The tax bill is more about ideology than economics. That doesn’t mean it won’t hurt most Americans’ financial health and opportunity.
It looks as if the GOP will finally get a win from its total control in Washington, D.C., as the congressional majority rushes to pass its massive tax cut. It could come as early as this week.
The legislation is being wrapped up as I write, so some details might change. But with majorities in the Senate and House, and a willing president, Republicans will get what they want.
Here’s what won’t change: This is primarily a political and ideological act. The actual economics are negative. No credible analysis shows that the cuts will “pay for themselves.”
Resulting growth would be extremely modest. The Congress’ Joint Committee on Taxation predicted the cut would increase gross domestic product by 0.8 percent over a decade.
The richest are less likely to spend more in the consumer economy. Corporations would use any windfall to further enrich shareholders.
No matter. Statutory tax rates will come down for corporations — even though many pay less than the nominal current rates in actual taxes, some none at all. The United States already collects lower corporate taxes than the norm among advanced nations.
Most of the benefits of individual rate reductions will go to the wealthiest — with taxes actually going up for lower-income Americans starting in 2021.
The sprawling, hurried legislation has other goodies for the right that have nothing to do with taxes.
For example, it would repeal the Affordable Care Act’s universal-coverage requirement, killing Obamacare by other means. It would open the pristine Arctic National Wildlife Refuge to oil drilling. More ill tidings will surely leak out after passage.
Taken together, this bill would be transformative. Maybe parts could be reversed if Democrats ever take control of Congress — a big if, given gerrymandering and vote suppression. In the meantime, enormous and sometimes permanent damage will be done.
Remember the number $1.5 trillion.
That’s the rough estimate of how much making the GOP’s victory will cost. It will be added to the federal deficit. Republicans care greatly about deficits when they’re out of power, using them as an excuse to block federal spending proposals from Democrats.
“Our grandchildren will be saddled with this burden!” they say. (They’re not concerned that those same tykes will be saddled with the burden of unaddressed climate change.)
In power, Republicans since Ronald Reagan have been big deficit builders. As vice president, Dick Cheney famously said, “Reagan proved that deficits don’t matter.”
In some ways, he’s correct. With the world’s reserve currency as an unlimited gold card and the largest economy, the U.S. has wide fiscal latitude. Red ink hasn’t turned Japan into Greece, either.
Big debt and deficits have allowed the Japanese to build the most advanced infrastructure on the planet. Reagan apologists can say with some justification that his deficit spending contributed mightily to the collapse of the Soviet Union. FDR’s deficit fought World War II. Barack Obama’s stimulus added red ink and, with help from the Fed, staved off a second Great Depression.
It’s all what we get from the deficit.
This time the Republicans want more than to shower their wealthy patrons with additional money. They want to drown the federal government in the bathtub.
“I’m not in favor of abolishing the government,” activist Grover Norquist famously quipped. “I just want to shrink it down in size where we can drown it in the bathtub.”
Most Republicans running for office sign Norquist’s pledge to never raise taxes. But many are more infatuated by his quote and its implications. More perhaps than Buckley, Goldwater or Reagan, Norquist has influenced what today’s GOP has become.
It’s a confidence game, of course. You’d need a mighty big bathtub to hold the federal government as it’s grown under Republican presidents. Spending more than the next seven or eight nations combined isn’t going away. The GOP wants a huge military-industrial complex and plenty of federal benefits for favored industries, especially fossil fuels. But much that’s valuable can be tossed from the tub.
Remember $1.5 trillion.
Like the tax bill, this intimidating number can be politically useful. We have to reduce Medicare and the social-safety net, they’ll say. Just look at the deficit. Indeed, House Speaker Paul Ryan announced that cuts would be proposed next year.
Parts of the GOP have long wanted to repeal the New Deal and Great Society (even the Nixon administration, e.g. the EPA). Now they’re in the majority.
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This renewed hatred of the (self-inflicted) deficit can be used to justify reducing spending on research, education and infrastructure. Blue states and cities such as Washington, D.C., and Seattle will be marked for special punishment. Red states that tend to be more dependent on federal dollars will be in for a surprise.
And consider this thought exercise: What if America, already losing its lead in many advanced areas, used that $1.5 trillion to invest in the future? Do that, rather than give more money to those who least need it? These are among the opportunity costs of the red ink.
Like its predecessors, this tax cut will widen income inequality, too. It’s already at Gilded Age levels and among the highest among major nations.
This worries Tim Kohler, regents professor of archaeology and evolutionary anthropology at Washington State University. He’s the lead author of a new study examining rising inequality going back to prehistoric times. WSU and 13 other institutions produced the results, which were published in the journal Nature.
While they found that history “bends toward economic inequality,” the results can also bring social convulsions.
“We could be concerned in the United States, that if Ginis get too high, we could be inviting revolution, or we could be inviting state collapse,” Kohler said.
He’s speaking of the Gini coefficient, used to track inequality.
I was taught in “history school” that revolutions came from rising expectations — for example France under the Ancien Regime saw the average person growing better off leading up to 1789. But change didn’t come fast enough.
When President Trump signs this monster bill, change is coming quickly. But it won’t be constructive for America, even if we avoid the worst.
Correction: This article was corrected Dec. 16, 2017, to delete a reference to anti-college measures in the tax legislation. Those measures were eliminated in later negotiations.