Everybody likes
tax cuts. What’s not to like? But there is a proper time for tax cuts, and they
cause serious problems if they come at the wrong time or go to the wrong
people. The recent Republican tax cut was a mess, on multiple levels. In an
effort to reward their major donors and show that they could accomplish
something, anything, legislatively, the GOP squeaked through a tax cut that
went primarily to the wealthy and to corporations, and they did it at a time of
economic expansion. This time they didn’t even pretend that the purpose of the
tax cut was to trickle down to the lower levels of the economy. Supply-side
economics is totally discredited anyway, so the pretense would have been an
empty gesture. But to push through a tax cut during a time of economic
expansion has two effects: it balloons the debt, and it likely overheats the
economy and drives interest rates up.
Tax cuts have
been used as a political tool (not an economic tool) by the GOP for nearly
forty years now, and the Republican addiction to tax cuts is so extreme that
this tool has become their only answer to every economic question. Tax cuts are
a cure-all. Of course, this is nonsense. Ronald Reagan started the modern GOP
on the supply-side path to massive deficits with his tax cuts. George W. Bush
paid for two wars and an expansion of Medicare with tax cuts. And now Trump has
given himself and his ilk a tax cut for no economic reason at all.
Tax cuts do serve
a very limited purpose. If the economy is in recession, tax cuts can induce
consumer spending, which can serve as a brake on the downward economic spiral.
But once the economy turns around, those tax cuts should be repealed so that we
can pay off any debt accumulated during the recession and possibly build a
surplus. With the debt totally out of control now, and with the economy
expanding, the last thing we need is low taxes, especially on those who have
made off like bandits during the past forty years. Largely because of the
Republican tax cuts, we are seeing a level of inequality that is dangerous to
our long-term well-being. And anyone who tells you otherwise is either filthy
rich or has sold his or her brain to those who are filthy rich.
Because one
political party has been lying about the effects of tax cuts for decades now,
we are stuck between a rock and a hard place. First, let’s be clear about one
thing. Tax cuts never pay for themselves. But the Republicans have been making
this claim since Reagan. Second, because the GOP has been successful in
spreading this politically expedient lie, the Democrats get punished
politically for trying to do the responsible thing: increase taxes to pay for
what we expect government to do for us. And this is a primary problem with tax
cuts. They are easy to enact, but devilishly difficult to repeal. And
increasing taxes is political suicide, even though all politicians should be
making a case for higher taxes.
Another lie that
Republicans have been spreading is that Americans are overtaxed. The numbers
show how dishonest this claim is. Among the 35 OECD countries, only four have
lower tax revenue as a percentage of GDP than the U.S.: Chile, Ireland, Mexico,
and Turkey. Total U.S. taxes (for all levels of government) are 26.0 percent of
GDP. The percentages for a sampling of other countries are: Austria, 42.7;
Canada, 31.7; France, 45.3; Germany, 37.6; Netherlands, 38.8; Norway, 38.0;
Sweden, 44.1; United Kingdom, 33.2. The average for all 35 OECD countries is 34.3
percent. We are more than 8 percent below the average. Of course, part of the
difference is that these other countries provide health care for all citizens
and a far more extensive safety net than we provide. And anyone who claims that
these other countries’ taxes are inefficient needs to recognize that they pay
sometimes only half of what we do for health care as a percentage of GDP. So
their taxes are actually being used far more wisely than our pirated health-care
dollars.
Perhaps the most
significant problem with tax cuts is that they render us incapable of paying
for the things we need and want government to do for us. The Republican answer
to the debt created by their tax cuts is to slash “entitlements.” What that
means is cutting benefits to the elderly, the sick, the disabled, and the poor.
Yes, we need to do some means testing. Some retirees do not need Social
Security, for instance, and they should probably pay premiums for Medicare. But
this represents a small percentage of the gap between what we bring in as
revenue and what we need to pay out for these programs. Because businesses have
kept wages low and have cut pension plans, a frightening portion of retirees
are leaving the workforce without any savings at all. They will rely totally on
Social Security. And Baby Boomers are retiring at the rate of 10,000 per day.
What this means is that we will not be able to cut Social Security and Medicare
for decades. The only solution to this dilemma is to increase taxes to where
they were before the great Republican tax cut fetish began.
It’s interesting
to look at the top marginal tax rate over time. In 1944 and 1945, at the end of
World War II, the top rate was 94 percent. In 1963, it was still 91 percent. It
dropped to 70 percent in 1965, and stayed there until 1982, when Reagan pushed
through his tax cut that dropped the top rate to 50 percent. Then, in 1988, it
dropped to 28 percent. Under Clinton, the top rate rose to 39.6 percent. Bush
dropped it to 35 percent, but Obama let that cut expire, so the top rate went
back up to 39.6 percent. The Trump tax cuts will drop the rate this year to 37
percent. (Yes, I do understand that it is Congress that passes tax legislation,
but the president in office has to sign the bill, and he always gets the credit
or blame.)
Of course, the
tax revenue picture is more complicated than the simple top rate percentage.
You have to look at the brackets, tax credits, the presence or absence of
personal exemptions, the increase in the standard deduction, and other features
to compare one year with another. But overall, the Trump tax cuts have added
$116 billion to the deficit just this year. And most of that money went to the
wealthy. I am middle class, but my taxes will go up under the new Republican
tax “relief.” This is why Republican candidates could not run on their sole
legislative “victory” in the 2018 elections. It’s hard to buy votes with a tax
cut when most people receive a few dollars and the wealthy get thousands or
millions in savings.
What I am hoping
for is a political movement that recognizes reality, that insists on raising
taxes until we can pay for the government services we expect and demand, and that
will pay down our massive debt. This will not be painless, but it will be
responsible.
