Donald Trump’s back and forth over taxing the rich continues. Shifting by the day, Trump has vacillated between promising to raise taxes on the rich and proposing to cut their taxes. However, his latest pronouncement on the issue (if it sticks) suggests that he’s coming around to the ill-conceived conservative dogma glorifying the rich as the engines of our economy — even though the evidence points toward the middle-class as the real source of growth in the United States.
Trump began his insurgent primary campaign by arguing that taxes on the rich should rise. He bemoaned the under-taxation of financiers, saying, “The hedge fund people make a lot of money and they pay very little tax.” He even claimed to agree that he himself ought to pay more in taxes, saying, “You’ve seen my statements. I do very well. I don’t mind paying a little more in taxes. The middle class is getting clobbered in this country.”
In a reversal, however, he proceeded to roll out a tax plan that offered massive tax cuts to the highest earners. Under his plan, the top tax rate would fall from 39.6 percent to 25 percent. Over the next decade, this would redistribute some $4.4 trillion in lost federal revenue to the top 1 percent of earners, who would reap more than a third of the tax benefits in his plan.
Within days of clinching the GOP nomination, Trump appeared to revert back to his initial tax-the-rich position, saying he is “not necessarily a huge fan” of his own proposal to shower the rich with tax relief. This left some believing that Trump was abandoning his supply-side tax plan to pivot back toward populism in the general election campaign.
Now, Trump seems to have changed course again. When the New York Times asked Trump about taxing the rich at higher rates, Trump responded, “I really want to keep taxes for everybody as low as possible. When you start making them too high, you are going to lose people from the country, and oftentimes these are the people who create the jobs.”
Let’s set aside the extremely dubious notion that rich people are fleeing the United States in droves over a 15 percentage point difference in the top marginal tax rate. What’s more interesting is that Trump is regurgitating the conservative myth of the rich as job creators.
Last week, I sifted through the delusional provocations of Trump’s campaign statements and found that on policy matters, he appeared to be repudiating much of the accepted GOP policy platform. This schism accounts for much of the distance between Trump and establishmentarians like Paul Ryan. “The philosophy underlying the Ryan budget is supply-side faith in the wealthy as job-creating economic generators,” I wrote. “The only job creator that Trump glorifies is himself.”
Now Trump is buying into the job creator myth. The idea that the rich are job creators is a sloganeering summation of conservative supply-side economic philosophy: make life good for the rich, and the gains will reverberate down from their beefed-up wallets to the rest of the country. Treat the ownership class well, the thinking goes, and they will expand the economy and grow new jobs.
To sell this philosophy to the public, conservatives leaned on the job creator framing quite extensively following the Great Recession. With millions unemployed and the financial elite widely reviled, conservatives tied their preexisting economic beliefs to the public’s worry about jobs. In 2011, Paul Ryan blasted President Obama’s proposal to increase the capital gains tax as “class warfare” that “will attack job creators, divide people, and it doesn’t grow the economy.” Before being felled by the Tea Party, then-House Majority Leader Eric Cantor took to Twitter on Labor Day in 2012 not to praise working Americans, but to thank the supposed job creators, saying: “Today, we celebrate those who have taken a risk, worked hard, built a business and earned their own success.”
Meanwhile, liberals were pushing back against the conservative trickle-down prescription for the economy. They called their theory of the economy “middle-out economics,” arguing that the engine for economic prosperity was not the wealthy, but rather the purchasing strength of a broad middle-class.
The liberal theory held that “a prosperous economy revolves not around a tiny number of the very rich but around a great and growing number of middle-class consumers and small businesspeople,” as Nick Hanauer and Eric Liu put it. “Rich businesspeople are not the primary job creators; middle-class customers are. The more the middle class can buy, the more jobs we’ll create.”
Similarly, David Matland of the Center for American Progress argued, “it isn’t the rich that lead the way to growth and prosperity. Instead, it is a thriving and vibrant middle class that shows us the path.” CAP backed up this theory with a compelling review of the research demonstrating that the middle-class is at the heart of American economic growth.
President Obama began espousing this theory, too. “We believe that America’s prosperity must rest upon the broad shoulders of a rising middle class,” he asserted. He explained that “growing inequality isn’t just morally wrong; it’s bad economics. When middle-class families have less to spend, businesses have fewer customers.”
That’s the guts of the theory in a nutshell: that when middle-class families have more disposable income, they will spend that money and grow the economy. When consumers spend more, business does well and employs more workers. This sparks a virtuous cycle of economic growth throughout the income distribution.
As I’ve written, middle-out economics is both good economics and a tried and true prescription for growth in recent American history. Policies that raise the disposable incomes for the poor and middle-class—higher minimum wages; targeted tax cuts; subsidies for health insurance, childcare, and college tuition; greater social insurance protections—are more likely to generate economic growth because average Americans are simply more likely to spend this freed up money than the rich are. Indeed, during the era of prosperity following World War II through the 1970s, the American economy grew on the back of an ascendant middle class.
Middle-out economics has always been a safe bet for American prosperity. The ahistorical alternative offered by conservatives for the past four decades has simply stuffed the pockets of the rich without ever yielding the promised glories of raining growth upon the rest of the country. In fact, the decades of ascendant trickle-down thinking since 1980 correspond with a marked period of sluggish growth and economic stagnation in the United States.
As Trump waffles between tax positions, he’s debating (whether he knows it or not) about whether the source of growth in the United States is the middle-class or the fortunate elite. Trump seems to believe that the key to growth is using public funds to reward the supposed business savvy of himself and those like him. But the evidence suggests that real prosperity grows from the people buying his ties, eating his steaks, and visiting his hotels.