How Trump could turbocharge the economy with radical tax cuts – thanks to the Supreme Court
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The Beltway is abuzz about the next step to bring the economy back to life. President Trump apparently supports a second round of the $1,200-per-person stimulus payments. Some administration advisers and congressional figures have called for temporarily suspending the Social Security tax, extending enhanced unemployment benefits or paying businesses to hire.
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But a turbo boost to the economy could come from an unexpected quarter: the Supreme Court’s recent decision in the DACA case.
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Little doubt exists that the U.S. economy needs the help. According to the Commerce Department, gross domestic product fell 5 percent in the first three months of the year. With the state lockdowns taking full effect in the April-June quarter, economists estimate the economy might shrink by a stunning annual rate of 40 percent – a drop unseen since the Great Depression, which took several years to fall that far.
Working Americans have felt the full blow of the recession. After hitting all-time lows from 2017-2019, unemployment has skyrocketed to more than 13 percent – putting more than 15 million Americans out of work. Even though economists believe GDP may rebound by an annual rate of 20 percent, unemployment could remain persistently high and economic growth remain far below its 2020 peak.
Here’s how the Supreme Court may have provided a way forward. In Department of Homeland Security v. Board of Regents, Chief Justice John Roberts and four liberal Justices (Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor and Elena Kagan) held that the Trump administration could not end the Obama administration’s DACA and DAPA programs. Those policies halted the deportation of aliens brought to the U.S. illegally as children and their parents.
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I support the policy of providing legal status to the “Dreamers” – children brought to the U.S. in violation of the immigration laws through no fault of their own. I wish Congress not only would create a legal status for Dreamers, but also expand legal immigration from its current 1 million by two or three times more.
However, I do not think that President Barack Obama had the authority to unilaterally create new classes of visas and work permits. Contrary to the court’s recent holding in Regents, the Constitution vests Congress with the power over immigration and thus the sole right to decide what categories of immigrants can remain in the country legally.
Before Regents, presidents had the constitutional responsibility to “take care that the laws be faithfully executed” and could only refuse to enforce laws that violated the Constitution itself. After Regents, presidents can stop enforcing laws they dislike, hand out permits or benefits without statutory authority, and cement their policies into practice for at least two to three years after they leave office.
Again, the Supreme Court adopted these principles for a good cause – protecting the Dreamers who relied on the Obama administration’s improper promises – but at the price of distorting constitutional law and presidential power.
Trump can now take advantage of that distortion to boost the economy.
The president could establish an economic recovery deferred action program that cut taxes immediately for those in the lowest brackets by 50 percent or more. This could accelerate the economic recovery far faster than current proposals for more unemployment payments or business aid, which help alleviate suffering but do little for growth. Trump could establish an economic recovery deferred action program that cut taxes immediately for those in the lowest brackets by 50 percent or more.
Here are the current tax rates:
Imagine the boost to the economy if Trump cut taxes on the lowest two brackets to zero. A married couple making up to $20,000 would save $2,000 in federal taxes, while a married couple making $80,000 could save an additional $7,000 or so.
These families would not have to wait upon government checks in the mail; they could see the funds immediately in their paychecks.
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Tax cuts would mean larger paychecks, which would create an incentive to return to work rather than remaining unemployed and on public assistance. Middle-class families would have a greater incentive to run the risks of starting or operating small businesses if they could keep more of the profits, instead of handing them over to the federal government.
If Obama could refuse to enforce the immigration laws in order for his DACA and DAPA programs to fly, Trump could claim he is choosing to defer enforcement of the tax laws to bring about a broader economic recovery.
A broad tax cut could answer accusations that the administration does not care about the poor or minorities. Trump could focus his deferred tax collection program to benefit the poorest the most.
He could also target certain geographic areas, such as the inner cities, for full tax breaks regardless of bracket. State COVID lockdowns have impacted the poor the most by shutting down restaurants, travel and hospitality, retail stores, and other businesses dependent on face-to-face interaction.
A unilateral Trump tax cut might fall outside the box, but there is some precedent. At the start of his presidency, to tackle the Great Depression, President Franklin Roosevelt declared a bank holiday and took other emergency measures not authorized by Congress. The extraordinary circumstances of this second depression call upon similarly creative thinking on the part of our nation’s leaders.
Luckily for them, the Supreme Court just gave them an unexpected weapon to free our nation’s small businesses and their employees from the weight of federal taxes and regulation as they seek to restart their livelihoods.
John C. Yoo is Heller professor law at UC Berkeley School of Law, a visiting fellow at the American Enterprise Institute and a visiting scholar at The Hoover Institution, Stanford University. He is the author of "Defender-in-Chief: Donald Trump’s Fight for Presidential Power" (St. Martin’s Press, forthcoming July 2020).
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