Donald Trump's threat to abandon the North American free-trade agreement is based on the notion that bad trade deals have killed factory jobs and left a trail of destruction through Middle America.
The diagnosis is badly off base. Thanks largely to automation, U.S. factories are churning out more stuff than ever, but with fewer workers.
A more obvious villain in Mr. Trump's economic narrative is inequality – in wealth, incomes, occupations, education and health care.
Unfortunately, Mr. Trump and the Republicans are poised to make it all worse with a tax-cut plan that is likely to further concentrate wealth and opportunity in the hands of the few. The tax plan introduced last week by Republicans in the House of Representatives features a host of goodies for the uber-rich. Among other things, it would do away with the alternative minimum tax, designed to make sure the richest Americans pay at least some tax. For example, the change would have saved Mr. Trump $31-million (U.S.) on his own taxes in 2005 – the only year for which his tax return is available.
And yet Mr. Trump and Republicans are touting it as a tax plan for the middle class.
It's not clear how the proposed changes will help the middle-income earners, or the economically dispossessed in key states that Mr. Trump won in the 2016 election, including Pennsylvania, Michigan and Wisconsin.
The U.S. economy, which is now operating at full capacity, is in the midst of the second-longest expansion on record. The stock market is at a record high and the jobless rate hasn't been this low since early 2001.
But too many Americans aren't at the party, and Mr. Trump's tax plan makes it less likely they'll get an invitation.
The benefits of the tax plan would flow primarily to the very wealthy, and to companies. While it's true that all income earners would enjoy some relief, the largest cuts – in dollar terms and as a percentage of income – would go to individuals at the top end of the income scale, according to an analysis by the non-partisan Tax Policy Center.
For example, the plan collapses the number of income-tax brackets to four from seven, but doubles the threshold for getting hit with the top rate of 39.6 per cent to $1-million for couples. In Canada, the top rate kicks in at $200,000 (Canadian) for individuals. Republicans also want to repeal the estate tax, which now applies only to very large estates, and create a special low tax rate for high-income-earning small-business owners, such as doctors and lawyers.
The most perverse impact of the tax plan will take decades to play out – a $1.5-trillion (U.S.) hole in federal tax revenue in the first decade. The result is that the United States would have fewer resources to pay for the social safety net programs that particularly lower-rung Americans rely on to get by. These programs include Medicare, Medicaid, Social Security, unemployment insurance and food stamps.
Ongoing efforts to dismantle Obamacare would similarly hurt many of the same voters who helped elect Mr. Trump, including lower-income voters with precarious jobs with little or no pension or health-care benefits.
Mr. Trump's prescription for what ails the U.S. also goes against recent recommendations from the International Monetary Fund. The IMF concluded that flatter tax rates across income levels combined with lower top marginal rates are already exacerbating inequality in the U.S. and other developed countries.
The report goes on to warn that "excessive inequality could erode social cohesion, lead to political polarization, and ultimately lower economic growth."
The U.S. already ranks poorly among developed countries in income inequality. And its tax and transfer system is the "least redistributive" among member countries of the Organization for Economic Co-operation and Development, according to a report released this week by the Washington-based Peterson Institute for International Economics.
"U.S. policy makers should be particularly concerned about the effects of any new tax legislation on the incomes of individuals and businesses because of rising income inequality in the United States and the relatively limited U.S. social safety net," the report says.
As they grasp for their first major legislative victory, Mr. Trump and the Republicans show no signs of heeding these warnings.