The Israeli-American Economist Who Helped Trump Cut U.S. Taxes

Hebrew University's Naomi Feldman worked for the Trump administration and tells Haaretz she didn’t see a White House as chaotic as it’s made out to be

Professor Naomi Feldman outside her home in Jerusalem, December 26, 2018.
Ilan Assayag

One year after U.S. President Donald Trump successfully pushed for deep cuts in U.S. taxes and other changes, activist film director Michael Moore called them “an act of terror.”

But for many thousands of corporations, small businesses and middle class consumers, the changes have meant less spending on taxes and more income. In any case, everyone agrees that it has been the Trump administration’s biggest legislative success.

Economic growth in 2018 was higher than average thanks to the changes, but many economists warn that their effects have been temporary. Progressives claim that they increased income disparities and benefited the rich.

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Naomi Feldman, an associate professor at the Hebrew University of Jerusalem and a former senior economist at the U.S. Federal Reserve Bank, has a unique perspective on the tax plan: She played a key role in writing it.

Feldman served as a member of Trump’s Council of Economic Advisers — the group of economists who research, advise and write the economic legislation for the president on a variety of issues, from taxation and labor policy to prison reform and healthcare. Feldman got an offer to work for the White House, and as she told TheMarker, in accepting, she was in for one of the most intense periods in her life.

Feldman says she was working at the Federal Reserve in Washington when she was offered a job on the White House’s Council of Economic Advisers, dealing with tax issues.

‘Natural connection’

“My area of research is taxes. It was a natural sort of connection. I left the [Federal Reserve] for one year, and I went to the Council of Economic Advisers, and by lucky chance, I happened to be there when it was all is happening. I spent the first year at the top of the Trump administration working on tax reform,” Feldman said by telephone from Jerusalem.

She was born in the United States and studied economics there, after which she immigrated to Israel. She later returned to the United States, where she spent seven years at the Fed and the White House. After wrapping up her work on the tax legislation, she and her husband decided to return to Israel and raise their children here.

The Council of Economic Advisers is responsible for advising the president on economic policy and conducting research. It’s an economic superteam of sorts at the service of the administration. “Most people go for one year or two years, because it’s so high pressure that most people can’t handle the lifestyle,” says Feldman. She agreed to be interviewed after a one-year cooling off period, and it’s particularly important to her to note that her opinions are her own and do not represent the views of the council or the Fed.

Because it’s such a small team, every economist handles several issues. Feldman focused on healthcare and prison reform. “You’re forced to really get up to speed on a lot of issues that you might not have known very much before about. But you can use your general economic intuition and knowledge and you learn quickly. You learn on the job. And it’s incredibly exciting, really, the most exciting job I’ve ever had, in my life, incredibly high-pressured and fast-paced. You get emails at 11 o’clock at night, 12 o’clock, that the president will be giving a speech in the morning and to make sure what was written is accurate,” she recalls. “It was very stressful for my family. I didn’t see my kids for close to a year.”

Dysfunctional?

Feldman said she often read media reports at the time about a chaotic and dysfunctional White House under Trump.

Before we get into the details of the reform, as someone who got an inside look at the administration that is known for instability when it comes to filling its senior positions, and frequent changes in the president’s views and his policy, what was it like to work there?

“It would not be consistent with what was going on on a daily basis. People there all are working very, very hard. People had, you know, to truly believe in their mission,” Feldman says. “I would often read [accounts of White House chaos], and I sort of stopped reading the story because it was very hard to know really, the source of unsubstantiated claims made by disgruntled employees versus what I saw day after day.”

File photo; U.S. President Donald Trump displays his signature after signing the $1.5 trillion tax overhaul plan in the Oval Office of the White House in Washington, December 22, 2017.
Jonathan Ernst/Reuters

And she added: “It must be said that Trump is a very interesting character. I will not deny that, but it was a serious environment .... It’s true that sometimes you don’t know what Trump will say. Sometimes we had to do damage control and decide what to do. But I don’t think that the description of an environment that is out of control is accurate.”

The tax reform on which Feldman worked was one of the few promises in his economic platform that Trump kept. The president had also promised to invest trillions of dollars in infrastructure, and to overturn the healthcare reform of his predecessor, Barack Obama. As opposed to Trump’s nationalistic economic policy, the reform actually focuses on America’s international competitiveness.

The tax changes approved in December 2017 were the most far-reaching in the United States in years and reduced federal tax revenues by $1.5 trillion. The corporate tax rate was cut to 21% from 35%, since the rate was very high compared to the developed world, and many corporations had engaged in complex tax planning to evade it.

In addition, the tax on profits that American corporations accumulate abroad was reduced to encourage them to repatriate them. Personal income tax rates were reduced from 39.6% to 37%, but only until 2025. The law limits the deduction that taxpayers can request for state and local taxes, while small business also received tax benefits.

