Republicans in Congress, having failed at healthcare “reform”, that is – taking away health insurance from some 20 million people, are now getting ready for “tax reform”. Yes, the pundits and the Party are somehow calling it “reform”. Interestingly, this word is defined in my Oxford Reference Dictionary as “make or become better by removal of faults and errors” and in my Apple computer dictionary as “to make changes in something (typically a social, political or economic institution or practice) in order to improve it”. And if Republican “healthcare reform” is actually making it worse for the country rather than better, we all know what Republican “tax reform” will be – reducing taxes on the rich and on corporations. So, writers and reporters, pundits and talking heads, let’s be honest and stop calling this pending Republican-sponsored legislation “tax reform” and call it what it is – “tax cuts”, and to be even more honest – “tax cuts for corporations and the wealthy”.
Our country seems to have truly lost its mind. First we elect Donald Trump, then try to pass legislation that would cause over twenty million people to lose health insurance and now we are trying to reduce taxes on corporations and the wealthy. Why would we want to reduce taxes when we suddenly have huge bills to pay for the extensive damage wrought by the three monster hurricanes striking Texas, Florida and Puerto Rico, and record breaking wildfires in northern California, together estimated at upwards of a half trillion dollars? Also, why would we reduce taxes when the cost of fighting two wars and maintaining our American Empire with 240,000 troops overseas in 70 different countries continues to accelerate? And why would we want to reduce taxes on the wealthy when we already lead the world in income inequality and lack of upward mobility, both proven drags on any economy? And why would we want to cut taxes during a time of economic growth when there is little room for additional expansion? And finally, why would we want to cut taxes on corporations when corporate profit is at an all-time high and they are rolling in seas of cash?
Well, we’re cutting taxes on the wealthy and on corporations because their donors have bought and paid for it. And cutting taxes, especially for the rich, is an old and honored Republican tradition. The dismantling of our formerly progressive income tax structure with the top bracket of 91 percent, began with little nibbles under presidents Kennedy and Johnson (remember Kennedy’s “a rising tide lifts all boats”?) and then Reagan’s gigantic reduction of the top tier down to 28 percent.
According to economic researchers Picketty and Saez, the destruction of progressive taxation of income is not only the most significant cause of U.S. economic inequality but also the cause of stunted economic growth. But never mind – the economy be damned – it’s full speed ahead for Republicans obliging their wealthy donors – 80 percent of intended cuts will go to the top one percent of earners. And another Republican tradition will be honored – when their tax cuts cause the budget deficit to explode, their solution will be to cut “entitlements” – Social Security, Medicare and Medicaid, not to restore taxes to required levels. Nor will the Republican Party ever cut the Pentagon budget, which continues to relentlessly expand. Republicans pretend to care about the deficit when Democrats try to improve the welfare of our citizens and the healthcare and retirement of our elderly, but care little about the deficit when it comes to cutting taxes on the rich or funding the military.
And Republicans continue to bray several myths to justify their folly. First is Trump’s blatant lie that “America is the highest taxed nation in the world”. Actually, as a share of GDP, the most accurate measure of tax burden, the United States is among the most lightly taxed nations in the world, ranking near the bottom of all the advanced nations of the world and well below the median.
The second blatant Republican lie that they have claimed for years is that “tax cuts pay for themselves”. No, they do not. There is absolutely no evidence that this is true on a national level. And on the state level reckless tax cutting, mostly in the form of abolishing progressive income taxes and relying on regressive sales taxes, in Kansas, Wisconsin and in my own state of Arizona, have seriously reduced state revenue and economic activity, causing serious harm to education and other state functions. This silly claim has been discredited again and again, yet still is the rallying cry for Republicans doing what they do best – cutting taxes and exploding the deficit. Just as George W. Bush put his trillion dollar wars on a credit card, the Republicans will be charging their tax cuts – feels good now but it won’t to later generations who will have to pay the bill.
Conservative economist and Washington Post columnist Robert Samuelson asserts in a recent column that “we need higher taxes”, are “undertaxed” and should not be considering tax cuts but tax increases instead. Our obligations and commitments require more revenue, not less, and furthermore, as noted above, we are pretty much at full employment right now, rendering increased economic activity from tax cuts unlikely.
The third flagrant lie in the Republican tax cut scam is, in Trump’s words – “…ending the crushing, the horrible, the unfair estate tax…” This fictitious claim that ending this tax would “…protect millions of small businesses and the American farmer…” is absolutely false. Ending the estate tax, or “death tax”, as Republicans have chosen to call it, is a time honored canard of the Republican Party. The estate tax will affect very few of the country’s estates as the following table makes clear. If anything, the estate tax needs to be increased because it is failing in its original justification – to break up huge fortunes and prevent the formation of oligarchies and plutocracies. Furthermore, since charitable contributions reduce taxes on any given estate, this tax is not only an important source of federal revenue from people who can easily pay but a valuable source of induced charitable giving.
