The Trump administration shows just how clueless it is about the middle class

By Henry Olsen

The White House is reportedly considering making a “middle-class tax cut” the centerpiece of its 2020 economic agenda. If that campaign goes forward, the administration would show just how clueless it is about what “middle class” means.

The Post reported Tuesday that White House economic adviser Larry Kudlow was leading the charge to create a “15 percent tax rate for the American middle class.” That sounds good — until you look at the actual tax rates middle-class families pay now. Most American families already pay less than 15 percent of their income in taxes, so a 15 percent rate would actually be a tax increase for most middle-class families.

Though Kudlow stressed that the administration was still in its preliminary stages of developing the tax cut, the proposed 15 percent rate suggests the White House is out of touch with real American families. Families don’t pay more than 15 percent until they earn more than about $80,000 in taxable income. Add the $25,000 standard deduction — the amount a family can earn without paying any tax — to that, and a family has to earn a minimum of $105,000 a year before they would save a penny with a 15 percent tax rate.

That might be middle class in the D.C. suburbs and in Kudlow’s tony hometown of Redding, Conn., where the median family income is more than $157,000 a year. But the national annual median family income is only $75,500, and it is much lower than that in the rural, Midwestern counties that propelled Donald Trump to the White House. Calling a tax cut that many middle-class families can’t get a “middle class” benefit would be one of the stupidest things a president could possibly do.

There is some political method to this madness. Trump has driven many higher-income voters away from the party, and these people were likeliest to be hit by the 2017 tax cut’s limitations on deducting state and local taxes. Cutting tax rates for these people would be a strategic move to win them back. That’s what a 15 percent rate would do — cut taxes by thousands of dollars per family for people in the upper middle class.

One can easily see why this would appeal to the well-to-do White House economic team who surely see the weakening GOP position in their neighborhoods every time they talk with neighbors. But it’s not a middle-class tax cut, and it might even be resented by the majority of actual Trump voters who are struggling more and voted for Trump in part because they resented America’s growing economic inequality.

There are plenty of tax cuts the administration could endorse if it is serious about helping the struggling and pinched working and middle class. To start, they could back Sen. Tom Cotton’s bill to refund revenues from Trump’s tariffs to average taxpayers. Cotton’s proposal could give as much as $485 a year to each family earning less than $168,000 a year in taxable income, and — unlike the 15 percent tax-rate idea — would give nothing to families earning above that. If you limited the refund only to taxpayers in the bottom two tax brackets, then almost no one earning six figures would get a dime, and each qualifying family’s refund check would be much larger.

The administration could also cut the payroll tax paid by all U.S. workers. While some might worry about this because most of the tax funds Social Security, a portion is reserved to fund Medicare’s hospital insurance program. That portion could be cut without endangering Social Security funding, and the lost revenue could be recouped by lowering the government subsidy that wealthy seniors receive when they’re on Medicare. Seniors earning more than $100,000 a year, for example, could surely afford higher deductibles and co-pays for their hospital stays and pay higher monthly premiums for their Part B than they currently do. That money could fund tax relief for the people who need money now just to support their families.

There are plenty of other ways the administration could cut taxes on middle-class families. It could lower the tax rate paid by families making less than $105,000 — currently 10 percent or 12 percent — to 8 percent. It could restore the personal exemption for families with more than two children because the standard deduction is lower than the poverty level for families with three or more children. It could also increase the federal child tax credit and make more of it refundable for families with very low incomes. Each of these proposals would give real tax relief to the people who need it most.

The administration is right to want to give tax relief to the middle and working class. But members of the president’s economic team need to get out of their bubble and discover who those people really are. Once they do, they’ll find loads of ways to use the tax code to help middle-class families make ends meet.