Senate Republicans last week agreed on a budget resolution allowing a $1.5 trillion increase in the federal deficit over the next 10 years from tax legislation. This resolution paves the way for 51 Republican Senators to enact mammoth tax cuts by September 30, 2018.
As the centerpiece of these tax cuts, President Donald Trump has proposed to lower the corporate tax rate to 15% from 35%. However, despite the deficit cushion of $1.5 trillion allowed by last week’s budget resolution, a 15% rate is totally unrealistic.
Cutting the corporate tax rate to 15% would cost the U.S. Treasury $3.7 trillion over 10 years. But that cost cannot come close to being offset by repealing existing tax preferences, which all will be fiercely defended by special interests. A realistic legislative target would be a corporate tax rate of 25%. And under Senate rules this rate would have to expire after 10 years because it creates future budget deficits.
Let’s do the math on corporate and individual rates, together with optimistic assumptions about limiting existing tax preferences. The numbers are based on dynamic estimates from the nonpartisan Tax Policy Center, unless noted otherwise.
One could almost pity the executives from Facebook, Google and Twitter as they were grilled on Capitol Hill earlier this week by senators upset about Russian meddling in last year’s presidential election, via the posting of cleverly worded propaganda ads and messages on social-media sites.
After all, how do you detect – let alone stop – a small group of determined foreign nationals manipulating and taking advantage of what’s supposed to be open, free-flowing Internet platforms idealistically designed to allow billions of people across the globe to voice their thoughts on everything from world politics to the type off pigeons in Trafalgar Square?
Of course, the Facebook, Google and Twitter executives at the Senate hearing earlier this week bowed their heads, expressed remorse and vowed to do better in combating the threat of foreign interference in our democratic elections.
But the question is: Can they do better? Is it possible? Remember: Facebook alone acknowledges that it received only about $100,000 in paid ads by those it later learned were tied to various Russian groups, but those ads were still seen by about 10 million people, according to media reports.
After much speculation, President Trump has announced his pick to lead the Federal Reserve System: Jerome “Jay” Powell. How should we think about this appointment in the context of the overall Trump administration thinking on financial regulation?
Trump slammed Wall Street throughout his campaign, asserting big banks had “gotten away with murder.” The Republican National Convention platform even mentioned a new Glass-Steagall (the Great Depression-era restriction on banks’ activities). Still, many questioned whether the Trump administration, including Powell, was committed to implementing policies tough on global megabanks.
The answer is no.
There are actually two Trump administrations. One, which attempts to deal with issues that require legislation, like health care, is having trouble making progress. But the second, which can change the rules of regulation, is moving full-steam ahead. We can already see the ground being cleared for a major round of financial deregulation.
There are three important signs of intent when it comes to finance. First, the top people on economic policy in the White House and at Treasury have all worked on Wall Street — and mostly at one big bank, Goldman Sachs. Gary Cohn, the former Goldman Sachs president, is chairman of Trump’s National Economic Council, and he has brought in a team that apparently is running the show in terms of policy. Cohn has made his intentions clear: He wants to rollback regulation.
In American politics, the next election is all that matters. Despite the Republicans’ big win in November 2016, US President Donald Trump’s ability to pass legislation still depends on what congressional Republicans expect to see happen in the November 2018 midterm election. Owing to a major shift in public sentiment in the past few months, many Democrats are now convinced that they will win seats, and potentially reclaim control of the House of Representatives.
One can already see grassroots activism gaining momentum in congressional districts that would not have seemed competitive just five months ago. For example, in California’s 45th district (in the traditionally conservative Orange County), University of California, Irvine, law professor Dave Min is taking on the incumbent Republican, Mimi Walters. This past November, Walters was reelected with 58.6% of the vote, but her district favored Hillary Clinton over Donald Trump by two percentage points.
This kind of House seat can easily flip to the Democrats in 2018, if a candidate like Min can persuade voters that Walters is out of touch – and too close to Trump. So Min has highlighted Walters’ support for Trump’s attempt to “repeal and replace” the Affordable Care Act (“Obamacare”), as well as her backing for his broader budget-cutting agenda. Moreover, her positions on many social issues seem quite distant from those of her constituency.
As an expert in organizational communication and leadership, I saw the dismissal of the councils as a dramatic and important moment in the relationship between top business leaders and the president. But does it spell the demise of the often difficult partnership between President Trump and corporate America?
A permanent breach?
CEOs like Merck’s Ken Frazier rightly voted their conscience when they began to abandon Trump’s American Manufacturing Council and the Strategic and Policy Forum. Frazier, the first to resign, said he felt “a responsibility to take a stand against intolerance and extremism.”
The Wall Street Journal, however, was quick to point out that many companies have stopped short of saying they would refuse to work with the White House in the future.
Indeed, despite the heated rhetoric, one thing is clear: Corporate America wants and needs to work with the administration, while the president benefits from a healthy relationship with America’s CEOs.
So if they both need each other, the question becomes how this increasingly tenuous relationship will play out.