Steven Strauss, a USA Today opinion columnist, shows us the money in Record debt and inequality gap? It’s almost like 40 years of Republican tax cuts failed.. Trickle-down failure: The cult-like Republican belief in tax cuts isn’t supported by results. It’s leading to an apocalypse of debt and inequality.
Republicans used to be known as the party of fiscal responsibility and limited government. But ever since 1980, they have spent trillions. It’s not like those trillions jacked up the average worker’s earnings or benefits. Instead those Republicans have spent trillions in tax cuts on themselves thus producing the highest level of inequality in recorded (IRS) history - ands the highest level of public debt.
Since the Reagan administration, Republicans have fervently claimed lower taxes will unleash the “makers” — incentivizing them to work harder and invest more, thereby trickling down to benefit ordinary Americans. Moreover, they have consistently claimed that their tax cuts would create such dramatic economic growth that they’d literally pay for themselves. A rising tide lifts all boats! No hard choices to make — just cut taxes!
Instead, the national debt is at a record high, and the gap between the richest and the poorest U.S. households is now the largest it has been in the 52 years the Census Bureau has been tracking it. And that inequality gap started to expand dramatically about the same time the Republican Party started cutting taxes.
More growth during higher-tax eras
The American economy since 1950 offers a chance to consider the impact of these tax cuts. From 1950 to 1980, the top federal marginal tax rates (the rates on income above certain levels) were as high as 92% and never below 70%. Republicans have been slashing the top tax bracket for annual earned income since the early 1980s, and it is now 37% on income above $612,350.
Further, in 2003 the GOP shrank the tax rate on unearned income (such as dividends) to 15%, resulting (for example) in the billionaire Warren Buffett having a lower tax rate than his secretary. With such dramatic tax cuts, GOP dogma predicted a booming U.S. economy.
But it turns out U.S. economic growth was substantially higher during the period of high taxes. From 1950 to 1980, average annual growth in real (inflation-adjusted gross domestic product) was 3.9%, while from 1981 to 2018 the comparable number was 2.7%.
Similarly, during the high tax period, median household incomes increased on average (in real terms) by a bit over 2.5% per year. During the low income tax period, average real growth in household income declined to 0.7% per year.
Disciples of the Cult of the Magic Tax Cuts will generally respond to these facts by noting that economic growth stems from a number of factors besides tax policy (such as external markets, investment in education and government funding of basic research). These cultists claim that America’s results from 1980 to the present would have been much worse without the GOP’s obsessive reliance on tax cuts.
But roughly 40 years of GOP tax cuts have provided opportunities for controlled studies of the American economy, and they don’t show that.
No impact on paychecks or investment
For example, Republican President George W. Bush’s 2003 tax act reduced the top tax rate on dividend income from 38.6% to 15% — a massive reduction that was supposed to trigger an investment boom and a trickle-down of benefits, such as higher compensation, to ordinary Americans. However, in a 2015 study of IRS data from 1996 to 2008, published in the American Economic Review, Berkeley economist Danny Yagan found that “the tax cut had no detectable impact on investment or employee compensation.”
Another study, “Do Tax Cuts Produce More Einsteins?”, looked at how government tax incentives influenced individuals’ decisions to pursue careers in innovation (using a dataset of 1.2 million inventors, including their tax information). The study found that “financial incentives, such as top income tax reductions, have limited potential to increase aggregate innovation because they … have no impact on the decisions of star inventors, who matter most for aggregate innovation.”
Tax cuts cost money we don’t have
More intuitively, the idea that Mark Zuckerberg was thinking about his tax rate while working in his college dorm room on what became Facebook is ridiculous.
Another (though related) argument the GOP keeps making is that its tax cuts will pay for themselves. The available data, however, show that the 2003 tax cut and an earlier cut in 2001 benefited the richest Americans, and did not pay for themselves (indeed, by some calculations the two tax cuts added $5.6 trillion to the national debt).
More recently, Republican Treasury Secretary Steven Mnuchin claimed that the GOP’s 2017 tax cut would not only pay for itself, but would actually reduce the federal deficit by $1 trillion. So far (according to the nonpartisan Congressional Budget Office), the 2017 tax cut isn’t paying for itself with higher tax revenue, and it’s projected to add $1.5 trillion to our national debt over the next 10 years.
GOP must stop believing in magic
I’m not making a plea for larger government — just a plea for economic sanity. If Congress in its all-seeing wisdom wants to spend $700 billion on the military, billions of dollars on farm subsidies and so on, it must either raise enough money in taxes to pay for the programs it authorizes or reduce the size of government.
Instead, although Republicans controlled the White House, the Senate and the House from 2017 to 2019, they chose not to make (or even seriously debate) any substantial cuts to government programs that would balance the revenue lost by their series of massive unfunded tax cuts.
Unquestioning and unsubstantiated belief in the magical power of tax cuts isn’t a viable economic policy. The GOP is putting America on an unsustainable path that is disastrous both for its fiscal future and for the hopes of people trying to get ahead.
