[Vision2020] Tax Cuts Will Not Make America Great Again

[Nicholas Gier]

This is long, but worth the read.GOP tax cut will not make economy great
again

   - By Ralph Maughan
   - Idaho State Journal, Dec. 10, 2017
   - 0)
   <https://idahostatejournal.com/opinion/columns/gop-tax-cut-will-not-make-economy-great-again/article_d395b271-a4ea-512d-b86c-ccde40f1e76b.html#comments>

[image: Ralph Maughan]

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The United States once had an economy that was the envy of the world, and
most Americans were proud and bragged about it. “America: “highest standard
of living in the world,” the slogan proclaimed, but today we have dropped
to number 19.

Here’s why the economy is no longer bragged about. The prosperity is no
longer shared. The growing economy’s gains almost all go to the top. It
used to be that if the economy grew, say 3 percent in real terms, average
hourly earnings increased 3 percent, and wealth overall increased by about
the same amount. Nowadays economic growth, always said to cure many
economic ills, just goes to the top. Economic growth does not mean more
jobs or higher wages.

Happily, the last year or two has shown a couple per cent real growth in
wages. Still, average hourly wages, when adjusted for inflation, peaked way
back in 1972! (PEW Research Center).

Many people do not understand, however, that those who are on top do not
work for wages. Instead, their earnings arrive as capital gains, dividends,
interest, royalties, pass through income, and the like.

Here is an amazing statistic. From 1930 to 1970, the income of the bottom
90 percentgrew in real terms but that of the top 1 percentdid not. However,
beginning in 1980, and ever since, the income of the top 1 percenthas
grown, but not the bottom 90 percent.

>From 1969 to 1972 inequality of our incomes reached the lowest level since
statistics on the matter began, but inequality started to grow in the
1980s. That has continued and accelerated. The U.S. now has the eighth most
unequal income on the planet, but wait. More importantly, in terms of
wealth, we are the most unequal country on Earth. What’s the difference
between income and wealth? Income is like a flowing river which flows into
a reservoir (wealth).

Average folks are finally noticing our world topping inequality, though
many still think the problem is that there are too many “welfare cheats”
and unworthy minorities sucking things up just below them. I won’t argue
about this perception except that in total dollars or taxes this
“cheating,” and the like, is like a penny out of a dollar.

I think it’s significant that the huge growth in wealth of the top 1 per
cent began with Ronald Reagan and his tax cuts of 1981. He called these tax
cuts “supply side,” and said they would pay for the lost tax revenue in
economic growth. Democrats called them his idea instead, “trickle down,”
and they predicted the federal budget deficit would grow, and the deficit
did grow quickly. It became the biggest on record except for the borrowing
to finance World War II back in 1941-45.

The budget deficit had been high under Reagan’s predecessor, President
Jimmy Carter. However, under Reagan it soon tripled.

In 1981 the United States spiraled into a deep recession. Unemployment
reached 10.3 percent. Reagan worked across the aisle to increase taxes,
though not the personal income tax rates he had fought so hard to lower. He
supported instead broadening the tax base by cracking down on tax evaders
and eliminating loopholes.

Then, after two years of discussion, a bipartisan agreement between
President Reagan and Democratic House Speaker “Tip” O-Neill, became the Tax
Reform Act of 1986. Compare the two years of discussion (1985-6) between
the political parties with the two weeks of secret Republican tax writing
of today’s tax “reform bill.

The 1986 law really was a reform bill. It was planned to be revenue
neutral. It lowered the top income tax bracket even more, but made up the
difference by broadening the tax code by repealing many large tax credits
and deductions — “loopholes.”

President Bill Clinton pushed for tax increases to restore some of the
reductions in the higher brackets eliminated under Reagan. His bill passed
by one vote in both the House and Senate.

People usually don’t like tax increases, but you will probably read in the
current news that Clinton’s tax increases were actually more popular in the
polls than the current Republican/Trump tax cuts. Clinton’s bill became law
in 1993 and raised enough tax revenue to balance the budget. Near the end
of Clinton’s second term an almost unheard-of development happened. The
federal government collected enough tax revenue to not only balance the
budget, but run a surplus — pay down the national debt — for three years in
a row (1998-2000).

A web search shows Republicans would tear their hair out before they will
agree with the idea that the Clinton tax increases raised enough revenue to
begin paying down the national debt, because if that were true, then almost
every part of GOP tax policy for prosperity by means of tax cuts for the
corporations and rich people would be proven wrong.

The celebrated budget surplus was a key issue in the 2000 race between G.W.
Bush and Al Gore. Both candidates said they would not spend this surplus.
They would put it in a “lock box.” They competed with each other in their
descriptions of how their lock box would be harder break into than the
other’s. Of course, after the election there was no more talk about lock
boxes. The proposed Bush tax cuts became the topic.

“Dubya’s” tax cuts were enacted. They were typical Republican tax cuts that
favored the upper income classes. There is little evidence the cuts caused
an economic growth increase or that they paid for themselves. The surplus
went away, and deficits returned. Ten years later the after-tax incomes of
the top 1 per had grown by 6.7 per cent. The top 40 per cent had grown by
3.8 per cent. The incomes of the middle 40 percent had grown only 2.8 per
cent. The lower 20 per cent had increased just by 1 per cent. These figures
do not prove the tax cuts had no positive effect. Perhaps something else
caused the pro-tax cut predictions to be wrong. Whatever, but inequality
grew, deficits returned and at a fast rate.

