If the tax overhaul passes, expect America to fall further behind.
The Republican tax cut moving through Congress has many individual ills. It keeps the poisonous carried-interest loophole that benefits a few in hedge funds and elsewhere in finance. Under the revised Senate bill, low-income people would face a tax increase. Lowering corporate tax rates won’t cause CEOs to invest more in jobs and innovation. The bill would sabotage the Affordable Care Act, despite record enrollment. It’s a dog’s breakfast of hidden mischief, too, such as potentially hurting teachers who must buy school supplies.
It’s based on myths and falsehoods. The notion that the Reagan tax cuts and supply-side economics led to a boon in federal revenue has been conclusively knocked down. Instead, deficits ballooned to then-historic highs. Reagan’s actual record is mixed, too, with several tax increases beyond the initial cut.
The George W. Bush tax cuts coincided with the weakest period of job creation since the Hoover administration (and this before the Great Recession). The Clinton tax hikes coincided with the longest and strongest expansion in U.S. history.
America is not, contrary to President Trump’s assertion, the most highly taxed country in the world. Taxes as a percentage of GDP are well below the average of OECD industrialized nations. The U.S. has the fourth-highest statutory corporate tax rate in the world, but that doesn’t mean companies actually pay it; many pay none at all.
But beyond all this and more that’s wrong with the proposed GOP overhaul, we must contend with the consequences from the big picture, from 30,000 feet.
The Republican Party, which once positioned itself as the “party of ideas,” has nothing new to offer beyond an ominous Trumpism. Tax cuts are orthodoxy going back to Reagan — or at least the Reagan myth. Taxes must always be cut, no matter the empirical evidence. At the state level, it has led to underfunded schools, transportation, public safety, health and social programs, most strikingly in Kansas. (The tax-cut fetish is why poorly paid teachers must spend their own money on supplies.) These red-state economies always trail blue states except for Texas, which has oil (but still horrible social ills). And the federal debt and deficit that so inflames the GOP when a Democrat is president? The flame dies when a Republican takes office.
The Democrats, for all their shortcomings, are willing to take more pragmatic and constructive views of the world. They are still members of a mass (for now) political party, with ideological diversity (for now). It’s deeply unhealthy for the nation that one of its two great parties is a prisoner of a handful of demonstrably failed orthodoxies.
Meanwhile, the enormous rise in inequality witnessed in recent decades can be traced heavily to tax cuts. Why? They mostly benefit the rich and the class that makes its money from investing rather than drawing wages. The progressive system — where high earners pay more — has been badly degraded. With so much extra money, the very rich have few incentives to invest in job-creating enterprises, so they get richer playing with derivatives and other financial games. The zenith of the middle class coincided with top tax rates of 90 percent and 70 percent (today it’s 39.6 percent). We landed men on the moon with 77 percent as the highest marginal rate.
The best bets to get the economy out of its slow-growth sluggishness would be massive federal investment in infrastructure, not merely fixing our crumbling roads and bridges but building high-speed rail like other advanced, urbanized nations enjoy, as well as fixing existing subway and other rail transit systems and building new ones. Also, investing in applied science and advanced research that could lead to job-rich breakthroughs. Finally, investing in education funding so, as W. would say, no child is left behind and retraining is effective.
None of this is possible with endless tax cuts. We keep falling behind. Every social and economic ill could carry a sign saying, Your Tax Cuts at Work.
But it’s not even your tax cuts for the most part, dear reader. Most benefits have gone to the elite in our new Gilded Age. Perhaps the worst casualty of 37 years of Republican tax voodoo is the destruction of the commons, the public interest, the idea that as Americans we’re all in this together. And unless the current tax bill implodes, things are about to get worse.