Donald Trump is gifted at marketing stodgy, old-line Republican policies as though they’re bold, transgressive, and new. Think of it as policy laundering. And nowhere has this deception been executed to more damaging effect than in Trump’s handling of the economy.
As a candidate, Trump positioned himself as a different kind of Republican. With all the integrity of a late-night infomercial host, Trump rinsed away the taint of decades of GOP economic mismanagement. In a spin cycle, he promised his plans would bring prosperity to a long-overlooked working class. But what Trump ultimately delivered is what all Republican presidents have delivered since Ronald Reagan: bubbly new wealth for the already rich, while putting the middle-class through the wringer.
This cycle has played out twice in plain view: First with Trump’s 2017 tax cut, which showered wealth on the richest, offering the middle class a drop in the bucket, and now with a pandemic response that has inflated the wealth of billionaires, even as main-street America reels under a Depression-level crisis. If Donald Trump fooled you once, shame on him. If he fools you twice, shame on you.
In 2016, Trump campaigned as an iconoclast, blasting former Republican standard bearers Mitt Romney (“doesn’t have a clue”) and Paul Ryan (“very weak”). In contrast to the 2012 GOP ticket, Trump didn’t divide America into industrious “makers” and parasitic “takers,” blaming the poor for their lack of pluck. Trump instead blamed America’s economic woes on the greed of self-interested elites. He posed as a selfless billionaire, vowing to betray his own interests to champion America’s “forgotten men and women” — rhetoric that echoed Richard Nixon and which is code for the white working class. (This “forgotten man” framing has always erased working people of color, whose struggle has never been the concern of the modern Republican party.)
Trump’s “Make America Great Again” sloganeering tapped into honest nostalgia for a more economically just America. The post-World War II boom created broad prosperity: The wages of the bottom 90 percent of Americans grew in line with the overall economy. But that trajectory flat-lined in the mid-1970s. And the share of the nation’s income accruing to the bottom 90 percent shrank from close-to-half to barely one-third. A new study by the RAND Institute offers insight into how different America could be today had the post-war trend continued: The median worker would be making $57,000 a year, instead of just $36,000. In aggregate, the 90 percent have been $47 trillion richer, taking home an extra $2.5 trillion in 2018 alone. What happened to the bottom’s share of America’s expanding economic pie? Economist Kathryn Edwards, co-author of the RAND study, explains simply: “The top ate it.”
Trump’s political insight was keen, says Brown University political economist Mark Blyth, co-author of Angrynomics. “There was a readymade coalition of people who had not benefited from the last 40 years of prosperity,” he says. “Trump knows how to work a room. This guy walks in and says, ‘I get it. I’m your voice. It’s China; they’ve taken all your jobs.’” Trump leveraged this “politics of recognition,” says Blyth, to create a powerful bond. For these hardscrabble voters, Trump was someone who not only saw their struggle, but mirrored their resentment. And that connection has allowed Trump to “get away with incredible upward wealth redistribution — to him and his class,” says Blyth, “yet still maintain a sense of connection to the people that he’s hurting the most.”
In office, the only truly unconventional thing about Trump’s economic leadership has been the shamelessness of his lies. Marketing his tax cut, Trump swore up and down that “the rich will not be gaining at all with this plan.” Speaking of his own finances, he insisted that the bill was “going to cost me a fortune … believe me.” Signing the cut into law in December 2017, Trump hyped it as “one of the great Christmas gifts to middle-income people.”
These weren’t minor distortions. They were bald-faced lies. “Trump is part of a tradition of phony populism, of saying he’s going to help communities that are left behind, and then advancing an agenda that does the opposite,” says Chuck Collins, director at the Program on Inequality at the Institute for Policy Studies and co-editor of Inequality.org.
Establishment figures like GOP Senate Majority Leader Mitch McConnell joined Trump’s carnival of prevarication. The federal government was already spending far more than it took in tax revenue. Cutting taxes would require taking on massive new debt — the Congressional Budget Office projected a 10-year cost of the Trump tax cut at $1.5 trillion. When Republicans are out of power they use America’s debt as a cudgel against Democrats, insisting the country can’t afford programs that boost the living standards of workers or even true investments like infrastructure spending. But the GOP voiced little concern about the ability to afford this tax cut. McConnell papered over the contradiction by telling a whopper: that the tax cut would spark so much growth that government coffers would hold steady or even rise: “We are totally confident this is a revenue-neutral bill,” McConnell insisted, “and probably a revenue producer.”
