Saturday, October 22, 2022

Is It Possible for a Believing Latter-day Saint to Be a Republican? Part 6

 

Tax Cuts

 

For a variety of reasons, we are experiencing a bit of economic turbulence right now. Inflation is persisting despite the Fed’s efforts to cool off the economy. Gas prices are still high, even though they have dropped significantly from their peak, but they will probably rise again because of the production cuts agreed upon by Saudi Arabia and Vladimir Putin. The national debt just passed $31 trillion and shows no signs of slowing. And economists worry that we are heading for a recession. In spite of all this, the job market remains strong, likely too strong. And of course the Republicans are blaming everything on President Biden and the “free-spending Democrats.” But it would be wise to look at a few facts.

First, most of this has little to do with Joe Biden or the Democrats in the House and Senate and a lot to do with the pandemic, Putin’s invasion of Ukraine, and three needless Republican tax cuts. It is probably true that the current inflationary spell was jump-started by the COVID stimulus money, but the alternative would have been much, much worse. And Republicans are disingenuous to blame the Democrats for the massive outlays in response to the pandemic. The CARES Act, totaling $2.2 trillion was passed in March 2020 and was signed into law by President Trump. The CAA (Consolidated Appropriations Act), totaling $910 billion, was passed in December 2020 and was signed into law by President Trump. Both bills enjoyed large bipartisan majorities. The third COVID relief package was the American Rescue Plan (ARPA), totaling $1.9 trillion, which was passed in March 2021 and was signed into law by President Biden. It passed along party lines, the final vote in the Senate being 50-49.

This relief money prevented the economy from tanking during the depths of the pandemic, when hundreds of thousands of Americans were dying, millions lost their jobs, businesses were thrown into chaos, and supply chains were disrupted. The rebound, largely because of this relief legislation, was faster than most people expected. Indeed, the economy boomed to the extent that it got too hot. The Fed was slow reacting, but the inflation is largely a result of the pandemic, with a significant boost from Vladimir Putin’s invasion of Ukraine and the sanctions the U.S. and Europe placed on Russia, which pushed gasoline and natural gas prices into the stratosphere.

Significantly, although Republicans have blamed Biden and the Democrats for the current economic troubles, they have offered no ideas on how they would rein in inflation if they were in power. The only economic idea they have pushed, predictably, is another needless tax cut, which would of course benefit the wealthy rather than those who really need help. Tax cuts are the only tool the Republicans have in their economic tool belt. No matter what the problem is, their solution is to cut taxes. They criticize the Democrats for spending on things that are necessary, like COVIC relief and infrastructure, because this spending does increase the debt. But they hold themselves blameless for passing three unnecessary tax cuts (Reagan, Bush Jr., and Trump), which have had a massive impact on the national debt.

Tax cuts never pay for themselves. But they are extremely popular with a certain segment of society. And once you lower taxes, it is almost impossible to increase them. No politician, regardless of how large the debt grows, would dare propose a tax increase. But the result of these three massive tax cuts is that the United States has become one of the most undertaxed countries on earth. Republicans try to make people believe that Americans are excessively taxed, but the numbers don’t lie.

The Organisation for Economic Co-operation and Development (OECD), an intergovernmental economic organization with 36 member nations, produces an annual report that lists various statistics, including taxes for each member nation as a percentage of gross domestic product (GDP). The comparative statistics are enlightening. For 2020 (the most recent year on record), total taxes collected in the United States (for all levels of government) amount to 25.54 percent of GDP. This may seem like a lot. But the average for all 36 OECD nations was 33.51 percent. So we are far below average (23.8 percent below, actually).

But the average figure may be misleading. If we look at a few countries that are more representative of our level of development, the difference is even more stark. For example, Denmark’s taxes amount to 46.54 percent of GDP; Austria, 42.13; Belgium, 43.07; Canada, 34.39; Finland, 41.91; France, 45.43; Germany, 38.34; Italy, 42.91; Netherlands, 39.68; Norway, 38.61; Sweden, 42.60; and the United Kingdom, 32.77. The average of these 12 countries is 40.69 percent of GDP, or 59 percent higher than the U.S.

So, to claim we are overtaxed is to buy into a harmful fantasy. We are going to be racking up massive deficits in the coming years because half our population believes misinformation and our politicians are afraid to do what is expedient. Of course, all these other countries get a lot more for their tax dollars than we do. Each citizen has health care while overall they sometimes spend half as much as we do, and their social safety nets are far superior to ours. Their educational systems and highways and many other indicators of a civilized society also put us to shame. But if we were to increase our tax revenue even to the average of all OECD countries, we would bring in an additional $1.67 trillion each year. This would wipe out our annual deficit and contribute significantly to, say, providing health care for all Americans. If we were to match the 12 more developed countries, we would bring in an additional $3.17 trillion dollars per year. That’s a lot.

