It seems to me….
“Taxes are what we pay for civilized society, for modernity, and for prosperity. The wealthy pay more because they have benefitted more.” ~ Jill Lepore.
Tax reform recently approved by Congress, though long overdue, while correcting some basic problems was primarily of benefit to the already wealthy failing to correct or even acknowledge growing U.S. economic inequalities. The Gini coefficient is estimated by the U.S. Census Bureau to be about 48 (the only developed country with a more unequal income distribution is Mexico) and in a range frequently associated with possible social unrest.
Liberals and conservatives differ considerable on a wide range of issues – taxes are certainly one of them. Liberals believe higher taxes (primarily for the wealthy) and a larger government are necessary to address inequity/injustice in society. While not necessarily income redistribution, they feel that the government has a social obligation to help the poor and needy and accept that a large government is necessary to provide for the needs of the people and create equality. It is income from taxes that enable governments to create jobs and that government-sponsored programs are a caring way to provide for those in our society who are disadvantaged.
To a conservative, it is lower taxes and a smaller government with limited power that will improve the standard of living for all. They believe lower taxes create more incentive for people to work, save, invest, and engage in entrepreneurial endeavors. Money is best spent by those who earn it, not the government. That government programs are counterproductive in that they encourage people to become dependent and lazy rather than encouraging work and independence.
A basic principle of conservative ideology is that cutting taxes always results in economic improvement and higher tax revenue. That this is fallacious is obvious from the extreme example that if the tax rate is reduced to zero, tax revenue income does not become infinite. In fact, the economies of states with the highest income taxes have consistently outperformed those without any income tax at all. Over the last decade, states with the highest top tax rates saw their economies grow by 25.8 percent on a per-person basis while those states without income taxes saw growth of just 17.4 percent.
This does not imply that the concept is without any economic justification – there definitely is a theoretical possibility that if tax rates are sufficiently high that cutting them could increase revenue but it would be extremely rare for this to actually ever happen.
The entire concept apparently originated when Arthur Laffer, an economist, Jude Wanniski, a writer for the Wall Street Journal, and Dick Cheney, at the time Deputy White House Chief of Staff, met in a cocktail lounge in 1974. Laffer sketched a diagram on a napkin showing either a tax increase or decrease could theoretically result in higher tax revenue. Beyond a certain level, the number of transactions could possibly decline resulting in a corresponding decline in tax revenue. Apparently, this is the only part of the conversation remembered and the Laffer Curve has been fundamental to conservative doctrine ever since.
The Laffer curve supposedly shows that taxable income elasticity (taxable income) could change in response to changes in the rate of taxation. Increasing tax rates beyond a certain point therefore would be counter-productive for raising further tax revenue. The Laffer curve is hypothetical as the effect for any given economy can only be estimated and such estimates are controversial.
“Get ready for inflation and higher interest rates” was the title of a June 2009 op-ed article in The Wall Street Journal by Mr. Laffer. The economist Paul Krugman notes, while “what followed were the lowest inflation in two generations and the lowest interest rates in history. Mr. Kudlow and Mr. Moore both predicted 1970s-style stagflation”. Kudlow and Laffer, Dr. Krugman points out, have at least admitted that their predictions were wrong.
The obvious conclusion from these remarks by Dr. Krugman is “Across the board, the modern American right seems to have abandoned the idea that there is an objective reality out there, even if it’s not what your prejudices say should be happening,”. “What are you going to believe, right-wing doctrine or your own lying eyes? These days, the doctrine wins.” That doesn’t just hold true for economic policy, he writes; it also helps explain conservatives’ hysterical claims about healthcare reform, as well as the persistent influence of foreign policy “experts” who assured us that military intervention such as in the Iraq War would be a “smashing” success.
Tax cuts have not created real economic growth in the U.S. in 20 years under either Democratic or Republican administrations. Yes, tax cuts did result in growth during the Ronald Reagan era, but there also was a huge increase in the deficit in his second term. It is extremely unlikely that growth would again be repeated as a variety of significant factors, from demographics to productivity levels, are now considerably different.
There has been a consistent large increase in wealth inequality in recent years and it is very apparent that this widening disparity will continue as most of the money large corporations (the main beneficiaries of the recently passed Republican plan) received from any cuts will go straight into stock buybacks adding another dose of financial glucose to what is already a very saccharine market – one that is by almost any measure is totally divorced from the reality of most people’s lives (only about 52 percent of Americans own stocks).
Tax reform, especially corporate taxes, was long overdue – but NOT what recently was passed by Congress. This bill was irresponsible and ill-conceived, especially at a time of full employment. It increases the national deficit and debt and only overheats an already extremely strong economy at a time when it is critical to prepare for the next financial downturn. Being a realist rather than a Cassandra, the U.S. economy marked another quarter – almost 90 successive – in one of the longest economic expansions in our nation’s history. While remarkable, this recovery is built on a foundation established under the Obama administration (and at least so far not ruined under Trump) has lasted longer than normal and will likely soon end. Anyone with any knowledge of economics knows the time to paydown debt is when the economy is strong so as to be able to pay back into the economy during the next inevitable downturn.
Policymakers normally respond to recessions by cutting interest rates, reducing taxes, and boosting transfers to the unemployed and other casualties of the downturn. But the U.S. is singularly ill-prepared, for a combination of economic and political reasons, to respond as typically necessary. The tax reduction does not allow for a stimulus when it might be needed. Adding $1.5 trillion more to the federal debt will create an understandable reluctance to respond to a downturn with further tax cuts.
The kind of international cooperation that helped to halt the 2008-2009 contraction has been destroyed by Trump’s “America First” agenda, which paints one-time allies as enemies. Other countries will work with the U.S. government to counter the next recession only if they trust its judgment and intentions and trust in the U.S. may be the quantity in shortest supply.
Additionally, what is needed far more at this time is infrastructure improvement, educational support, and increased research investment: all expensive and totally ignored in this bill. It is all too apparent that Congress once again totally ignored basic economic theory and acted solely upon party ideology.
That’s what I think, what about you?
 Jill Lepore is an American historian.
 Brinkler, Luke. “Be very, very afraid”: Paul Krugman on the GOP’s scary economic “experts”, Salon, http://www.salon.com/2015/02/20/be_very_very_afraid_paul_krugman_on_the_gops_scary_economic_experts/, 20 February 2015.