Tax Cuts and Jobs Act

by on December 5, 2017 in Economics

So the Senate passed its tax cut. It is amazing to see the way in which the media has embraced the idea that this is a reform of taxation. It isn’t. It does have a number of small reform-like pieces, but those are mostly only in the legislation in order to mitigate its cost. They would not be there were the Republicans going through what the Senate calls “regular process”. When we realize this many things become clear.

  • Such is the determination of the Republican party to get some sort of legislation passed that it resorted to a purely partisan vote. The law passed 51-49 with one GOP Senator [Senator Corker] voting against. This meant that the law had to fit within prescribed budgetary limits and could not add more than $1.5 trillion to the deficit over the next ten years. Hence the rag-bag mix of “reforms” added to cut the bill’s cost. The only reason many of the bill’s features exist is because of last minute efforts to fit it within the budgetary cap.
  • The bill will blow an enormous hole in the budget — it will cost us between $1.4 and $1.5 trillion in extra debt. [Let’s not get into a discussion about modern monetary theory at this point!].
  • Never again can the Republicans argue they care about the federal deficit. Patently they don’t. This is the third time in my memory that they have passed budget-busting tax cuts [Reagan, Bush, and now Trump]. Each has been given the fig-leaf cover of being growth generating and therefore self-funding. The previous two provide us with ample evidence that this idea of self-funding is absurd, but the GOP clings onto the fig-leaf gamely in order to hide its antisocial intent.
  • That antisocial intent is to create the conditions under which they can claim the government is impoverished and thus will have to cut back on social spending. If you don’t believe me then you aren’t paying attention: Senator Hatch was asked why he hasn’t supported the re-instatement of spending for the program known as CHIP [the Children’s Health Insurance Program that provides health fare to none million poor kids]. His answer they we don’t have the money. He then voted in favor of the tax cut. Hypocrisy is the order of the day in the current Republican party.
  • And if it isn’t hypocrisy it is simply old fashioned meanness. Senator Grassley made it clear that he supported changes to the estate tax because it rewarded hard work and that it was because workers wasted money on booze and women that they didn’t have estates. Quite what hard work is involved in inheriting a fortune I don’t know. And quite how a family earning the US average of $59,000 is supposed to save up the $22 million needed to reach the estate tax exemption threshold I also don’t know. I doubt that cutting out all that booze and so on will get them there.
  • Also: those reforms that did get added into the bill are designed to undermine the budgets of typically “blue” states like New York and California. Those states have higher local taxes to pay for an array of more generous social and education programs. By eliminating the deduction for those taxes at the Federal level the Republicans are introducing a massive redistribution of tax revenues from the “blue” states to their own “red” states. This is over and above the historic subsidy that has moved in that direction already.

Overall the tax cut is an economic absurdity. It pours cash into corporate coffers already brimming over with cash. That extra cash will be spent, not on investment, but on share buy-backs and executive bonus programs. No credible study argues that the bill will increase growth by more than a minimal amount over the long haul, although next year might see a boost sufficient to make the GOP feel good. The negative impact of the rising debt will eventually overwhelm that modest boost and, as I indicated above as the real intention of the law, will provide the Republican’s with the cover they need to slash social spending.

With the Democrats poorly led and marginalized by a decade of organizational disrepair the only way for us to fend off this attack on workers, the poor, the sick, and the elderly is to heighten our local resistance. Just as repeal of Obamacare became the totem for recent Republicans seeking election, undoing the impact of the Tax Cuts and Jobs Act ought become our progressive totem. Any credible Democrat has to express a commitment to re-establishing the estate tax in order to mute the impact of inherited wealth; raising enough revenue to fund social programs adequately; and to a genuine reform of the tax code both to simplify it and re-introduce equity into it.

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