Tax reform to benefit the economy ~ not tax cuts for the rich

"Jacking up the deficit over $1 trillion during strong economic conditions to pay for corporate tax cuts is bad public policy, plain and simple," Senator Angus King.

A letter received, sent to me from Senator Angus King of Maine:

Senator Angus King with his wife Mary Herman and Vice President Joe Biden

January 12, 2018

Dear Juliana,

I am, and have been since coming to the Senate, a proponent of comprehensive tax reform that both reduces tax rates for those who need it most and simplifies our complicated tax code for individuals and businesses.  The question isn't should we do tax reform, but how.  Unfortunately, the bill that passed the Senate at 2 AM on Saturday December 2, 2017, could not credibly be called tax reform legislation, and while somewhat improved the final bill that was signed by the President in late December was not a great deal better. I could not in good conscience vote for a bill that prioritizes those who least need a tax break and adds over $1 trillion to our budget deficit. With this in mind, I opposed the Tax Cuts and Jobs Act. 

Unfortunately, the more I learned about the draft of the tax bills and the final legislation, the more I worried about its long-term impacts on the economy and the country.  My greatest concern was not with the politics or process, but was based upon the long-term economic implications of the substantial cut in revenues that this bill entails- which will only hasten the inevitable day of reckoning on our ballooning debt.  We are now running a half-trillion dollar deficit each year (which is projected to grow substantially in the next decade) and this bill will add at lease $1 trillion to the ten year total (and, most likely, much more once the "temporary" cuts are extended).  Alarmingly, this deficit spending is being done in relatively good times, using up whatever cushion we might need for future economic downturns.

And, I believe this day of reckoning is not far off.  It could be triggered by rising interest rates, for example, which are now at historically low levels.  If rates on federal borrowing return to 5 or 6 percent, we're in real trouble. 5.5 percent on $20 trillion is $1.1 trillion a year, just in interest, which happens to be equal to the entire current discretionary budget (including defense).  It could also be triggered by a financial crisis or climatic disaster that necessitates increased deficit spending- and makes us regret running deficits in good times.  Under all scenarios, the pressure on everything from Pell Grants to R&D (research and development), national defense, Medicare, infrastructure, and everything else will be enormous - and our ability to govern will be in some doubt.  This may work just fine for Grover Norquist, but it's not good for the country.

Deficit spending, in short, should be conditional on the state of the economy and on the policy in question.  Jacking up the deficit over $1 trillion during strong economic conditions to pay for corporate tax cuts is bad public policy, plain and simple.

The truth is that this is not a tax cut bill at all, since we are borrowing to fill the hole created by the cuts, we are actually just shifting the taxes we don't want to pay over to our kids, and they get to repay them, with interest.  The most polite term for this is unethical, it's actually worse, to my mind.  A revenue-neutral re-balancing of the tax could we be defensible; deficit-financed cuts are not.

Beyond an overarching concern about deficits, however, I believe that just the process on this bill is reason enough to vote against it, regardless of its contents. Every time we do something like this, our institutions are further degraded which makes it easier to do something even worse the next time, although I don't know how it could get worse than what has happened in the last several months.  This would not be such a problem if we were talking about re authorization of the FAA (Federal Aviation Administration) or naming a post office. But, this is likely to be a once-in-a-generation event which will have enormous ramifications for decades.

It just seems to me that these high stakes require an equally high level of care in understanding the details and huge implications of what we are doing. Ironically, the path that the tax bill took was quite the opposite- the highest possible stakes and the worst possible process - no hearings, no real debate, no expert input, no detailed understanding of complex concepts and provisions.  

I suspect that no municipality in Maine would amend even a leash law using a process like this.

What bothers me is that it didn't have to be this way.  I know that a substantial number of Democrats were prepared to engage in a good-faith process involving serious debate and compromise, including cutting corporate rates.  I'm pretty certain that we could have gotten to 70 votes and probably more, for a more targeted (and less costly) alternative.  The last major tax reform in 1986, was entirely bipartisan, involved something like 33 Finance Committee hearings over 14 months and passed the Senate 90-10. Why couldn't we have tried a bipartisan process first, rather than beginning with a ram-it-down, majority-only approach?

As to the bill itself, as far as I can tell, it seems to have no coherent strategy or internal logic.  If the goal is economic growth, why did the bill double the estate tax exception - which only benefits the wealthiest estates in the United States? Why did it lower the top individual income tax rate for the highest earners? What will be the actual results of the pass-through changes - a boon to small businesses or an annuity for tax lawyers as everyone becomes an LLC - or will LLC's rush to restructure as C corps to qualify for the reduced corporate tax rate? Why are the individual cuts temporary and the corporate cuts permanent especially odd when you consider that two thirds of our economy is driven by consumer spending)? Why is the outrageous carried interest loophole - which the President campaigned against - left intact if the Majority was serious about looking for ways to pay for the cuts?

Why aren't there guardrails to insure that the extra free cast flow enjoyed by corporations actually to to investment and higher wages, rather than stock buy-backs and executive bonuses.

And what in the world is the repeal of the individual healthcare mandate doing in the bill at all?

I know that compromises and some questionable provisions are inevitable parts of anything this big and complex, but in this case, the whole is considerably less than the sum of the parts.

Again, this is a huge deal with far-reaching ramifications. It just fell downright irresponsible to rush it through with no hearings, no comprehensive outside analysis, and limited understanding of how the various pieces may (or may not) fit together.

Many of these concerns could be ameliorated by greater economic growth, which, after all, is the underlying rationale for the bill. The problem is that I have seen no historical evidence for the proposition that tax cuts stimulate such growth or otherwise "pay for themselves".  Didn't happen after the Bush tax cuts and it doesn't appear to have worked in Kansas or any other place I can find. Instead, the real world results have inevitably been greater deficits and ultimately tax increases or destructive spending cuts to dig out of the hole. 

One of our state's papers carried a very thoughtful economic analysis on this recently:

‘Voodoo economics’ makes a comeback in Republican tax plan

In short, the more I learned about the bill and its implications, the more I realized that there was an unusually significant moment and that opposing the bill was the right decision. Had there been a viable third option, like compromise, I would have aggressively pursued it - but we were presented with a binary decision and bad tax bill or no tax bill. This bill just has too many flaws - and I think we can do better. 

Best Regards,

ANGUS S. KING, JR.

United States Senator

Members of my staff regularly hold outreach events around Maine. Their schedule can be found on my website.