But here, I think, is where Strauss and I part fiscal company. You don’t have to correct the GOP’s wanton spending in the form of cuts to government programs. The money already is there but in the form of those reduced taxes. Claw it back. Let’s have a return to the Eisenhower years of 70% to 90% marginal tax rates.
But will that happen? Not under a Trump presidency. Quite the opposite is in the works. Trump is going back on his promises and has targeted social security for cuts. See this piece Trump opens door to Social Security cuts by Michael Hiltzik in the LA Times.
With his penchant for saying the quiet parts out loud and assuming no one is paying attention, President Trump on Wednesday opened the door to cutting Social Security and Medicare later this year.
The word came at the very end of an interview conducted by Joe Kernen of CNBC, in connection with Trump’s appearance at the World Economic Forum in Davos, Switzerland. Here’s how it unfolded, according to the tape and transcript from CNBC:
“KERNEN: Entitlements ever be on your plate?
“PRESIDENT TRUMP: At some point they will be. We have tremendous growth. We’re going to have tremendous growth. This next year I — it’ll be toward the end of the year. The growth is going to be incredible. And at the right time, we will take a look at that. You know, that’s actually the easiest of all things, if you look, cause it’s such a—"
Trump then wandered off into a string of false and incoherent claims about the economy. “We’ve never had growth like this,” he said, even though economic growth during Trump’s term is nowhere near a record pace.
What’s important is that Trump appears to be falling into lockstep with the more general Republican position that closing the federal deficit requires cutting back on Social Security, Medicare and other social safety net programs. Never mind that the deficit was opened into a gaping maw by the tax cut Trump signed in December 2017, which went mostly to corporations and the wealthy, the effect of which goosed economic growth for a short period but has faded.
Other commentators have underscored the conflict between Trump’s appearing open to tampering with Social Security and Medicare, and his promise during the last presidential campaign to leave those programs alone.
“Hillary Clinton is going to destroy your Social Security and Medicare. … I am going to protect and save your Social Security and your Medicare.” - DONALD TRUMP, 2016
Cutting benefits has been part of Republican orthodoxy for decades, but the drumbeat has gotten louder. In September, Sen. Joni Ernst (R-Iowa) talked about the need to go “behind closed doors” to reform Social Security, because it’s clear that the American public won’t stand for it being done in the open. A year earlier, Senate Majority Leader Mitch McConnell (R-Ky.) labeled Social Security, Medicare and Medicaid — so-called entitlements — “the real drivers of the debt” and called for them to be adjusted “to the demographics of the future.”
It’s worth noting that proposals to cut social insurance benefits are certain to be dead on arrival as long as Democrats control at least one chamber of Congress, as they do currently. Indeed, the Democratic Party, through its representatives in Congress and its candidates for president, has shown itself to be strongly in favor of expanding and increasing Social Security benefits, not cutting them back.
Trump still can do a lot of damage to these programs by starving their administrative budgets or tinkering with administrative rules, as he’s proposed to do with Medicaid and Social Security Disability Insurance.
And that is why we need to Dump the tRump. Hiltzik concludes:
In October, Trump signed an executive order bristling with stealth attacks on Medicare. Buried within the order was a provision that would destroy Medicare by driving its costs to an unsustainable level. He also proposed to turn more of the program over to commercial insurers. As I wrote then, “Put simply, he’s proposing to privatize Medicare.”
Again, all this has been hiding in plain sight. Trump’s latest remarks have gotten a lot of attention, because they appear to be so blunt. But the danger the Trump administration poses to programs that protect America’s most vulnerable populations has been evident almost from the first.
I know. Why should anyone be surprised when the tRump lies? What also has been evident from the first is that he is a pathological liar … well ’nuff said.
In contrast, check out presidential candidate Sen. Elizabeth Warren’s plan to expand Social Security, explained at vox.com. Here’s part of the story.
Warren’s proposal, which would levy a payroll tax on income over $250,000 and on income from investments in order to boost retirees’ average benefits by about $200 a month, doesn’t come out of nowhere. The Massachusetts lawmaker has been a proponent of expanding Social Security benefits since her first year in the Senate, and the idea that the government needs to do more to account for households’ basic financial needs has been integral to her thinking since long before that.
But the plan reflects both how far the contours of the national political dialogue of Social Security have transformed from where they were five to ten years ago, and raises some basic questions about how (if at all) Democrats can cut into Trump’s lead with older voters — and whether they ought to be trying. But more than that, it illustrates an important way that Warren’s view of the basic structure of economic policy differs from what we saw from Bill Clinton or Barack Obama — one that’s much less interested in targeting resources on the neediest and much more interested in the expansive possibilities that are unlocked by truly soaking the rich.
Scriber thinks that needs to be done if we are to get back to fiscal sanity.
(Thanks to Phil Nicolai for the USA Today tip.)