Trump Promises a Big Middle-Class Tax Cut — Again

Plus, your Friday news roundup By Yuval Rosenberg and Michael Rainey Trump Again Promises a Big Middle-Class Tax Cut President Trump said Thursday that he is working on a new tax cut for middle-class households, to be unveiled “sometime in the next year.” Speaking to lawmakers at a GOP retreat in Baltimore, Trump [said]( “we’re working on a tax cut for the middle-income people that is going to be very, very inspirational. … It'll be a very, very substantial tax cut for middle-income folks who work so hard.” The president, who has hinted at tax cuts several times over the last year without producing any specific proposals, provided no further details. Although House Speaker Nancy Pelosi and other Democratic lawmakers have said they are open to the idea of a middle-class tax cut, their insistence that new cuts be paid for with tax increases on the wealthy make it unlikely that the president will be able to make a deal on the issue with a divided Congress. White House economic adviser Larry Kudlow [told]( reporters Friday that the tax-cut plan would be made public “sometime in the middle of next year,” putting the release date close to the 2020 election. Republican lawmakers may be more focused on making permanent their 2017 tax cuts, some of which are set to expire after 2025. “The first and most important step is we can make the cuts for families and small business permanent,” Rep. Kevin Brady, the ranking Republican on the tax-writing House Ways and Means Committee, [said]( Friday. But No Capital Gains Tax Cut — for Now On Wednesday, Trump reportedly decided against using his executive authority to index capital gains to inflation, a controversial move that would reduce tax revenues by about $102 billion over 10 years, according to the Penn Wharton Budget Model, with wealthy investors receiving most of the benefit. “President Trump was thoroughly briefed on the complex economic, legal and regulatory issues, and concluded that at this time he does not feel enough of the benefits will go to the middle class,” a White House spokesman [told]( The Wall Street Journal. Administration officials said the idea has been under discussion at the White House for months. While some aides, including Kudlow, have pushed the plan enthusiastically, others have expressed concerns about the potential political costs of cutting taxes for the rich ahead of the 2020 election. Trump appears to have sided with the latter group, although he may return to the proposal at a later date, according to the Journal. Trump has also decided not to pursue the payroll tax cut he mentioned to reporters in August. Treasury Secretary Steven Mnuchin told CNBC Thursday that the White House is now focused on the second round of tax cuts to be released next year. Democratic Debate Again Centers on Deep Divides Over Health Care Democratic presidential candidates held their third debate Thursday night, and once again a sizable portion of the debate — 21%, according to a [Bloomberg analysis]( — was devoted to health care policy. “If the debates are any indicator, health care is shaping up as the hallmark issue of the 2020 Democratic primary,” Bloomberg’s reporters noted. Health care has been the most-discussed issue at each of the three Democratic debates so far, as this Bloomberg chart shows. “Once the health-care segment got under way, the gloves came off and the knives came out,” The Atlantic’s Olga Khazan [writes](. Joe Biden used an early question on whether Senators Bernie Sanders and Elizabeth Warren are pushing too far to the left to launch into a defense of his public option proposal and to attack the costs of switching to a government-run Medicare-for-All system, which both senators support. “How are we going to pay for it? I want to hear that tonight how that’s happening,” he asked. Warren then was asked if she, like Sanders, would admit that middle-class taxes would go up to pay for her health care plan. She didn’t respond directly, instead making the argument that Medicare for All would lead to total lower health care spending than the current system — a claim that [depends greatly]( on the assumptions made about the new system. “Look, what families have to deal with is cost, total cost,” she said. “And the answer is on Medicare for All, costs are going to go up for wealthier individuals and costs are going to go up for giant corporations. But for hard-working families across this country, costs are going to go down and that’s how it should work under Medicare-for-all in our health care system.” The bottom line: “There wasn't any health care news made last night, despite its prominence as a 2020 campaign issue,” Axios’s Caitlin Owens [writes](. Reminder: We’ve still got nearly five months to go before the Iowa caucuses — and 416 days until the November elections. For more on the health care debate, read [the transcript]( or stories at [NPR]( [The Washington Post]( and [The Atlantic](. US Employer Health Costs Projected to Rise 6.5% in 2020 The cost of employer-sponsored health