Trump’s corporate tax reform – arguably the most important provision in what is colloquially known as the 2017 Tax Cuts and Jobs Act, was in retrospect very badly marketed.
Intuitively, it seems highly likely that the package of corporate tax cuts alienated Trump’s supporters and thus, in turn, contributed to Republicans’ midterm losses in November. Even if Trump was unable to convince the American electorate to buy into the idea that slashing personal rates was necessary, fostering support for the corporate cuts would have at least counter-balanced fallout in public opinion rising from the former. In retrospect, Trump missed a crucial opportunity to unite his supporters under the banner of fiscal reform. There are a number of steps the administration and the broader Trump movement should have taken to make the cuts more palatable.
The devil is in the detail
The tax cuts and jobs act is an incredibly multi-faceted piece of legislation. It removed the Obamacare mandate, abolished restrictions on oil drilling in the Arctic and also slashed individual tax rates. However, perhaps the most important provision the corporate tax reduction- which unlike the two ‘Bush tax cuts’ – have no expiry date.
Irrespective of the relative significance of the different provisions vis-a-vis one another, the fact that the corporate tax cuts are part of a much more extension piece of legislation is of two-fold significance. Firstly, it makes ascertaining public opinion more difficult. When the American Enterprise Institute concedes that ‘overall opinion [of the Trump Tax Cuts]is still more negative than positive’ it is not clear which provision voters are most vehemently opposed. Secondly, interconnected with this, the bundling of these provisions the anti- Trump movement ammunition to discredit the reform. Publications like Vox referred to the reform as ‘tax cuts for the rich,’ suggesting the corporate and personal slashes were two sides of the same coin and ultimately, orchestrated by the establishment to enrich the elites.
Selling the tax cuts to middle America: an uphill struggle
According to research conducted by FiveThirtyEight, Trump’s tax cuts were the least popular tax reform in at least 36 – even more so than the tax increases of 1990 and 1993. This analysis is astonishing, given the historic unpopularity of tax increases in the United States. It is widely believed that George H Bush’s ‘read my lips: no new taxes” slogan was a significant factor in explaining his victory in the 1988 Presidential election. The unpopularity of Trump’s tax cuts appears to transcend partisan divisions and societal tribalism. Indeed, white men without a college degree — one of Trump’s demographic bases — opposed the legislation by a 37-60 margin.
Within the media spotlight, the tax cuts were often depicted as misaligned with Trump’s populist or economic nationalist agenda. They were critiqued not only by the usual suspects over at CNN but also, by conservatives themselves. Tucker Carlson scrutinised the ‘carried interest loophole,’ which overwhelmingly benefits those in the financial sector. Hedge funds– one of the main beneficiaries of this loophole – are not perceived as job creators but rather, symptomatic of the problems with ‘globalism’ and financialization. Hence, Tucker’s nuanced critique is likely to have resonated with many viewers outside of the asset- holding ‘baby boomer’ demographics- such as asset-less Millenials, and rust-belt workers.The loophole and personal tax cuts meant that marketing the bill as a whole was always going to be an uphill struggle. Nevertheless, there are still steps that could have been taken to make the legislation more palatable.
Steps the administration should have taken
The corporate tax provision should have been packaged with an ‘America first’ veneer and within the media spotlight, spearheaded by Trump himself. The President should have had an in-depth discussion with Tucker Carlson or Laura Ingraham to explain how tax reform fits into his America First agenda. Instead, the marketing of this legislation seems to have been devolved to the establishment. It became clear that the tax cuts are to Paul Ryan what immigration and trade reform are to the President. In the infancy of Trump’s Presidency, there was very much a chasm between the America First movement and the establishment. This was before Rubio had declared himself an economic nationalist and the Never Trump movement had begun to wane. Hence, the fact that the tax reform had such an establishment veneer is unlikely to have resonated with Trump’s ‘middle America’ base.
Inter-connected with this is the fact that the cuts were analysed in isolation, rather than in conjunction with Trump’s more anti-establishment policies. This is unsurprising given that they were marketed by establishment figures who have little in common with the Trump movement and ultimately, are opposed to much of what it stands for. When Reagan- era economist Art Laffer appeared on Fox News to discuss the economic benefits of slashing corporate taxes, he should have been joined by experts on trade, such as Peter Navarro. Perhaps, a panel discussion would have been the most effective medium through which to analyze the interplay between Trump’s wide array of policies.
Steve Bannon, who was himself not a particularly supportive of said cuts, actually articulated this very viewpoint during a number of talks across the UK and Canada. He explained how the tax cuts are just one component (albeit a crucial one) in a wider plan to add high-value jobs to middle America and ultimately transform the North American continent into a manufacturing hub that can rival Asia. It is this kind of analysis, rather than viewing the tax cuts in isolation, which would have enabled Trump supporters to perceive them in a more positive light. In an age of financialization, off-shoring and globalisation, critics of tax reductions (and supply-side economics in general) are likely to highlight that the money companies save on tax is likely to end up in an offshore account. Or, used to enrich shareholders through buybacks. While these arguments are not without merit, Trump’s corporate tax cuts, combined with tariffs and reforming trade agreements, is creating a genuine incentive for companies to invest in high- value manufacturing jobs across America. It is part of a multi-pronged strategy and this what needs to be conveyed to the electorate.
An opportunity for retrospection
On balance, the corporate tax cuts provision could have united Trump’s supporters or at the very least, been used as a shield against a fall-out arising from slashing personal rates for high-earning workers. Reflecting on his own fiscal reform, Bush regrets the way in which his cuts were sold to the electorate. Given Trump’s almost exclusive focus on law and order and immigration in the lead up to midterms, it seems likely that he shares this sense of regret. However, in the long term, the tax cuts may be perceived in a more positive light. With Trump’s recent success in re-negotiating NAFTA and obtaining concessions from President Xi at the G20, perhaps he still has an opportunity to salvage public opinion by portraying the cuts as part of the aforementioned multi-pronged strategy. After all, the Iraq War has shown us the American electorate are partial to retrospection, especially before an election. The tax hike of 1990 is arguably one of the most significant factors in explaining why H.W Bush never served a second term. If Trump fails to salvage public opinion, then his tax cut may also limit his presidency to just one term.