As the rest of us are recovering from the outrageous Senate healthcare bill released this week, Trump and the Republican Party are having closed door meetings to shape their “reforms” to the Federal tax system. Get ready for a resurgence of rhetoric about how enriching the rich will generate a surge in economic activity that will raise all boats. There will be lots of talk about “pro-growth tax reforms”. This is the return of 1980s trickle-down economics. The basic notion is that if you put more money in the pockets of the rich and corporations they will invest in creating new businesses and jobs. Thus the money trickles down to the bottom. Trump and his Republican Party allies have already claimed that this will increase the growth rate of the economy from its recent typical of 1.5% to 2% annual growth to over 3%. The difference of this one percent has enormous implications. At 2% growth the economy doubles in 36 years. At 3% growth it doubles in only 24 years.
Trickle-Down – The Reality
BUT, no economist, banker, or corporate chieftain not on the payroll of Trump and the Republicans believes this will happen. Leaving aside all sorts of analysis about demographics (aging population), technology, and global competition, history and current events provides a fairly comprehensive rebuke to these trickle down cover stories for the Republican give backs to the rich and corporations. Trickle-down economics was invented in the early 1980’s to explain the wisdom of Ronald Reagan’s tax “reforms”. Much space was taken up with displays of Prof. Arthur Laffer’s demand curves that were passed off as proof from the academy that enriching the rich and corporations would unleash a new wave of economic activity. Nothing like that happened in the 1980s. Nothing like that happened in the first decade of this century after Bush II’s big tax cuts. And most recently in Kansas, the Republican dominated State legislature had to override the governor’s veto of tax increases after a 5 year experiment there with trickle-down drove the state nearly to bankruptcy.
Nevertheless, get ready for another round of bull shit Republican propaganda about “pro-growth tax policies”, unleashing the over-regulated, over-taxed job creators, and a great surge in economic growth. The forces of free-market capitalism just need to be freed from the shackles of government. You will here all of this and more. The media will continue to do its job of repeating all of this. You need to be clear that the vicious Republican Party is at work for their masters among the rich and corporations. There job is making sure that the 40 year stagnation in incomes for the 80% will not change course and the flood of wealth will continue to those at the top.
The political rhetoric of the current moment, chiefly flowing from Republicans, but barely challenged by the Democrats, describes tales of profligate over-spending by the Federal government matched with burdensome taxation. While it is true that Federal spending is higher proportionately than post-WWII norms, social programs are not the source of this over spending. One only has to look back to George Bush’s two terms to see the true sources of the debt.
War, Wars, More Wars
First up are our profligate wars. A recent study at Brown University’s Watson Institute for International Studies finds that since 2001 we have spent between $2.3 and $2.7 trillion on our adventures in Iraq and Afghanistan.All of these dollars are deficit dollars. George Bush did not ask for increased taxes to fund his wars. Barack Obama has not asked for increased taxes to fund his continuation of the Bush wars and now his new war in Libya. The final bills for these wars will reach $3.7 to $4.4 trillion. We are fighting these wars on the backs of our grandchildren and, as is becoming obvious from the disgusting collusion between Obama and the Republicans, on the backs of the poor and the rapidly disappearing middle class. You might think that since these wars are in our national security interests (the rhetoric of all recent Presidents) they would feel it right to ask the American people to sacrifice more than just our mercenary military but also take money out of their pockets. It has been too easy to have the Chinese pay the bill.
Pills, Pills, Drug Companies and the Health Industry
President Bush, aided by the drug industry and health insurance industry, pushed through a new Part D Drug Benefit for Medicare. This was unfunded by new tax revenues. The estimate for 2009 to 2018 is an additional $727 billion
Tax Breaks Everywhere – The Gully Swamper of Them All
Part of the religion of the right is that cutting taxes will increase economic activity and in the end generate higher tax revenues. History has proven this theory to be nonsense. George Bush, aided by members of Congress, both Republican and Democrat, passed enormous tax decreases. These bills with their charming titles, Economic Growth and Tax Relief Reconciliation Act of 2001 and Jobs and Growth Tax Relief Reconciliation Act of 2003, created an enormous windfall for the rich and have not produced any job growth. In fact George Bush’s presidency is marked with the lowest job growth record of any president back to Herbert Hoover. As is demonstrated by the graphic from the Center for Budget and Policy Priorities the tax cuts of the Bush years are the largets single source of debt.
Under Tax – But Are We Over Spending?
With all of the Bush tax cuts (and the extensions by Obama and the Democrats) Federal tax revenues are now 14.9% of GDP. This is roughly 16% lower than the share typical during the post WWII era while Federal expenditures are 24% of GDP. The chart from the National Priorities Project “Federal Outlays and Revenues, 1930-2015” shows the historical trends of revenues versus spending. Note that the projected increases in revenue for 2011 to 2014 are the result of the projected lapsing of the Bush tax cuts. As demonstrated by Obama and the Democrats at the end of 2010, it is hardly a forgone conclusion that this enormous giveaway will not be continued.
The chart clearly shows that overall Federal spending is higher than the post WWII norm. Despite the political rhetoric of the moment, it is hardly shockingly high. This is especially true if you take into account the war spending and outlays for economic recovery during what is now obviously the most serious economic slump since the Great Depression.