The Scoop
As President Donald Trump flirts with breaching Republican orthodoxy by letting tax cuts expire for some higher earners, he’s found support from the lead economic adviser to Sen. Bernie Sanders’ 2016 presidential campaign.
Stephanie Kelton, an economist at Stony Brook University who drew affection and derision for arguing that policymakers should ignore the federal deficit, said in an interview with Semafor that Trump is targeting the right group for a tax bracket of 39.6% if he wants to avoid inflation.
Trump’s proposals to cut taxes on Social Security, tips and overtime are “likely to be stimulative,” she said. “You have to think seriously about the potential for inflation.”
Kelton, who is also a fellow at the Vermont senator’s Sanders Institute, said Trump’s flotation of keeping current, higher marginal tax rates for new tax brackets for people making $1 million to $2.5 million “is directionally correct.”
“It’s the right idea for mitigating the inflation risk,” she said.
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Kelton came to prominence as the leading avatar of Modern Monetary Theory, which dismisses the idea that governments should let worries about the deficit get in the way of spending programs. The theory peaked in popularity as governments around the world massively boosted spending during the COVID-19 pandemic with no immediate ill effects.
Now, Kelton and her allies are sometimes blamed for the dovish attitude toward inflation that played a major role in unraveling former President Joe Biden’s prospects. Kelton cites a 2021 New York Times opinion article she wrote warning of inflation and arguing that taxing corporations and the super-rich wouldn’t slow the spending that drives it.
The target for tax hikes, she argues, must be the merely rich, the people Trump’s plan would sweep in. The top 10% of Americans account for about half of all consumer spending.
That tier of wealthy Americans who aren’t in the billionaire class will temper their consumption based on their annual income, Kelton said, arguing that keeping their taxes high could help keep inflation in check.
Ben’s view
Trump’s tepid call for higher taxes on the rich follows the logic of his MAGA movement and the notion of a working-class Republican Party. The president wrote Friday that it would be “a ‘TINY’ tax increase for the RICH, which I and all others would graciously accept in order to help the lower and middle income workers.” But he added that Republicans probably shouldn’t do it, lest they be accused of breaking a promise not to raise taxes.
And letting tax rates rise remains anathema to a party shaped by an earlier era of Republicanism.
Former Trump adviser Steve Bannon, now a MAGA movement leader with his show War Room, said in a text message that the dynamic “shows you [how] much we changed the electorate and how little we’ve changed the party.”
The support from Kelton also offers a glimpse of an alternate path for Trump and his movement: a potential alliance with Democrats on matters of economic policy, where they may have more in common with one another than with the party of the president.
Room for Disagreement
Former House Speaker Newt Gingrich has lobbied hard against any Republican shift toward supporting higher taxes: “Given the current mood of Democrats, the bill will have to be passed with Republican votes. Poison pill tax increases will only lead Republican in-fighting – which the media and Democrats would love to watch – and the bill’s potential failure.
Republicans in the House, Senate, and White House should commit themselves to passing the ‘big, beautiful bill’ with no new taxes,” he wrote.
Notable
- Trump signaled to senators in April that he’d be open to keeping some taxes high, Semafor’s Burgess Everett first reported.
- Kelton got the New Yorker treatment in 2019, as “the economist who believes that the government should just print more money.”