Contrary to all of Trump’s assurances, his tax bill generated a windfall to the 1 percent. “It’s the continuance of 40 years of upward siphoning of the nation’s wealth to a tiny elite,” says Blyth. Income-tax cuts generated an extra $50,0000 a year for America’s highest earners. But the real benefit, $1.35 trillion, went to corporations — and by extension to their top executives and shareholders.
Securing a massive corporate-tax cut was the feature of the tax bill that Trump personally insisted on, and Republicans in Congress responded by slashing the corporate-tax rate from 35 to 21 percent. In the past, “tax reform” has closed loopholes while lowering rates, to hold down the cost. But the new tax code remained riddled with the kind of carveouts that reportedly allowed Trump to pay nothing in taxes in 10 of the previous 15 years and only $750 in tax in 2017, according to The New York Times.
The new cuts, designed to favor corporations, worked out better for big business than even the architects of the law intended. Under the new code, the effective corporate tax — what companies really pay after taking advantage of loopholes — fell from an already low 17.2 percent to just 8.8 percent. Corporate-tax revenue in 2018 fell by $135 billion compared to baseline projections. Many companies ended up paying nothing at all. Nearly one-fifth of Fortune 500 companies reported profits to shareholders but owed nothing in corporate income tax, including Amazon, Chevron, FedEx, and Starbucks. Wall Street was a big winner too: Over the first two years of the Trump tax code, the nation’s six biggest banks pocketed an extra $32 billion they would have otherwise paid in taxes, according to a Bloomberg analysis.
The Trump bill offered an additional gift to companies with cash overseas. The global profits of U.S. corporations had long been subject to taxes at home, but a flaw in the old tax code let companies avoid paying as long as that income remained offshore. Tech companies in particular exploited this loophole with accounting gimmicks that made domestic profits appear as if they’d been earned in foreign tax shelters like Ireland and Bermuda. By the time the Trump tax act passed, companies had stockpiled nearly $1 trillion offshore. Trump’s “fix” for this problem was perverse: He broadly ended the U.S.’s ability to tax foreign profits. While the new law did impose a one-time tax on accumulated overseas cash, it taxed companies at a discount — as little as eight percent.
The Trump tax succeeded in taking the stock market on a rocket ride. The returning profits of corporations were pumped into a “record-breaking amount of stock buybacks,” according to the Congressional Research Service, including $1 trillion in 2018 alone. The benefit of the Trump tax cut, insists Frank Clemente, executive director of Americans for Tax Fairness, “trickles up” to executives whose compensation is tied to share prices. “They’re feathering their own nests by buying back their own shares,” Clemente says.
The president also scored a payday. While his finances remain opaque, Trump and his family appear to benefit directly from new tax breaks for real-estate investors and other business partnerships. Trump’s children are also poised to cash in on the tax bill’s weakening of the estate tax; the law doubled the amount that can be transferred, untaxed, at death, to nearly $24 million per couple.
The Christmas present Trump promised the middle class turned out to be a trinket. The tax cut’s benefits to middle-wage earners worked out to about $65 a month, according to numbers crunched by the nonpartisan Institute on Taxation and Economic Policy. As passed, the income tax cuts will begin to phase out in 2025, and by 2027 many working-class wage earners will face a higher tax burden. Republicans structured the law this way to hold the projected cost of the bill below a $1.5 trillion threshold that allowed for Senate passage with just 50 votes. Future Congresses, they argued, would of course act to prevent any tax hike on the working class. Key to note, however: Corporations were spared any similar anxiety about their future tax burden. The corporate cuts don’t expire under this law.
In marketing his tax bill, Trump made wild promises about indirect benefits of his giveaway, including that the “huge tax cut will be rocket fuel for our economy,” driving GDP growth as high as six percent and boosting wages between $4,000 and $9,000 a year. It was familiar nonsense. Far from representing a break from the economic policies of the old-line GOP, Trump’s tax cut built on the ruinous legacy of “trickle down” economics championed by George W. Bush and Reagan. “It’s a lie,” says Blyth, “and the lie is that if you give rich people these tax cuts, investment will skyrocket and [new wealth will] trickle down to everyone else. It never works.”
