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 counterintuitive—that
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 day—many of them with little or no retirement savings
because they either weren’t paid enough to save for retirement or their
employers eliminated their pensions—demands
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.