The fourth blatant lie from the Republicans is that cutting corporate taxes will create jobs. This is totally untrue. Corporate tax cuts will result in higher executive pay, stock buybacks to increase stock value or larger dividends to stockholders. As I asserted in my “Economics 101” article, corporations invest and create jobs when there is increased demand for their products or services. Corporations are right now sitting on massive amounts of cash. They don’t need more. What is needed is more money in the pockets of consumers – this would increase demand, increase hiring and job expansions. Additionally, as noted earlier, with the economy doing well and corporate profits at an all time high, why the big push to reduce corporate taxes? Also, the corporate income tax, as a percentage of federal revenues has been steadily dropping – from 33 percent in 1952 to about 9 percent today. Corporations are simply no longer bearing their fair share of the expense of running our nation. There is very little substance to the steady Republican drumbeat that U.S. corporate taxes leave our country at a competitive disadvantage to foreign businesses. With all the loopholes available to corporations and their tax lawyers, the much-decried 35 percent top rate is in reality less than 20 percent. Among profitable companies from 2008 to 2015 there were 100 companies that paid zero or less in federal income taxes for at least one year, and many of these companies received some form of federal tax rebate, totaling hundreds of millions of dollars.
Now, do we need real tax reform? Of course we do. We need to close loopholes that have enabled huge corporations like International Paper, Verizon and General Electric to pay zero corporate income taxes. We need to find a way to stop corporations like Apple, now storing more that $230 billion in profits overseas, from avoiding taxes on that income. We have to close the estate tax loopholes that have allowed the Walmart fortune to be handed down almost intact to all its worthless heirs. The estate tax should be increased, not decreased, and the amount protected from taxation should be decreased, not increased. Republicans plan not only to not only raise the amount protected for now but phase out the estate tax entirely, leaving oligarchic fortunes intact.
We should establish a sales tax on security transactions. Why do I pay sales tax on a $75 pair of shoes and huge multi-million dollar stock transactions among wealthy investors escape tax altogether? Senator Bernie Sanders and others have suggested a small tax of .01 percent on such trades that would raise a significant amount of money for our treasury – and from the investor class, the people who can most afford it. Furthermore, we need to establish a tax on carbon – this would accomplish two important objectives: raise additional revenue and reduce carbon in the atmosphere.
On the state level we have to prevent the ALEC-sponsored, Koch brothers-backed weakening of progressive taxation, by eliminating graduated income taxes to exclusive reliance on regressive sales taxes. Several states have already fulfilled this cruel promise and a dozen or so have placed it on their legislative agendas and are well on the way. Progressive taxation needs to return to states, not be reduced.
Well, late in this writing, the news is out – the House Republicans have approved and gleefully presented their “Tax Cuts and Jobs Act” bill. We have been subjected to an avalanche of Koch-supported TV commercials touting “middle class tax cuts” and and begging us to “support tax reform” and to “bring the middle class back”. As you can easily tell from what I have presented above, this bill is simply one more Republican effort to cut taxes on the wealthy. The truth of what this ill-advised program will do to our people and our economy is coming out daily from nonpartisan organizations like ITEP (Institute for Taxation and Economic Policy), TPC (Tax Policy Center), CTJ (Citizens for Tax Justice) and others. And that truth is that this program is just another massive tax cuts for the rich and corporations program with a few crumbs tossed at the middle class.
If ever approved in something near its present form, this horrible bill will dramatically increase inequality in our country, a shameful measure in which we already lead all the developed countries in the world. Furthermore, it will explode the deficit, significantly increasing the bill to be eventually paid by our progeny. Additionally, it will not create jobs. Demand creates jobs, not tax cuts for corporations and the rich.
More importantly, this bill flies in the face of American public opinion. Results of a recent Pew Research Center poll make it crystal clear that a majority of Americans think that taxes on the wealthy are too low, not too high. Similarly, Americans feel that corporations should pay more in income taxes, not less. But, American public opinion be damned, its full speed ahead for Republican tax cuts.
The details of this plan can be found in many places. One of the better is William Gale’s very balanced description on the TPC website. Another, more concise and succinct list is that presented by Howard Gleckman, also from TPC:
- It is a tax cut, not tax reform.
- It is not the biggest income tax cut in history—not even close– despite President Trump’s repeated promises that it would be.
- For households, it will almost surely create winners and losers. Many middle-income households are likely to pay more under this plan, not less.
- It is not tax simplification. Indeed, for many taxpayers the House bill would make filing more complicated.
- At the end of 10 years, it likely would end up increasing the deficit by far more than the advertised $1.5 trillion.
- It will not lead to a 3 percent permanent economic growth.
And from ITEP’s website, “Richest Americans Benefit Most from The Tax Cuts and Jobs Act” lists and elaborates on the major provisions of the bill. The most egregious giveaways to the wealthy and corporations are without doubt the following:
- Repealing the alternative minimum tax (AMT).
- Reducing and eventually repealing the estate tax.
- Establishing a special 25 percent rate for pass-through businesses.
- Reducing corporate tax rates from 35 to 20 percent.
The Senate is now working on its own “tax cuts and jobs” bill. You can bet, since it’s being written by Republicans, that it will contain virtually all of the what the House bill contains. The American people neither need nor desire either of these bills. We need to fight this dreadful and disastrous proposed legislation in every way we can.
And when they’re defeated, we need to work to elect a Congress and a President who can create a fair tax system that yields the revenue we need to provide for the health and welfare of the American people, provide a well paying job for every person willing and able to work and repair our crumbling infrastructure.