Americans might have at least hoped for an economic sugar high from Trump’s great giveaway, as the nation experienced after the W. Bush tax cuts. But even as the cost of the Trump cut has grown to a projected $1.9 trillion, the macroeconomic data don’t indicate any significant jolt to the economy. As it had in Obama’s last years, GDP continued to grow modestly, at 2.9 percent in 2018, declining to 2.2 percent in 2019. The CRS assessed in 2019 that the cut had a “small (if any)” impact on growth and that there was “no indication of a surge in wages.” The cash corporations brought home from overseas did not spur research and development. Worker bonuses dried up faster than the ink of Trump’s signature on the bill. For the average American, the difference between the Obama economy that Trump decried as “American carnage,” and the Trump economy, which he touted as the “best ever,” was no difference at all.
The Trump tax bill has taken America’s ideal of progressive taxation — in which the richest pay the greatest share — and turned it on its head for those at the very top. The effective tax rate for the richest 400 families in America fell to just 23 percent in 2018. That’s below the average rate paid by the bottom 50 percent of income earners, according to U.C. Berkeley economists Emmanuel Saez and Gabriel Zucman. Under Trump, they write in their new book, The Triumph of Injustice, “the Zuckerbergs and the Buffetts of this world pay lower tax rates than teachers.”
Add in Trump’s trade war with China and it’s not clear the middle class has received any net benefit from Trump’s tax policies. Attempting to punish China, Trump raised import taxes on Chinese goods. Despite the president’s incessant lies that these taxes, or tariffs, are paid by the Chinese, they’re in fact paid by American importers and passed on to American consumers buying everyday goods. According to a 2019 CBO report, these import taxes were set to “reduce average real household income by $1,277” this year alone.
Trump’s tax policies were expensive. But the coronavirus pandemic, made worse by Trump’s bungled response, has required an even more massive intervention in the U.S. economy. And Trump’s answer is, once again, to drive new wealth to the wealthiest even as the working class experiences a terrible new squeeze.
The American economy before the coronavirus hit remained strikingly unequal. Despite 13 years of uninterrupted growth, the bottom 90 percent had not regained the net worth they enjoyed on the eve of last decade’s Great Recession. By contrast, stock-market gains had helped boost the net worth of the top 10 percent to a record average high of $2.6 million in 2019, up $250,000 from even the heights of the housing bubble, according to Fed data.
To be fair, the coronavirus pandemic has produced severe economic shocks even in competently governed nations. “Apart from the New Zealanders, nobody’s getting out of this one well,” Blyth says. But by intentionally downplaying the seriousness of the coronavirus, in vain hopes of preventing an economic panic, Trump ironically doomed the United States to the world’s deadliest outbreak and a blow to the U.S. economy projected to reach $16 trillion.
The pandemic bailouts have brought Trump’s false populism into sharp relief. Responding to the coronavirus economic crisis, Trump once again attempted to position himself as a GOP iconoclast, rejecting an economic playbook centered on austerity and pretending to care about the national debt. Instead, Trump touted the grand size of the bailout as though it were a new skyscraper with his name on it: “It’s twice as large as any relief ever signed,” Trump said of the CARES Act. He joked of the $2.2 trillion relief package, “I’ve never signed anything with a ‘T’ on it.” The president’s spin was predictably upbeat, and focused on the little guy: “This will deliver urgently needed relief to our nation’s families, workers, and businesses,” Trump promised. “In a fairly short period of time, I really think we’re going to be stronger than ever.”
That pledge came true for the investor class, whose wealth bubbled up, again. Investors have received a nearly bottomless bailout. The CARES Act gave the Treasury Department $454 billion to backstop the work of the Federal Reserve in propping up financial markets. Fed Chair Jerome Powell had been aggressively slashing interest rates while injecting trillions of dollars into the economy with “quantitative easing.” The Fed’s rules make it a poor instrument for providing targeted help to the poor and middle class during a crisis. Unlike Congress, it lacks the power to simply give money directly to people who need it. The central bank can, however, act as a buyer of last resort for troubled assets, which it sometimes does to keep the financial system from seizing up. The Fed is generally not allowed to lose money on these transactions. But the CARES Act put taxpayer dollars directly on the line if the Fed’s programs failed. The net effect, says Blyth: “They put a floor under asset prices.”
