On August 8 2016, the republican presidential candidate Donald Trump spoke to members of the Economic Club of Detroit, Michigan, about his “campaign of the future.” His speech harkened back to the golden age of manufacturing which positioned America’s global dominance for much of the 20th century. The audience, now representatives of a city with an unemployment rate (12.5%) more than double the national average (4.9%) and 35.5% of its people living in poverty, was unenthused. Addressing their concern, Trump promised to once again enact legislation that would promote a “booming” Detroit. For Trump, Detroit represents what happens when the federal government abandons “the policy of America First,”
This America First ideology is rooted in a history of isolationism and xenophobia. The America First Committee (AFC), from which “America First” rhetoric stems, was formed on September 4, 1940. The main spokesperson for the committee was a former U.S. Air Mail pilot, Charles Lindbergh. Lindbergh represented then, what Trump represents today: a political platform no more complicated than to oppose the major political climate.
Some history. The Neutrality Act of 1935 was passed by congress, spearheaded by Roosevelt himself, on August 31. It allowed the president to enforce general trade embargos on any country that was engaged in war. In 1936, it was expanded to not only include the trade of goods and services, but also foreign financing in the form of credit loans to foreign countries. Their intention was to economically isolate the United States from foreign conflicts to limit its chance of involvement. The 1936 act was not meant to permanent, and for congress to pass it at all, it had to have an expiration date of one year. So in 1937, it was renewed, however this time it was meant to set an indefinite precedence. In addition, Roosevelt employed what was called the “cash-and-carry” provision, effectively allowing the president to aid liberal states like France and Britain by selling goods (such as food supplies, tents, and other general equipment) so long as the recipients managed transportation logistics and paid only in cash. This new relationship marked the Roosevelt administration's first break from a consistently isolationist policy. By 1939, after Nazi Germany invaded Czechoslovakia, the act was amended to allow for the trade of arms between the US, Britain, and France on a cash-and-carry basis. 1941 marked the complete abandonment of isolationist tendencies due to the terms of the Lend-Lease Act, which released all trade embargos and gave Roosevelt the ability to sell arms to whomever he chose to support. America had become an active member of the war.
Prior to the Japanese attack on Pearl Harbour, Charles Lindbergh went so far as to condemn, on national airwaves, Roosevelt's appeal to anti-isolationism in a famous America First speech. In it, he claims: “[o]ur system of democracy and representative government is on test today as it has never been before… We are on the verge of war, for which, no one has offered a feasible plan of victory.” Fearing America would get caught up in a war it had no desire to fight, Lindbergh went on many campaigns across the country to advocate for a return to isolationism. The AFC was able to garner notable members including animator and entrepreneur Walt Disney, poet E.E Cummings, and social critic Gore Vidal. Soon after, German politicians began to take note of Lindbergh’s activism. It is reported that they even invited him to be the first ever American to take a classified aviation tour of Germany’s military stockpile. Lindbergh returned with dismay and feared America’s lack of military preparedness. He responded by further publicizing his grievances with the Roosevelt administration.
While never having mentioned Lindbergh explicitly, it would be fruitful to draw some parallels between the former pilot and Trump’s rhetoric regarding Obama’s administration. In an interview with Fox News, Trump outlined his opinion of the president by expressing, “Well I mean, his whole administration is half-baked. They don’t know what they’re doing.” By making comments such as this, and appealing to the rhetoric of America First during his Economic Club speech, Trump has ideologically positioned himself alongside the AFC, and Charles Lindbergh more specifically. Both ideologies represent a faction of the American electorate that feel their voice is being unheard. In response, they condemn the current dominating parties, victimizing themselves in the process. In light of this, Trump’s policies must be understood in the context of its strategic positioning against current liberal trends within a hegemonic political discourse. That is to say, Trump’s policies must be understood as a call for American politics to indeed put America first.
Choosing to outline his economic plan in the infamous city of Detroit, MI, is an example of Trump strategically positioning himself against the mainstream. Detroit sets the stage for bureaucratic inadequacies. Why Detroit failed is because the current ways of practicing democracy has failed Detroit. Current democratic practices, according to Trump, advocate a push toward global and economic integration, higher costs of doing business in America, and a government that prioritizes foreign parties over the American public. No one (including Democratic presidential candidate Hillary Clinton) has been able to offer a feasible solution because presidential nominees are products of the system that led to Detroit’s eventual bankruptcy. In Trump’s eyes: “every policy that has failed this city, and so many others, is a policy supported by Hillary Clinton.” Clinton, to Trump, represents a continuation of everything Obama has grossly misrepresented about the American electorate. Where Obama’s policies have failed American cities, so will Clinton's. Since Trump has situated himself throughout the campaign in opposition to “Crooked Hillary” and “Half-Baked Obama,” he believes that his platform represents an economic solution: a way out for Detroit.
What is it? We have only to look to his speech at the Economic Club, where he outlines his revised tax policies, highlighting a substantial effort to renegotiate people’s tax reductions. Discretion aside, tax policies and other fiscal concerns within Trump’s platform have significant implications in the field of capital accumulation, household income, and individuals’ marginal propensity to consume. The Laffer Curve alone signals that we should be paying close attention. The Curve emphasizes a relationship between economic activity and rates of taxation, alluding to an optimal tax rate that corresponds to maximum economic productivity. The two most influential tax adjustments in Trump’s proposal, in line with this relationship, boils down to income tax and business tax.
“Here is what an America First economic plan looks like.”
