Trump- Republican Tax Cuts

Everything you’ve always wanted to know about the Trump-Republican tax plan

Say no to trickle-down tax cuts, and say no to mindless deficit reduction.

By Robert Reich -

September 16, 2017

Have you noticed that there’s no Trump tax plan and no Republican tax plan? All they’ve come up with so far is a bunch of platitudes about how nice it would be to cut taxes, simplify the tax code, and spur economic growth.

Who doesn’t support these nice goals?

The reason there’s no tax plan is congressional Republicans are hopelessly divided on it.

Right-wing Republicans (the “Freedom Caucus” along with what’s left of the Tea Party) are most interested in reducing the size of the government and shrinking the federal deficit and debt.

Corporate and Wall Street Republicans – along with Donald Trump – are most interested in cutting taxes on corporations and the wealthy. They have the backing the GOP’s big business donors who stand to make a bundle off tax cuts.

Here’s the problem. You can’t have a giant tax cut for corporations and the wealthy, and at the same time shrink the federal deficit and debt – unless you make gigantic cuts in government spending on things the American public wants and needs.

According to the Congress’s own Joint Committee on Taxation, Trump’s proposed corporate tax cuts alone would reduce federal revenue by $2 trillion over 10 years.

Cuts of this size inevitably have to come out of the federal government’s three biggest expenditures, together accounting for over two-thirds of total government spending – Social Security, Medicare and Medicaid, and defense.

Even if you eliminated everything in the rest of the federal budget – from education to meals on wheels – you’re not going to get nearly enough to pay for the giant tax cuts Trump and his corporate and Wall Street Republicans are talking about.

But they wouldn’t dare shave a hair off Social Security. Americans who have paid into it for their lifetimes expect that it’s going to be there when they retire. Social Security is already facing some financial strains, and no politician with half a brain is going to slash it.

Medicare is almost as popular. Recall the Republican signs at Obamacare rallies that read “Don’t Take Away My Medicare.”

As to Medicaid, well, if Republicans learned one thing from the buzz saw they ran into over the Affordable Care Act it’s that they better not mess with Medicaid because a huge percentage of America’s elderly depends on it.

Which leaves defense spending. But wait. Donald Trump is on record as pledging to expand defense spending by 10 percent – $48 billion.

Then there’s the cleanup from Hurricane Harvey, estimated to be at least $150 billion. And more cleanup from Hurricane Irma, or any other of the hurricanes being dredged up by hotter oceans. There’s also Trump’s “wall” – which the Department of Homeland Security estimates will cost about $22 billion.

Oh, and don’t forget infrastructure spending. It’s just about the only major spending bill that could be passed bipartisan majorities in both houses. And given the state of the nation’s highways, byways, public transit, water treatment facilities, and sewers, it’s desperately needed. Trump’s budget allocates $200 billion of public money to this.

These numbers put corporate and Trump Republicans into a bind.

The only way out of it is to pretend that big tax cuts for corporations and the wealthy will grow the economy so fast that they’ll pay for themselves, and the benefits will trickle down to everyone else.

But if you believe this I have several past Republican budgets to sell you, extending all the way back to Ronald Reagan’s magic asterisks.

Trickle-down economics is one of the few economic theories to have been tested in real life, and guess what? It failed miserably. Ronald Reagan and George W. Bush both cut taxes on the top and they ended up with huge budget deficits.

Corporate Republicans are claiming that taxes are way too high, nonetheless. Trump says we’re “the highest taxed nation in the world.”

Rubbish. The most meaningful measure is taxes paid as a percentage of GDP. On this score, we’re hardly overtaxed. The United States has the 4th lowest taxes of any major economy. (Only South Korea, Chile, and Mexico ranking lower.)

The wealthiest 1 percent in the U.S. pay the lowest taxes as a percent of their income and total wealth of the top 1 percent in any major country – and far lower than they paid in the U.S. during the first three decades after World War II.

Corporate Republicans also argue in favor of an “amnesty” for global corporations that have been sheltering their profits abroad – allowing them to pay an even lower rate on repatriated earnings than they’re contemplating on domestic earnings.They say this will bring in big bucks that will be put to work for the economy.

That’s rubbish too. We tried a tax amnesty back in 2004 and corporations used the extra cash to pay their shareholders more dividends and buy back shares of stock to pump up share prices. They clearly didn’t use the money to invest in more productive capacity, research and development, or jobs.

Let me be clear: There is absolutely no reason to lower corporate taxes. After taking corporate deductions and tax credits, the typical U.S. corporation today pays an effective tax rate of 27.9 percent. That’s only a tad higher than the average of 27.7 percent among advanced nations.

Plus, with corporate profits at all-time highs, corporations are already flush with cash.

There is also no reason to lower taxes on the wealthy, who are wealthier than they’ve ever been in history. They don’t need the incentive of additional wealth in order to work harder or innovate better.

Once again, Trump and the Republicans are coming up with solutions to problems that don’t exist, while ignoring big problems that need to be faced.

The only way to build good jobs and better wages in America is to invest in the American workforce – in education, job training, and the infrastructure that links Americans together. History has repeatedly shown that these public investments improve the productivity of Americans.

Corporate and Trump Republicans get it totally wrong.

So do the Freedom Caucus deficit scolds, who refuse to see that investing in the future productivity of Americans is entirely different than spending on today’s needs.

No sane person would fail to make an investment that generated big returns because they didn’t to borrow money to pay for it. But that’s what the deficit scolds are arguing.

Instead of following either the corporate and Trump trickle-down tax cutters or the Freedom Caucus deficit scolds, we need to stop the madness on both Republican sides.

Say no to trickle-down tax cuts, and say no to mindless deficit reduction. Fight for public investments in our future.

This article was originally posted on Robert Reich’s blog.