Feldman describes the people behind the law as a group that based its decisions primarily on professional considerations.

“As economists we often have pretty straightforward views of what is good economic policy, the correct way to do things and everybody will sit around a table and acknowledge that we agree that this is the correct economic policy .... When you try to do and you try to balance political considerations with the economics of a problem, you come up with what you hope is the best policy or solution out there, but ... because there are costs involved, it’s never ever perfect.”

To what extent do the political views of the economists on the council influence their work, and how much influence can they have on the economic policy that they want to promote?

“In principle, it shouldn’t influence them. The analysis must be objective, and our opinions shouldn’t influence it. But one of the most difficult things I had to deal with is people with political motives who are working to shape policy. People see what they want to see. It’s very frustrating,” Feldman said.

Does the reform increase the social gaps?

According to an analysis by nonpartisan organizations, the new tax structure will cause an increase in the U.S. budget deficit. It will grant huge benefits to corporations and the rich, and in the medium and long term, it will increase the tax burden of the middle and lower classes. Tax benefits for individuals — one of Trump’s promises aimed at helping the middle class — will only be temporary.

A year after the reform was passed, there is agreement about one thing: The budget deficit will expand significantly as a result — by over $1 trillion in the following decade. It also has increased the income of stronger groups more than that of weaker ones, and even contributed to an increase in the gaps between whites and Americans of African or Hispanic origin, according to the Institute on Taxation and Economic Policy, which worked in cooperation with Prosperity Now, a non-profit anti-poverty organization.

An analysis published by Bloomberg last month demonstrated that people from the top quintile, where the average annual income is $347,000, received an additional 2.9% in income as a result of the reform. In the fourth quintile, that drops to 1.9%, and in the lowest quintile, where the average income is $14,000 annually, the additional income is 0.4%.

File photo: Kevin Hassett, chairman of the White House Council of Economic Advisers, speaks to reporters outside the White House in Washington, January 3, 2019.
Jacquelyn Martin/AP

Can you explain to us how such a reform is planned? Who gives the orders?

“Kevin Hassett is the chairman of the Council of Economic Advisers. He works with the president, and he’s the only person between me and the president. We responded to the president’s requests and questions. For example, if the administration was interested in handling the opioid crisis, we prepared a report for him showing how much it costs the economy and what can be done. On the council I was the tax expert. So I was at the top of the food chain for the reform. I had to make decisions as to how to do analyses and how to write the reports. They were sent to Hassett, but we worked very independently. There’s so much work that it’s impossible for one person to manage everything.”

Feldman says the thrust of the Trump program was actually corporate tax reform. The reduction in personal income taxes was added to garner support for it. Democrats and Republicans alike agreed that the United States had to lower its corporate tax, which was the highest in the Organization for Economic Cooperation and Development, she says. Corporations didn’t really pay the tax, because they engaged in tax planning.

“The larger the corporation, the better its ability to plan their taxes. Multinational corporations can transfer money among countries — and then it becomes a question of equality. The American system is very complicated, and it’s not coordinated with the rest of the world, which changed its tax laws in order to increase its competitiveness. That’s why I think that lowering the corporate tax from 35% to 21% is the most important part of the reform.”

Deficit worries

The reform increased the deficit for the coming years. Was that a consideration in its planning?

“That’s a very important problem, which the United States will have to solve, otherwise it will arrive at a situation even worse than what happened after World War II. The way to solve it is to increase revenues or reduce expenditures. The problem in the U.S. at the moment is that two-thirds of the government’s expenditures are fixed by law: Social Security, Medicare and Medicaid, and as the population ages, the greater the problem will be. If there’s no serious effort at reform, the expenditures side won’t decline. In order to increase revenues, we have to raise taxes, and politically that’s problematic. Either we expand the tax base or we increase the tax rate.”

As a tax expert, can you explain why Americans are so sensitive about taxes, as is also true regarding abortions and firearms? In particular, compared to the Scandinavian countries, where there’s a very high tax rate and the citizens are willing to pay in order to receive good services?

“There’s a lot of political baggage here. In Scandinavia, for example, there’s a homogeneous population. The U.S. is a heterogeneous country: People living along the coasts have a set of beliefs that differs from those who live in the middle of the country. You also have to realize that the decline of the manufacturing industry disproportionately hit populations that are divided along geographical lines. That caused a polarization in the views of Americans.”

“During the recession, the situation in Washington was good. Most people had work. When I visited my mother in Arizona at the time, it was depressing. Stores closed. People were laid off. It was a shock to many people to discover how infuriating it is to lose a job. Rust Belt communities were simply destroyed,” Feldman said.

“The United States also has a strong and deep tradition of liberty, dating back to the Revolutionary War period, a belief that the government shouldn’t interfere on issues such as firearms and taxes. In the United States there’s more individualism and less collectivism than in other countries.”