benefits will rise 6.5% in the U.S. in 2020, or about 3.8 percentage points higher than the overall inflation rate, according to a [report]( by consulting firm Aon. “Prices continue to drive trend while utilization of services remains relatively flat or decreasing,” the report said. But the cost increases in the U.S. are projected to be 1.5 percentage points lower than the global average of 8%, up from 7.8% in 2019. “Employers, insurance carriers and the medical industry have done a commendable job of moderating cost increases in recent years, considering the headwinds of an aging population, high drug prices and rising chronic conditions,” said Will Sneden, U.S. Health Solutions practice leader for Aon. McCarthy Says Debt Will Be ‘Taken Care of’ if GOP Wins the House Minority Leader Kevin McCarthy said Thursday that the national debt would be his top priority if Republicans succeed in retaking the House in 2020. “First thing we would do is make sure our debt is taken care of,” McCarthy told reporters at a GOP retreat in Baltimore. “This is continuing to grow. … Every great society has collapsed when they’ve overextended themselves,” the California Republican warned. Roll Call’s Lindsey McPherson [noted]( that McCarthy’s comment came on the same day the U.S. Treasury announced that the budget deficit had topped $1 trillion over the first 11 months of fiscal 2019 — a shortfall driven in part by the 2017 tax cuts that were passed by the last Republican-controlled Congress. Bloomberg’s Jonathon Nicholson underlined the point. “HR 1 was literally the bill number for the $1.5 trillion deficit-increasing tax cut in the 115th Congress, the most recent one with a GOP Speaker,” Nicholson [tweeted](. Are Tax Cuts or Spending Hikes Driving the Deficit? Republican tax cut enthusiasts are generally unwilling to link the 2017 Tax Cuts and Jobs Act to the rapidly growing federal deficit, preferring instead to point the finger at spending increases that have been signed into law on a bipartisan basis over the last two years. “D.C. does not have a revenue problem, which is why revenues hit an all-time high this year. It has a spending problem,” the Republican minority on the House Ways and Means Committee [said]( a recent blog post. However, the budget hawks at the Committee for a Responsible Federal Budget recently examined the claim that spending alone is driving the deficit higher and concluded that it is “false.” Fundamentally, a deficit is produced by a mismatch between revenues and spending, CRFB pointed out in a “[fiscal fact check]( Wednesday, so it’s not possible to assign blame to just one factor. Both revenues and spending have been diverging from their normal historical levels recently, with spending rising and revenues falling when measured as a share of the economy. And the tax cuts have clearly played an important role: “Revenue is unambiguously lower than it otherwise would have been absent the TCJA, and as a result, deficits are higher,” CRFB said. CRFB says that revenue fell by between 3.6% and 8.1%, depending on how you measure it, in 2018, the first year in which the new tax law was in effect (see the chart below for various measures of the revenue shortfall). “The 2017 tax cuts will add roughly $1.9 trillion to the debt through 2028 and have already reduced revenue to 16.3 percent of Gross Domestic Product (GDP) in FY 2019, its lowest level since 2012 when the economy was still recovering from the Great Recession,” CRFB says. Increased spending has played a role as well, of course, with recent budgets adding billions more in deficit spending. Even so, CRFB concludes that “arguing that tax cuts have not contributed to high and rising deficits is incorrect.” Your Prize for Making It Through the Week Ever seen a [raccoon behind the wheel of a Ford Pinto]( The Wildlife Photographer of the Year competition hosted by London's Natural History Museum will give you that opportunity. The [finalists]( in the 2019 Comedy Wildlife Photography Awards competition are pretty great, too. Have a great weekend! As always, send your tips and feedback to yrosenberg@thefiscaltimes.com. Follow us on Twitter: [@yuvalrosenberg]( [@mdrainey]( and [@TheFiscalTimes](. And please encourage your friends to [sign up]( for their own copy of this newsletter. 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Taylor and James Gelfand, Morning Consult - [How Wiping Out $1.5 Trillion in Student Debt Would Boost the Economy]( – Jillian Berman, MarketWatch - [Would 'Medicare for All' Help You Save Money on Your Family's Health-Care Costs? It's Complicated]( – Megan Leonhardt, CNBC [Like Us on Facebook]( [Like Us on Facebook]( [Read Us On the Web]( [Read Us On the Web]( Copyright © 2019 The Fiscal Times, All rights reserved. You are receiving this newsletter because you subscribed at our website, thefiscaltimes.com, or through Facebook. Our mailing address is: The Fiscal Times 399 Park AvenueNew York, NY 10022 [Add us to your address book]( Want to change how you receive these emails? [Update your preferences]( or [unsubscribe](.