And taxing more, especially increasing the tax rate on the wealthy and on corporations, would reverse our unsustainable inequality and would actually help curb inflation. Inflation is caused by too much money chasing too few goods and services. Taxing the wealthy would cut spending and put downward pressure on prices. German Lopez of the New York Times, writing about the mess Liz Truss has caused in the UK with her plan to cut taxes (primarily on the wealthy), makes an important point about fighting inflation by some combination of cutting government spending and raising taxes: “When the government pares down spending, it effectively lessens demand for the goods and services that it is no longer paying for, whether it’s food, military equipment or health care. Similarly, when the government raises taxes, it pulls money out of people’s pockets, also reducing spending and demand. . . . The idea can sound counterintuitivethat government officials should work against economic growth. But fighting inflation calls for such an approach.”

The Republican Party has always preached tax cuts and spending cuts, especially when the Democrats control either the White House or Congress or both. But when they have had control, they have been spectacularly uninterested in spending cuts. So they have passed three unfunded tax cuts that have had the effect of increasing both our debt and our inequality. A major reason they have never really cut spending is that it is rather difficult and painful, if not downright cruel. If we look at the breakdown of our federal spending, it is easy to see why spending cuts alone are not a realistic solution to our debt problem.

Social Security and income security (unemployment) account for 33 percent of federal spending. Medicare and other health spending adds up to 27 percent. Military spending amounts to 12 percent. Interest on the debt is 8 percent. Veterans’ benefits contribute another 4 percent. These five categories add up to about 84 percent of government spending.

Some conservatives clamor for cuts to “entitlements,” but this is rather unrealistic. With my generation, the Baby Boomers, retiring at a rate of 10,000 per daymany of them with little or no retirement savings because they either weren’t paid enough to save for retirement or their employers eliminated their pensionsdemands on Social Security and Medicare will increase, not decrease, over the next several years. And with pay for the bottom 80 percent of the workforce flatlining, more and more young people will require government assistance in one form or another just to make ends meet. So “entitlements” are difficult to cut significantly.

Raising the payroll cap on Social Security to $400,000 or higher makes sense and would help keep the fund solvent. Increasing the payroll tax from 6.2 percent to 6.5 percent is both popular and doable. And reducing the benefits of the top 20 percent of earners would also make sense. But cutting Social Security significantly is just not in the cards. The same is true for Medicare. We could easily cut military spending, since we spend more on military than the next ten countries combined, but that idea is anathema to the GOP.

So, that leaves us with just 16 percent of the budget to play with, and most of those expenditures are for programs we need to maintain or increase (such as infrastructure, agriculture, transportation, energy, and education). The only realistic way to balance the budget is to tax more, and as our standing among OECD countries makes clear, we can certainly afford this. It not only will not tank the economy, but it will likely strengthen it.

The rudderless Republican ship has not spelled out what exactly it will do if it gains control of Congress in the coming election, but we can be sure of two things. First, the GOP will follow Liz Truss into the mire and attempt another tax cut for the wealthy. (By the way, the Trump tax cut was advertised as a cut for the lower and middle classes, but in reality most of the benefits went to Trump and his ilk. I’m firmly stuck in the middle class, and the Trump tax cuts actually increased my taxes slightly.) Of course, President Biden would veto such a tax cut, but if a Republican president were elected in 2024, we can be sure he would rubber stamp it into law. Second, a Republican Congress would refuse to raise the debt limit in an attempt to extort “entitlement” cuts from the Biden administration. Any such cuts would hurt millions of poor and elderly Americans. But this inevitable game of chicken is dishonest at its heart. As Catherine Rampell of the Washington Post has pointed out, “Republicans have withheld their support from raising the debt limit before, usually framing their hostage-taking as a commitment to fiscal restraint. But the debt ceiling has nothing to do with new spending; rather, it’s a somewhat arbitrary statutory cap on how much the government can borrow to pay off bills that it has already incurred, through tax and spending decisions that Congress has already made. Refusing to raise the debt limit is like going to a restaurant, ordering the lobster and a $500 bottle of wine, and then declaring yourself financially responsible because you skipped out on the check.” Rampell also explains that it’s actually worse than this, because if Republicans force a default by not raising the credit limit, they would damage the creditworthiness of the United States and likely tip the world into a global financial crisis. Talk about playing with fire.

Well, all this information on tax cuts and such is just another reason why a Latter-day Saint should never vote for a Republican, at least in presidential or congressional races. Not if you want a working, solvent government. There are barbarians at the gate, and the Republicans are not only willing to cut the locks, but they are determined to join the barbarians in ransacking the country.