At the time of this writing, Trump plans to reduce the individual income tax brackets from the current seven (10%, 15%, 25%, 28%, 33%, 35%, 39.6%) to just three: 12%, 25%, 33%. This cuts the top marginal tax rate 6.6 percent while simultaneously increasing the bottom bracket 2 percent. While the independent think-tank Tax Policy Center (TPC) admits Trump’s plan will decrease overall taxation by an average of $2,940 (or 4.1 percent), the numbers are unevenly shared throughout quintile (or separated into fifth) rankings. For example, the TPC argues that the highest-income households (or top 0.1 percent) would receive an average tax cut close to $1.1 million (14.2 percent of after-tax income), whereas the lowest-income households can expect average tax cuts of $110, just 0.8 percent of their after-tax income. The difference being: high-income households receive back 13.4 percent more of their income than the lowest bracket.
By separating these income classes into deciles (10ths), the nonpartisan think tank Tax Foundation has analyzed the potential repercussions of Trump’s plan with a finer comb. They estimate these tax deductions, on average, sum to an increase of about 10.2 percent after-tax income across all income classes - in the long term. The two lowest deciles (i.e; bottom 10 and 20 percent-income households) would see increases in their after-tax gross-adjusted income (AGI) of 1.4 and 0.6 percent, respectively. The highest decile-income households (90 - 100 percent decile) can expect to see AGI increases of up to 14.6 percent, still less than the top 1 percent who gain from 21.6 percent more after tax income.
"No one will gain more from these proposals than low-and-middle income Americans."
Trump intends to not only reduce general income tax rates, but also lower corporate tax rates: bringing them down from 35% to 15%. This tax rate pertains as much to the earnings of a given corporation as it does to the individual employee working for said corporation. Thus the opportunity to exploit one’s ability to incorporate opens the government up to significant losses in tax revenue, seeing as the corporate tax rate (15 percent) is less than the top individual income tax rate (33 percent). As of 2014, the average “pass-through” tax — where corporate taxes are deferred to personal income rates — is 47.2 percent across all states. In 2016 alone, the net income of pass through businesses amounted to $1.6 trillion, where 54% of all pass through business income came from salaries north of $500 million. Trump claims that “small businesses will benefit most from [his] plan,” however, “small businesses” do not constitute a majority of the pass-through taxonomy, let alone a sizeable portion of total pass-through income.
The distribution displayed above reveals that more than 10 million employees work for firms with five hundred or more employees, making many pass-through businesses as large as major conglomerations. More interesting is the fact that more than a third of all pass-through businesses employ no one. Meaning, more than a third of all pass through businesses are “self-employed entrepreneurs.” The TPC expects this number to rise dramatically with the introduction of Trump’s new “pass-through” tax rate. Due to the nature of pass through taxation relying heavily on the revenue gained from incorporations employing more than 500 employees, the loss of tax revenue due to Trump’s invitation for any one person to incorporate could have detrimental effects. The TPC concludes that — discounting macroeconomic effects — Trump’s plan would reduce the federal receipt by $6.2 trillion within the next decade.
“All of our policies should be geared towards keeping jobs and wealth inside the United States.”
To take a step back, understand the general theme Trump is advocating when he trumpets lowering tax rates across the board. From a businessperson’s point of view, lowering taxes promotes domestic growth. All of a sudden, people’s marginal propensity to consume increases, leading people to feel wealthier and consequently more likely to spend such wealth. Additionally, it is more attractive to open up a new business in an environment that sympathises with the high menu costs of founding start-ups, or being self-employed. If payments to the government are diminished, by Trump’s logic, then more people are likely to find America’s government an overall better partner to do business with. An influx of businesspeople, along with wealthier Americans, would generally stimulate the economy from both the demand and supply side. The Laffer Curve is upheld and optimized at the same time America is put first.
In fact, according to the Tax Foundation, the lower income tax rates coupled with lower costs of capital would lead to an 11 percent increase in GDP over the long term. Everything that was mentioned before has now been quantified. However, these positive estimates rely heavily on whether Trump’s tax reductions can be compensated with decreases in government spending. The logic is simple. All else equal, decreases in government tax revenue due to tax cuts results in increased levels of government debt. Thus, government spending must also be reduced if the annual budget deficit is to stabilize. Meaning, if Trump were to slash government funded programs enough to compensate for the estimated $10.14 trillion in tax revenue loss, then and only then, could the economy expect to see positive growth. However, Trump has admitted to wanting to expand national defense (See IONA’s article on Immigration for more information) expenditures, threatened NAFTA with a U.S. withdrawal (click here for more info), and wishes to impose tariffs on international trade. So, the likelihood of America receiving a generous income by 2026, assuming the Trump plan proceeds, is misguided.
All this is to say, Trump champions a well known conservative tenet of American protectionism fostered by a concern over the country’s diminished competitiveness. Charles Lindbergh, the America First spokesman, is a historical example proving this ideology is nothing new. Whether drawing lines along one’s stance on foreign intervention by means of military presence, or business practices, Trump and Lindbergh are afraid of the world no longer needing an America, first and foremost, while also fearing the America they grew up with is losing itself to the history books. This article is not the first to draw these parallels. The New Yorker columnist Louisa Thomas writes of the two, “[they] share something beyond the magnetism of celebrity: a suspicion that the nation is under threat from alien elements; a narrow definition of what it means to be an American; and an expressed belief that they speak the impolitic truth on behalf of those who are suppressed by political correctness.” And those who share in these fears and skepticism will vote for Trump. To them, keep in mind one thing: the America First Committee was dissolved after one year in light of the events at Pearl Harbor in 1941, and America ended its isolationist neutrality shortly thereafter. Unlike the Committee, Donald Trump will remain in office for four years, at the least. His tax policy and redistribution of wealth could endure even longer.