Ryan and Brady's direction, the party cited tax reform legislation passed in 1986 — which decreased the number of tax brackets, slashed deductions and lowered rates — as a guiding light, saying the party's goal was to 'replicate and build upon this achievement.'
But this is now the party of Donald Trump, not Ronald Reagan.
Trump, ina 1999 Wall Street Journal op-ed, referred to the bipartisan 1986 law as 'an offense against the working man,' decrying the removal of certain deductions as 'predictably disastrous.'
Now the Trump administration needs to defend the law and all its peculiarities.
Joe Lavorgna, who works at the Treasury Department as a counselor to Secretary Scott Bessent, said many critiques of the new law miss the point. A critical priority for Trump, he said, was avoiding the expiration of the 2017 tax cuts, which would have led to higher tax rates and therefore slower growth.
He said language that allows people to deduct the interest they pay on auto loans for American-made cars, for example, will help boost the goal of having a 'vibrant, healthy' domestic car industry.
Lavorgna also said the provision removing taxes on overtime will lead to more output. 'Anything that incentivizes people to work an extra hour because they're not going to be taxed on it or be taxed at the same rate' creates benefits for the economy, he said. 'It's not a giveaway. They're creating something.'
As for no tax on tips? That will 'help people who have been under significant cost of living pressure,' he said.
Ultimately, what's clear is that cutting taxes is still the centerpiece of the Republican Party — the rallying cry that could bring together a fractious governing coalition.
But tax reform? That conservative dream seems to have died quietly.