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Republicans Wary of Donald Trump’s Populist Tone on Taxes

The New York Times logo The New York Times 8/31/2015 By ALAN RAPPEPORT

For years, Republicans have run for office on promises of cutting taxes and bolstering business to stimulate economic growth, pledging allegiance to a Reaganesque model of conservatism that has largely become the party’s orthodoxy.

But this election cycle, the Republican presidential candidate who currently leads in the polls is taking a different approach, and it is jangling the nerves of some of the party’s most traditional supporters.

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The tendency of that candidate, the billionaire developer Donald J. Trump, to make provocative, headline-grabbing speeches has helped obscure an emerging set of beliefs: that he would raise taxes in certain areas, particularly on corporations that he believes do not act in the best interests of the United States.

In recent weeks, Mr. Trump has threatened to impose tariffs on American companies that put their factories in other countries. He has threatened to increase taxes on the compensation of hedge fund managers. And he has vowed to change laws that allow American companies to benefit from cheaper tax rates by using mergers to base their operations outside the United States.

Alarmed that those ideas might catch on with some of Mr. Trump’s Republican rivals — as his immigration policies have — the Club for Growth, an anti-tax think tank, is pulling together a team of economists to scrutinize his proposals and calculate the economic impact if he is elected.

“All of those are anti-growth policies,” said David McIntosh, the president of the Club for Growth, a group that Republican candidates routinely court. “Yes he’s a businessman, but if those are the policies he implements, they’ll drive the economy into the ground and we’ll see huge drops in G.D.P., and frankly I think it would lead to massive loss of jobs.”

Donald J. Trump signed autographs before a selfie with a fan at the National Federation of Republican Assemblies on Saturday in Nashville. © Mark Humphrey/Associated Press Donald J. Trump signed autographs before a selfie with a fan at the National Federation of Republican Assemblies on Saturday in Nashville. The issue of taxing the compensation of hedge fund managers — carried interest — as ordinary income played prominently during the 2012 presidential election. Financial disclosures revealed that Mitt Romney, the Republican nominee, had paid a relatively low tax rate over the years because he was earning retirement income in such a way from Bain Capital, a private equity firm.

Investment managers generally pay only a 15 percent capital gains tax on profits earned from their customers holdings, a treatment that Democrats often argue amplifies income inequality. Mr. Trump wants fund managers to “pay up.”

Mr. Trump’s business acumen has been one of his biggest selling points with voters. He promises that his boardroom experience would translate into favorable deals on the global stage and boasts that he cannot be bought by bankers or corporate lobbyists.

“I don’t want any strings attached,” Mr. Trump often says in his speeches, pointing to the big donations he has declined to take from lobbyists.

Mr. Trump has also threatened to make companies such as Ford “pay a price” for shifting their production to Mexico. And while he claims to be friendly with many of them, he has called hedge fund managers “paper pushers” who tend to get lucky on the road to riches. The populist tone is playing well with a subset of the Republican electorate that is frustrated with the status quo, but there are signs that Mr. Trump is beginning to alienate some in the party’s traditional base.

“Those aren’t the types of things a typical Republican candidate would say,” said Michael R. Strain, a scholar at the conservative American Enterprise Institute, referring to the candidate’s comments on hedge funds, support for entitlement spending and the imposing of trade tariffs. “A lot of these things are not things that businesses would be happy about.”

Grover Norquist, the founder of Americans for Tax Reform, is holding out hope for Mr. Trump even though Mr. Trump and former Gov. Jeb Bush of Florida are the only leading Republican candidates who have not signed a pledge to not raise taxes. Mr. Trump said last month that he was still considering the pledge and that he had no plans for a net tax increase. His suggestion that he would increase the tax on carried interest, however, has raised eyebrows.

“I would certainly be concerned about how that conversation would continue,” Mr. Norquist said. “Democrats will take that and say, ‘Now that you’ve conceded the principle, let’s go further.’”

While Mr. Norquist said he had no problem with candidates making bold proposals for investing in infrastructure — such as border walls and roads — or the military, he thinks it is important that they detail where they would make requisite budget cuts.

Mr. Trump declined to comment on his economic agenda, and a spokeswoman for his campaign said a tax plan would be rolled out in the next few weeks.

As with many of Mr. Trump’s policy ideas, confusion seems to be keeping interested parties from knowing exactly how to respond. In an interview with Fox News last week, Mr. Trump said a flat tax would be viable improvements to America’s tax system. Moments later, he suggested that a flat tax would be unfair because the rich would be taxed at the same rate as the poor.

“The one problem I have with the flat tax is that rich people are paying the same as people that are making very little money,” Mr. Trump said. “And I think there should be a graduation of some kind.”

Ultimately, he has settled on simplifying the tax code as a sensible first step, saying taxpayers spend too much time and money on their returns. H&R Block, the tax preparation company, should be put out of business, according to Mr. Trump.

“I think it’s tough to really know what he’s thinking about any of this stuff,” said Mr. Strain of the American Enterprise Institute.

Corporate inversions are another issue on which Mr. Trump’s positions have been slippery. Thispractice — companies acquire smaller overseas firms and move their headquarters to countries with lower taxes — has become increasingly popular in the last few years, costing the United States billions of dollars in lost revenue and drawing the ire of Democrats in Congress. In an interview with Time magazine, Mr. Trump called for a crackdown on inversions, but his solution also seemed to suggest giving companies a tax holiday in exchange for repatriating.

On Wall Street, Mr. Trump’s attacks on the rich so far have mostly led to eye rolls and a few winces.

Anthony Scaramucci, a managing partner of SkyBridge Capital who supports Gov. Scott Walker of Wisconsin in the Republican presidential race, visited Mr. Trump last week to complain about the way he was talking about hedge fund managers. Still frustrated, Mr. Scaramucci took to Twitter over the weekend to say that Mr. Trump is “misinformed” about the industry and that he and most of his colleagues pay the highest marginal tax rate.

Les Funtleyder, a portfolio manager at E Squared Asset Management in New York, said Mr. Trump was still widely considered to be a long-shot candidate in hedge fund and private equity circles. If his positions on raising taxes on their businesses gain traction, Mr. Funtleyder suggested, then some members of the financial industry will probably form a political action committee or donate to a candidate who would tell their side of the story.

Until then, however, Mr. Trump’s tough talk on business remains relatively harmless to the one-percent set.

“He’s just hitting all the populist high notes,” Mr. Funtleyder said, noting that hedge fund managers are easy targets for politicians. “It is unusual for a Republican to say it.”

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