The Hypocrisy of Tax Cuts

 

A top item on Donald Trump’s agenda is to extend his 2017 tax cuts, and the GOP House is playing along. They released a budget blueprint yesterday that included $1.5 trillion in spending cuts, including $800 billion in cuts to Medicaid, and a tax cut totaling $4.5 trillion, which would go primarily to the wealthy. That will be quite a sales job to their MAGA cohort. Cutting aid to the poorest Americans so that the richest can get even richer? Trump relied on low-information voters to win the election. But when the information is all about dropping your health insurance, those voters may get a little smarter.

Republicans claim to be concerned about the federal debt, rightly so. But they always promote tax cuts, which never pay for themselves. Instead, tax cuts result in two undesirable effects: increased debt and increased inequality (more on these below).

Trump initially wanted to just extend his 2017 tax cuts, but now he and his congressional enablers want more. But even his 2017 cuts do not really benefit the middle class or the poor. According to the Center on Budget and Policy Priorities, households with incomes in the top 1 percent would receive an average tax cut of more than $60,000 in 2025, while those in the bottom 60 percent would receive less than $500. But they do not always result in small savings for the poor and the middle class. For instance, I prepare my own tax returns because they are quite uncomplicated, and when Trump’s cuts became law in 2017, I calculated my taxes under the new law and the old one. Although I am firmly in the middle class, my taxes actually went up under Trump’s tax “cuts.” So much for helping the middle class.

Republicans want to slash government spending to help balance the budget. But there is no way to do this without negatively impacting the elderly, the disabled, the sick, and the poor. The total U.S. budget for 2023 was $6.1 trillion. Of that, $3.8 trillion was mandatory spending, and interest on the debt was $0.7 trillion. That means 74 percent of the budget cannot be touched without changing laws or breaking them or breaking campaign promises. Mandatory spending includes such items as Medicare, Social Security, and veterans’ programs, all of which Trump has promised not to touch but now seems unconcerned about empty campaign promises. Republicans also refuse to cut military spending, and I assume Trump will ask for increased military spending, as all presidents do. In 2023, defense spending was $805 billion. That leaves nondefense discretionary spending of $917 billion from which to extract the DOGE goal of $2 trillion (later reduced to $1 trillion). Someone is arithmetic impaired, and it isn’t me. Discretionary spending includes such items as transportation, health, income security, international affairs, the DOJ, science and space programs, education, employment, and social services. Whenever someone tries to cut any of these, someone else screams (including Republican voters). This is why Republicans have never been able to cut much spending. But they still insist on cutting revenues, which is why the debt is out of control.

Drastically cutting spending, though, which is what Musk is attempting, would shrink the economy, which he may not understand. Federal spending in 2023 was 22.4 percent of GDP. If we were to cut $1 trillion per year, we would see an economic retraction that would make the Great Recession look like a minor hairline retreat.

To the dismay of many conservatives, we are among the most undertaxed countries in the world. As a percentage of GDP, U.S. tax revenues (federal, state, and local) ring in at 27.66 percent, compared with the OECD (the 38-nation Organisation for Economic Co-operation and Development) average of 34.04 percent. If we take the average of 10 advanced European countries, their taxes are 42.24 percent of GDP. Given that our 2023 GDP was $27.36 trillion, if we had taxed at the level of the average OECD country, we would have had an additional $1.75 trillion just in 2023 to pay down the debt, support our poor and elderly, provide for our safety and security, and so much more. If we had taxed at the rate of those 10 European countries, we would have had an additional $3.99 trillion in 2023. That’s a lot of money, enough to make spending cuts from discretionary accounts look like pocket change.

By not taxing as we should and not sharing ownership and income of businesses with the workers who actually create the products and profits, we have unleashed economic inequality not seen in a hundred years. A 2018 RAND Corporation study calculated that between 1975 and 2018, $47 trillion was shifted from Americans whose taxable income was below the 90th percentile to Americans whose taxable income was in the top 1 percent. In 2018 alone, the amount was $2.5 trillion. Assuming this imbalance has persisted, by 2024, the shifted wealth would total $60 trillion. This is not the recipe for a sustainable economy, and the GOP’s proposal to make his tax cuts permanent would make things worse. Believe it or not, after World War II, when the top marginal tax rate was 94 percent (it is now 37 percent), the rich still got richer. Again, it’s simple arithmetic.

Finally, the poverty rate in America is 11.5 percent (37.9 million citizens), and 20 percent of Americans over age 50 have no retirement savings.

So, how much money do the billionaires really need? Trump and Musk should answer that question, because at some point, more money is just an ego trip, and both of these billionaires have been on vacation from reality far too long.