Samuelson: Why the 'swamp' survives

Samuelson: Why the 'swamp' survives

October 8th, 2017 by Robert Samuelson in Opinion Free Press Commentary

FILE - In this Oct. 27, 2016, file photo, supporters of then-Republican presidential candidate Donald Trump hold signs during a campaign rally in Springfield, Ohio. Despite President Donald Trump’s campaign to “drain the swamp” of lobbyists and special interests, Washington’s influence industry is alive and well _ and growing. Former members of the Trump transition team, presidential campaign, administration and friends have set up shop as lobbyists and cashed in on connections, according to a new analysis by Public Citizen, a public interest group, and reviewed by The Associated Press. (AP Photo/ Evan Vucci, file)

Photo by The Associated Press /Times Free Press.

WASHINGTON — President Trump isn't draining the swamp. He recently unveiled his long-awaited "tax reform" package, and although many crucial details were missing (for example, the income brackets), he was full of accolades. "This is a revolutionary change," he said.

Well, not yet.

The federal income-tax system — almost everyone seems to agree — is a mess. It features relatively high nominal rates (up to 39.6 percent on individual income and 35 percent on corporate income) whose impact is offset by a baffling array of tax breaks, loopholes, preferences or "tax expenditures," depending on which buzzword is in fashion.

A truly revolutionary tax overhaul would eliminate most existing tax breaks and use the resulting surge in revenues to lower rates sharply. But Trump may only partially rely on this process. He may also borrow to cut taxes. The crux of the debate is whether the tax cuts will pay for themselves, through higher economic growth, or whether they will simply add to the debt.

Economist Diana Furchtgott-Roth of the Manhattan Institute, a Trump supporter, argues that reducing the top corporate tax rate to 20 percent will cause more internationally based companies to locate in the United States and fewer American firms to flee abroad to lower-taxed countries.

Reduce tax burdens, and companies will respond. Economic growth will increase; the tax cut will pay for itself.

Wishful thinking, say many economists. Deficits will grow, neutralizing some or all of the gain from lower tax rates. The logic is simple: Larger federal deficits will drive up interest rates, crowding out private-business investment.

Just how much more debt the Trump plan might involve is unknown, because so many details (including the distribution of the tax cuts across income class) remain undecided. But an estimate by the nonpartisan Committee for a Responsible Federal Budget puts the figure at $2.2 trillion over a decade. That's on top of projected added debt of about $10 trillion in the same 10 years from current policies.

This returns us to "the swamp," Trump's colorful metaphor for all the Washington lobbying for federal money, tax breaks and favorable regulation. He suggests that the process is corrupt, and often it is. But mainly it is democracy in action: groups arguing that they deserve special help. Regardless of whether it's corrupt or not, Trump has inveighed against the swamp more than he has actually tried to drain it.

To do that, he'd have to challenge many more tax breaks. There is no shortage of targets. The 2018 federal budget lists 167 tax breaks; the costliest 15 alone lose roughly $1 trillion in tax revenue a year. Public benefits are often dubious. Consider two big tax breaks: the mortgage interest deduction for homeowners and the tax-free treatment of employer-paid health insurance. Arguably, both have had ill effects: The mortgage deduction has caused Americans to overinvest in housing, and the insurance break feeds medical inflation.

Still, it's hard to oppose tax breaks that have such large constituencies. Similarly, tax breaks allow politicians of both parties to announce their support for various economic and ideological causes. Thus, we have tax breaks for college costs, wind and solar power, and corporate research and development. Also, some tax breaks surely do good. Would people save as much for retirement without tax-favored 401(k) and IRA accounts?

As a nation, we'd probably be better off with a simpler income-tax system with much lower rates and a much broader base. People and companies would decide what to do with their money rather than have government push and pull them through various legal bribes, rewards and punishments. That would relieve pressure on government to do more and more — often raising unrealistic expectations.

In Trump's vocabulary, the swamp would begin to contract. There might be fewer tax lawyers, lobbyists, accountants, economists and publicists. This would be good but is also unlikely.

Trump's tax plan is being squeezed from two sides. If he doesn't eliminate enough tax breaks, the debt will grow more rapidly. But if he — or his congressional allies — target too many tax breaks, he risks losing essential support. This suggests that, as the proposal winds its way through Congress, all the pressures will be to scale it back. The swamp will survive.

Washington Post Writers Group

Getting Started/Comments Policy

Getting started

  1. 1. If you frequently comment on news websites then you may already have a Disqus account. If so, click the "Login" button at the top right of the comment widget and choose whether you'd rather log in with Facebook, Twitter, Google, or a Disqus account.
  2. 2. If you've forgotten your password, Disqus will email you a link that will allow you to create a new one. Easy!
  3. 3. If you're not a member yet, Disqus will go ahead and register you. It's seamless and takes about 10 seconds.
  4. 4. To register, either go through the login process or just click in the box that says "join the discussion," type your comment, and either choose a social media platform to log you in or create a Disqus account with your email address.
  5. 5. If you use Twitter, Facebook or Google to log in, you will need to stay logged into that platform in order to comment. If you create a Disqus account instead, you'll need to remember your Disqus password. Either way, you can change your display name if you'd rather not show off your real name.
  6. 6. Don't be a huge jerk or do anything illegal, and you'll be fine.

Chattanooga Times Free Press Comments Policy

The Chattanooga Times Free Press web sites include interactive areas in which users can express opinions and share ideas and information. We cannot and do not monitor all of the material submitted to the website. Additionally, we do not control, and are not responsible for, content submitted by users. By using the web sites, you may be exposed to content that you may find offensive, indecent, inaccurate, misleading, or otherwise objectionable. You agree that you must evaluate, and bear all risks associated with, the use of the Times Free Press web sites and any content on the Times Free Press web sites, including, but not limited to, whether you should rely on such content. Notwithstanding the foregoing, you acknowledge that we shall have the right (but not the obligation) to review any content that you have submitted to the Times Free Press, and to reject, delete, disable, or remove any content that we determine, in our sole discretion, (a) does not comply with the terms and conditions of this agreement; (b) might violate any law, infringe upon the rights of third parties, or subject us to liability for any reason; or (c) might adversely affect our public image, reputation or goodwill. Moreover, we reserve the right to reject, delete, disable, or remove any content at any time, for the reasons set forth above, for any other reason, or for no reason. If you believe that any content on any of the Times Free Press websites infringes upon any copyrights that you own, please contact us pursuant to the procedures outlined in the Digital Millennium Copyright Act (Title 17 U.S.C. § 512) at the following address:

Copyright Agent
The Chattanooga Times Free Press
400 East 11th Street
Chattanooga, TN 37403
Phone: 423-757-6315