Now we are back to voting on another tax cut. It too favors the top. This
time the cuts are supposed to help corporations directly more than
individual income tax rates. The tax on their profits will be reduced from
35 to 20 percent. So, the corporations will be able to keep more of them.
They will use this money to invest in jobs, equipment, buildings,
technology, etc. This corporate investment will stimulate the economy into
sustained growth rates of 4 to 6 percenta year (rates unknown in the past).
Such a rapidly growing economy will provide jobs and, as usual, it is
claimed the tax cuts will pay for themselves. We will all will go home
happy on the average.

Will corporations really invest if they get to keep more of their profits?
Will that help wages or the number of jobs?

Right now, we are near the top of an economic boom. What are corporations
doing right now? Most are flush with cash, but they are not increasing
investment even though they have the money to do it. Instead, they are
buying back their own stock, giving big dividends to shareholders, and
buying other companies. Furthermore, If they wanted to invest, wouldn’t
they be using their current cash to do it?

Indeed, The Atlanta Federal Reserve Bank asked executives, “If passed in
its current form, what would be the likely impact of the Tax Cuts and Jobs
Act on your capital investment and hiring plans?” Only 8 percentof the
executives surveyed said the bill would make them increase hiring plans
‘significantly.’ Only 11 percentsaid they would significantly increase
their capital investment plans. A solid majority answered either “no
change” or “increase somewhat.”

I don’t think investment will increase. Instead the tax cuts will be
converted into more personal income for those who already have much. Let me
explain.

In recent years shareholders have demanded more and more of their money
back as dividends. The days of the “good citizen” corporation are passing.
Those were the days when they made many donations to the public, supported
charities, environmental progress, uplifting minorities, etc... Now it’s
back to making money and giving it to their owners — the shareholders — and
to the top management. In fact, CEOs “buy” big jumps in their own
remuneration by catering to the shareholders with dividends.

My point is today corporations, indeed most large businesses, are likely to
try to maximize profit. If hiring more workers or giving wage increases
help them do it, they will. If it doesn’t help, they won’t provide these
benefits. Wages grew along with the economy back in the day when that
helped business to increase profits, and they were also under pressure from
organized labor, but organized labor has now been almost killed off.

Today, if a corporation needs more workers, it might well buy instead a new
kind of capital — robots (bots). Bots are getting cheaper and more
productive all the time, and they are not your friend. They don’t need
health care, they don’t get pregnant, they have no family obligations, need
day care or flex-time. They don’t do drugs. They can work in unsafe
conditions. They don’t try to organize labor unions. Best of all, you can
kill them when you are through with them.

Corporations try to make profits. Wages and salaries are just a by-product
of this. If you really want that byproduct — helping the working class or
the middle class — then give them a tax cut directly. There is no need to
give the cuts somewhere else and hope.

Increasingly, many at the top hardly see us as morally significant at all.
Did you read U.S. Iowa Senator Chuck Grassley’s comments about those of us
who are not trying to build an estate on which our heirs would have to pay
estate taxes? That is, by the way, would be an estate of $5.5-million plus.

Senator Grassley wants the estate tax completely repealed, and argued for
it, he said, “I think not having [that is, by repealing] the estate tax
recognizes the people that are investing… as opposed to those that are just
spending every darn penny they have, whether it’s on booze or women or
movies.”

Why would the Republicans push a tax cut that is so obviously unpopular in
the polls — just like their planned replacement of the Affordable Care Act?
They say it will show they can govern — by passing a major bill. That is
clearly what the President cares about. Trump proclaims, “tax cuts for
Christmas!” It that why they wrote the bill in just two weeks and voted on
it without a single hearing or even releasing a copy of the bill’s 500
pages except just before the Senate voted (with hand-written amendments to
it in the margins). Who demanded this? It wasn’t the public.

Tax legislation is complex, and errors in it can cost or unwittingly give
away billions quickly. In the past, it has taken several years to write a
tax bill. Reports are this two-week wonder will keep tax attorneys and
accountants in full employment the rest of their careers litigating the
effects of the mistakes in the text.

Perhaps the Republican base wanted this, but I think it came this way
because the Republican congressionals have been loudly told by their donor
class there will be no campaign contributions from them for the 2018
election if they fail with the tax cut — no more failure like the Obamacare
replacement. So, what is worse for Republican congressionals, an unpopular
new tax cut; or is it a drought in contributions from the big donors like
the Koch’s or Sheldon Adelson?

Regardless, the “Tax Cuts and Jobs Act” is not going to Make America Great
Again or cause our economy once more to be the envy of the world.

*Dr. Ralph Maughan of Pocatello is professor emeritus of political science
at Idaho State University. He retired after teaching there for 36 years,
specializing in voting, public opinion and natural resource politics. He
has written three outdoor guides, including “Hiking Idaho” with Jackie
Johnson Maughan. He is currently president of the Western Watersheds
Project.*


-- 

A society grows great when old men plant trees whose shade they know they
shall never sit in.

-Greek proverb

“Enlightenment is man’s emergence from his self-imposed immaturity.
Immaturity is the inability to use one’s understanding without guidance
from another. This immaturity is self- imposed when its cause lies not in
lack of understanding, but in lack of resolve and courage to use it without
guidance from another. Sapere Aude! ‘Have courage to use your own
understand-ing!—that is the motto of enlightenment.

--Immanuel Kant
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