Massive tax cuts will starve public investment for years to come.
By Robert L. Borosage OCTOBER 6, 2017
This piece originally appeared in The Nation
The Republican tax plan is a lie. It’s being sold with the promise that the tax cut will create jobs and growth. In fact, the Republican tax cuts, if passed, will become the major obstacle to the very investments vital to generating good jobs and future economic growth.
Contrary to Donald Trump’s claims, the rich and big corporations will pocket the vast bulk of the tax cuts, not working people. The tax cuts won’t pay for themselves. They will increase the deficit. By 2027, one in four taxpayers will end up paying more. And for 80 percent of Americans, the tax cut they do get would be so small that it will go virtually unnoticed in most households. For example, the Tax Policy Center estimates that in 2027, the 27 million households with children and incomes under $75,000 will receive an average tax cut of all of $20 when the provisions are in full effect.
Americans get this. Fewer than one-third think they will end up paying less under the Republican plan, according to a new Politico/Morning Consult poll; about the same number think they’ll end up paying more. By a 41-28 margin, Americans know the rich will end up paying less, rather than more. Yet a plurality, 44 percent, thinks the tax cuts will have a “positive impact on the US economy,” while only 24 percent think the tax cuts will have a negative impact. The big lie still works.
President Donald Trump argued that “our country and our economy cannot take off” without the tax cuts. Office of Management and Budget Director Mick Mulvaney, a true chickenhawk on deficits, now argues that the tax cuts are vital, even with greater deficits, because “we need to have the growth.” Yet there is simply no reason to believe the tax cuts will generate greater growth or more jobs.
Historically, tax cuts haven’t produced greater growth. The Reagan tax cuts are celebrated, but in fact the Reagan years produced a slower rate of growth than Jimmy Carter’s term in office. And the tax cuts weren’t nearly as important to the economic recovery in the 1980s as the Federal Reserve’s cutting interest rates and Reagan’s doubling the military budget in peacetime—a classic example of military Keynesianism.
Although George W. Bush cut taxes deeply and repeatedly in the early years of this century, growth collapsed in his administration. Real GDP rose well below its rate in the 1990s. In fact, after Clinton and Obama raised taxes, the economy grew faster than it did after Bush slashed them.
The idea that tax cuts will create jobs isn’t borne out by evidence. Sara Anderson of the Institute for Policy Studies looked at 92 profitable large corporations that already pay at or less than the 20 percent rate promised in the Republican plan thanks to taking advantage of loopholes in the tax code. Those corporations have been laying off, not adding, workers over the past nine years. Corporate profits are at near-record levels, but companies are spending their money buying back stock, financing mergers, or issuing dividends, rather than investing in new jobs or products. A stunning 55 percent of corporate profits of the S&P 500 corporations have been devoted to stock buybacks, which raise the price of the remaining stocks and, not incidentally, boost the value of executive-suite stock options.
The rich will pocket most of the GOP tax cuts—over one-half of the reductions will go to the wealthiest 1 percent, an average bonus of $129,000 in 2018. But inequality is already at record extremes, and even the conservative International Monetary Fund finds that extreme inequality is a drag on jobs and growth. The paltry tax break offered most Americans under the Republican plan might boost demand a smidgen, but, with consumer debt at record levels, most will simply go to pay down what is already owed.
Worse, the tax cuts—totaling $2.4 trillion over the next 10 years—will give away tax dollars that could be used to address our true investment deficit: the shortfall of public investments vital to our economy. Virtually absent in the public debate is the reality that the competitiveness of this economy is crippled by the starving of vital public investments.
Read the rest in The Nation