For stocks, the policy has resembled a trampoline. Markets rebounded from a massive March selloff to reach new record highs in September. These are now the best of times for the billionaire class whose “essential” enterprises have also been flooded with new customers. Between mid-March and mid-October, the collective wealth of America’s billionaires leaped by $931 billion, or 32 percent. Amazon CEO Jeff Bezos alone gained $90 billion in net worth. By one calculation, Bezos could have given each of his employees a $100,000 bonus and still come out richer than he was at the start of the pandemic.
While Wall Street popped champagne, main street staggered. Even programs ostensibly targeted at small business have rewarded big-name corporations. The Paycheck Protection Program (PPP) has been administered chiefly through commercial banks, which tilted relief in favor of their best, most connected customers. “Corporate restaurants like Potbelly’s and others got these huge bailouts, whereas the smaller independent restaurants that don’t have lobbyists are shuttering,” Collins says, pointing to more than 100,000 restaurants that have permanently closed their doors. Systemic racism in banking has also meant PPP relief was redlined. Just two percent of loans went to black-owned businesses, and as many as 40 percent of such firms are expected to go out of business.
Working-class Americans have received what Blyth describes as “crumbs on the table.” The government’s one-time $1,200 stimulus payments were insufficient to meet the scale of the crisis and distributed in a way designed to produce confusion and delay, relying significantly on paper checks. “Why did we use checks?” Blyth asks. “Because you want it to be a fuck up. You want it to be a stramash. You want half the people not to get the money, because your real clients are the corporates — not the citizens, you don’t give a shit about them. You care about the top 10 percent of the people who effectively own 80 percent of the stocks. That’s who the constituency is.”
The CARES Act, thanks to an unyielding stand by Democratic Socialist Sen. Bernie Sanders, included $600 a week in expanded unemployment benefits. But when that relief expired, Trump balked at extending it, using an executive order to continue payments to some laid off workers at $300 a month. Today even those benefits are drying up, forcing the forgotten men and women of America into a horrific choice: Work and endanger their health or stay home and starve. As federal-income supports have tapered since May, eight million Americans have been pushed into poverty.
Trump has engineered a wildly disparate recovery. For wealthier workers through August, employment was basically back to normal; but for workers making less than $27,000 a year, employment remains down nearly 20 percent. Wages for rank-and-file workers sank by more than four percent. By the end of summer, 30 million Americans were on unemployment, nearly as many were experiencing food insecurity, while 12 million had lost employer health care plans. “The pandemic has been an accelerant on the existing inequalities,” says Collins. “The hollowing out of main street, and the hits to the real economy, are not reflected in the stock market.”
American inequality has reached a crisis moment. The 60 richest billionaires in America control as much wealth as the bottom 50 percent of Americans, according to the latest Fed data. To Collins, the Inequality.org editor, America is reaching an “oligarchic moment,” where the economy is increasingly hardwired to concentrate wealth and power at the very top. It is urgent to increase taxes on the wealthiest not only to generate revenue, he says, “but to put a brake on accretions of power. It isn’t is a class warfare,” he insists. “This is really, ‘How do you protect against such a levels of extreme inequality that it threatens basic democratic functioning?'”
A half-century of economic policy tilted toward the wealthiest will not be undone overnight. But the 2020 election offers a chance to begin that work. Compared to Trump, Biden’s policies plainly favor the working class. Biden seeks to raise trillions from the wealthiest, to invest in middle-class initiatives like a renters’ credit that would hold housing expenses to 30 percent of income. He’s also vowing to provide free public college to students from families earning less than $125,000 a year.
Biden seeks to reverse the Trump income tax cut for top earners and to tax the investment income of millionaires like regular income. He’d boost the corporate income tax to 28 percent and impose a minimum corporate tax of 15 percent on the largest firms, ending the scandal of Amazon paying nothing in taxes. Biden would target large fortunes by restoring the old estate-tax exemption of $11 million per couple and by ending the giveaway that lets Americans inherit stocks without inheriting a capital gains tax burden. Biden has vowed that no one earning less than $400,000 would face a higher tax bill.
Biden is less revolutionary than some of his fellow Democrats from the 2020 primaries. “He hasn’t been a champion of a wealth tax,” says Collins of Biden, “but he is going to be a champion of reversing the Trump tax cuts and restoring some progressivity to the tax code.” Yet Collins believes that the political movements that spurred Elizabeth Warren and Bernie Sanders to target the accumulated wealth of the billionaire class can win greater reforms by lighting a fire under Biden’s feet. “I’m optimistic that he’d be responsive to pressure from below,” Collins says, “to address the root causes of inequality.”