Analysis: Trump is betting tax cuts will make him popular. History shows that's no guarantee

Heidi M. Przybyla | USA TODAY

Show Caption Hide Caption Trump Praises Tax Plan, Broadcom Move to US President Donald Trump announced Thursday that a $100 billion semiconductor company based in Singapore will legally relocate its home address to the United States. Trump also said the "biggest" tax cut in US history will be passed by Christmas. (Nov. 2)

WASHINGTON – President Trump is betting that a major tax cut will help his anemic approval ratings and bolster his party ahead of the 2018 midterm elections. But history shows that tax cuts do not actually make presidents more popular.

With no major legislative achievement to mark his first year in office and his approval rating lower than any modern president at this point, there’s an urgency behind Trump’s tax pitch. Earlier this month, Trump promised to give the public "a big, beautiful Christmas present in the form of a tremendous tax cut.”

Trump is putting so much pressure on lawmakers to pass the plan that he's even mentioned the idea of a Christmas Eve signing ceremony at the White House, according to two attendees at a recent White House strategy meeting who were not authorized to speak publicly.

“What’s striking right now is how much Republicans are counting on the political benefits that are going to flow from this,” said Joseph Thorndike, a tax historian and director of the Tax History Project. “The abundant historical evidence is it won’t work.”

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Tax cuts have been central to the national Republican brand for generations. With Republican intraparty tensions running high, GOP leaders now see a tax cut as the way to prevent a major rupture and electoral losses in next year's elections. Pressed about the Democratic election wins last Tuesday, White House Legislative Affairs Director Marc Short told NBC on Sunday that Republicans must "deliver on the tax relief that we promised."

Yet it’s unclear if the public is clamoring for tax cuts over the populist economic agenda Trump sold on the campaign trail, which included promises to rebuild the nation's infrastructure and renegotiate trade deals that have become unpopular in the industrial Midwest. According to a recent CNN poll, only 31% of the public support the GOP plan, and just 21% believe it will make their families better off.

What's more, the historical link between tax cuts and political benefits for the party championing them is weak. A review of presidential approval ratings following some of the biggest tax cuts in modern history – in 1981 and 2003 – shows they did little to correct or prevent declining approval ratings for Ronald Reagan and George W. Bush.

The most relevant cautionary tale for Trump today, according to Thorndike, may be the Revenue Act of 1948, the third-largest tax cut in American history that an insistent Republican congressional majority pushed through over repeated vetoes of an unpopular Democratic president, Harry Truman. Then as now, polls showed voters supported tax cuts favoring the poor over the wealthy. The U.S. was also facing pressure to build up the military budget due to heightening tensions with the former Soviet Union.

Come election time in 1948, voters didn't view the tax cuts as particularly important, according to Thorndike – and they didn't prevent one of the greatest political upsets in American history. Voters kicked out Republicans and elected Democratic majorities in both houses of Congress.

Then there's Reagan, whose approach to slashing taxes, increasing defense spending and cutting social programs is still lauded today by Republicans – including Trump. Yet Reagan's approval ratings continued to drop for two years after he cut income and corporate taxes in 1981, ultimately hitting its lowest point of 35% in January of 1983 “with economic concerns and worries about the effectiveness of ‘Reaganomics’ weighing heavily on the public conscience,” according to the Reagan Library. In the 1982 midterms, his party lost 25 seats in the House.

And when George W. Bush signed his May 2003 tax cuts into law, his approval rating stood at 69%, in the wake of the Sept. 11 terror attacks and shortly after the invasion of Iraq. Yet like now, polls at the time showed Americans prioritized other domestic issues, including health care, over tax cuts. By late October, just before his 2004 reelection, Bush's approval had dropped to 47%, according to Gallup ratings.

All three cases demonstrate an important point: Tax cuts are no silver bullet for declining poll numbers.

And with current unemployment rates already low – 4.1% in October– the real economic challenge facing the U.S. appears to be wage stagnation, despite Trump’s “jobs, jobs, jobs” mantra.

According to the Economic Policy Institute, a nonprofit affiliated with the labor movement, with the exception of the late 1990s, the wages of middle-class workers have been totally flat or in decline since the 1980s. Low-wage workers fared even worse, falling 5% from 1979 to 2013, while wages for high-wage workers increased by 41% over the same timeframe.

The "economic problem today is about distribution of the pie," said Larry Zelenak, a tax professor at the Duke University School of Law. And based both on economic theory and history, there's a "very limited trickle-down effect" of corporate rate cuts on the average worker's wages, he said.

Helping lower and middle-class workers is best done through a payroll tax cut or a targeted income tax cut, said Zelenak.

What's more, under the current draft of the tax plan, voters wouldn't feel any tax relief until they file returns in 2019.

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A new Washington Post/ABC News poll sheds doubt on how much Trump's tax plan can help his 37% approval rating.

The survey, conducted Oct. 29 to Nov. 1, found 60% of all voters believe Trump's plan favors the wealthy. According to Gary Langer, who conducted the poll for ABC, even 50% of white voters without a college degree, a pillar of Trump's base, believe the plan favors the wealthy. In fact, even Trump's former chief strategist, Steve Bannon, had reportedly been pushing behind the scenes to increase the top income tax rate on the wealthiest Americans, currently at 39.6%.

After Trump gave a major tax speech in August, Ann Coulter, once a vocal supporter of Trump's economic platform, blasted the plan, tweeting it was meant "for Wall Street."

Ann Coulter is unloading on Trump pic.twitter.com/3WEGGqclsZ — Allan Smith (@akarl_smith) August 30, 2017

"Saying you’re going to provide tax cuts can be a positive for the people who get the tax cuts, but it may not be a positive for the people who don’t perceive they’re getting them," said Evans Witt, chief executive of Princeton Survey Research Associates International, a nonpartisan polling group.

"Perception is very important when you talk about tax cuts," he said.

The GOP's urgency to push through the tax cuts – despite their plan's low poll ratings and the weak historic link between tax cuts and approval ratings – does have one good explanation, said Zelenak, the tax professor.

"They don’t need to pass a tax bill to keep in good standing with their voters," he said. "They need a tax cut to keep in good standing with their donors."