There’s an old saying that “personnel is policy” in filling the top positions in an administration. More precisely, if you want a policy to be pursued and protected, hire those most committed to it.
But Donald Trump doesn’t appear to be following that rule in the case of his supply-side tax reform. The architect of the tax plan is Larry Kudlow, the well-known economist whose views reflect those of Trump. Kudlow, however, was passed over Sunday when the president-elect chose Gary Cohn of Goldman Sachs to head the National Economic Council (NEC) in the White House.
Where Cohn, a Democrat, stands on the tax-rate cuts proposed by Trump is not known. And neither Trump nor Cohn, who is currently the chief operating officer of the Wall Street investment bank, clarified it in their statements.
Trump said Cohn “will help draft economic policies that will grow wages for our workers, stop the exodus of jobs overseas and create many new opportunities for Americans who have been struggling.” Cohn said he shares “Trump’s vision of making sure every American worker has a secure place in a thriving economy.”
The Cohn selection was a disappointment to conservatives, as was Trump’s choice of a former Goldman Sachs banker, Steve Mnuchin, as Treasury secretary. The NEC and Treasury jobs are the two top economic positions in the administration.
Like Cohn’s, Mnuchin’s take on the Trump’s supply-side tax plan is not known. Trump considered a string of candidates before choosing Mnuchin. They included John Allison, the former head of BB&T bank in Winston-Salem, North Carolina, an ardent advocate of faster economic growth and seen as a potential champion of Trump’s policy.
The tax-rate cuts are the most important element of the policy. It would reduce the corporate tax rate from 35 percent to 15 percent and shrink individual income tax brackets from seven to three (33 percent, 25 percent, 12 percent). The top rate now is 39.6 percent.
The cuts are designed especially to increase take-home pay for middle class workers. Someone earning $83,000 a year would gain $40 a week, according to the plan.
Trump’s plan is roughly similar to President Reagan’s in 1981, which emphasized supply-side cuts to increase private investment, economic growth, and job creation. Tax rates were reduced across the board, but Reagan was pressured—by aides and Republicans in Congress—to pare back the sweeping reforms he advocated in the 1980 campaign.
He called for a 30 percent cut in individual tax rates. But that was trimmed to 25 percent and implemented in three steps (5 percent, 10 percent, 10 percent). It wasn’t fully in place until 1983, prolonging the recession then dragging the economy down.
The situation is not exactly the same today. But conservatives worry that, like Reagan, Trump will be pressured to reduce his planned tax cuts by aides and Republican officials not committed to his plan. It was Reagan himself who prevented even further weakening of his plan. Trump may have to do the same.
Senate Majority Leader Mitch McConnell is already raising doubts about the Trump tax cuts. At a press
conference, he said the current level of national debt is “dangerous and unacceptable.” The tax reform measure shouldn’t add to the deficit, he added. But that is what is projected to do.
He still must name the head of his Council of Economic Advisers, once the most powerful collection of economists in the executive branch. But the NEC, created by President Clinton in 1993, has become more influential in recent years.
Trump also has two vacancies to fill on the Federal Reserve Board of Governors, which sets monetary policy. But a bigger Fed vacancy will occur in February 2018, when Janet Yellen’s term as chair expires.
