Failed to "trickle down"- support the American Families Plan

Echo opinion published in The State Journal-Register, newspaper in Springfield, Illinois, by Ralph Martire.

President Joe Biden recently addressed a joint session of Congress to advocate for his proposed “American Families Plan.” During that speech, he made a case for America to move on from its misguided embrace of “trickle-down” economics. 

There are two compelling reasons why Biden was right to suggest scrapping trickle-down once and for all. 

First, it’s never actually delivered the economic benefits it promised. Second, it has materially contributed to the antipathy which many hold for American government today.

The basic premise of trickle-down is easy to understand: cutting taxes on corporations and the wealthiest members of society always stimulates faster private sector economic growth, because it augments disposable income where incomes are greatest, thereby freeing up significant private earnings for enhanced spending and investment. This will ultimately trickle down to benefit low- and middle-income earners, as wealthy individuals and corporations use their tax savings to invest in business expansion and job creation. Adherents further contend that, because so many will gain new and better paying jobs from the trickle-down effect, the tax cuts will pay for themselves.

Interesting theory — but the evidence conclusively shows it’s never worked in practice. In fact, according to a recent study of 18 OECD nations — including the U.S. — that implemented trickle-down tax cuts over the last 50 years, the London School of Economics found cutting taxes for the wealthy has a stimulative impact on the economy that’s “statistically indistinguishable from zero.”

What the data show these tax cuts do accomplish, however, is worsen the alarming growth in income inequality that’s characterized the U.S. economy ever since trickle-down was first implemented in 1981. For context, from the end of World War II through 1980, every class of worker saw their incomes increase in real terms. From 1981 on, however, the bottom 90 percent saw their real incomes decline, as more than all the growth in income went to the wealthiest 10 percent. The International Monetary Fund highlighted this development in a study which emphasized that, while the benefits of these tax cuts don’t trickle down, they do help the rich get richer.

But wait, there’s more. Because the tax breaks given to wealthy individuals and corporations do not in fact trickle down, the job creation and economic growth that are supposed to generate the new revenue to pay for these tax cuts never materialize. Meaning these tax cuts create huge deficits.

Which as it turns out was the real goal of trickle-down advocates all along. For proof, look no further than Grover Norquist*, one of the long-time champions of trickle-down. Sure, he pays homage to the company line that trickle-down tax cuts stimulate economic growth — despite all the independent research proving it doesn’t. Far more telling, however, is his contention that such tax cuts would “starve the beast” so powerfully, they’d reduce government down to the size where he could “drown it in a bath tub.”

Of course, deficits diminish the capacity of the public sector to fund services and infrastructure needs to the levels necessary to satisfy demographically driven demand. So communities across the country end up with underfunded schools and lousy roads, while middle-income families without health insurance remain one major illness away from bankruptcy. And underfunding these services makes for poor economic policy, given the data show that, in addition to meeting community needs, spending on core public services and infrastructure does have a statistically meaningful stimulative impact on private sector growth.

To top it off, deficits created by these tax cuts constrain government resources to the point where public service outcomes are less than desirable. This leads to the most pernicious consequence of trickle-down tax cuts: how effectively they shake the public’s confidence in and support of government. That’s because, when the public sector produces inadequate outcomes in services like education, folks don’t take the time to scrutinize why, they just get disillusioned with government in general. 

Which means Biden is right: to ensure a better tomorrow for America, trickle-down should be scrapped today.

Ralph Martire is Executive Director of the Center for Tax and Budget Accountability, a bipartisan fiscal policy think tank, and the Arthur Rubloff Professor of Public Policy at Roosevelt University. rmartire@ctbaonline.org.

*The primary promoter of the (IMO- evil!) Taxpayer Protection Pledge, a pledge signed by lawmakers who agree to oppose increases in marginal income tax rates for individuals and businesses, as well as net reductions or eliminations of deductions and credits without a matching reduced tax rate. Prior to the November 2012, election, the pledge was signed by 95% of all Republican members of Congress and all but one of the candidates running for the 2012, Republican presidential nomination.

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.  

Republican Tax Lemmings

Asking the US Congress for the very reasonable decision to slightly raise taxes on the rich seems like a "no brainer". Unfortunately, Republican lawmakers seem like they are entrenched in a crowd mentality about blocking this effort, even after the November 6th election, where President Obama was re-elected because he appealed to America's middle class.

"Nothing is as certain as death and taxes" said American Patriot Benjamin Franklin. http://www.phrases.org.uk/meanings/death-and-taxes.html

American author Margaret Mitchell added to the mix, writing in "Gone With the Wind",  "Death, taxes and childbirth! There's never any convenient time for any of them."

Although America's super rich Republicans were somehow able to afford large campaign contributions to defeat President Obama, many are, apparently, reluctant to pay just a little more in taxes to help reduce the nation's deficit over time.  

Post election reality is still settling in among many Republicans.  Overheard yesterday at a discussion in Portland, Maine, one strident Republican said, "Well, if the people want to vote in a Greece economy, then let them."  This gentleman was hard wired against considering his response as being part of the national debt problem.  Hello?  If the wealthy don't pay more taxes, then the middle class becomes poorer, because they'll be forced to pick up the burden   It's arithmetic. 

US Congressional Republicans are like post election lemmings heading off a fiscal cliff. They seem more willing to make a suicidal plunge into the ocean of entrenchment than to admit they have the capacity to help solve the nation's deficit. 

Hopefully, President Obama's election victory will startle some of these right wing Grover Norquist anti tax groupies into reality.  House Speaker John Boehner is an example of a man who has not yet accepted the fact that his own state of Ohio voted to re-elect President Barack Obama to a second term.  

Perhaps Speaker Beohner needs a civics lesson.  In two more years, he will run for re-election.   

My advise to Speaker Boehner is, the same strategy that worked to re-elect President Obama can, likewise, replace you in Congress.

It's high time Republicans behave like tax and deficit reducing realists by turning their lemming attitudes toward solutions.

Internet Love Messages and Grover Norquist

On this Thanksgiving weekend Saturday morning, like so many others, my husband and I enjoy tuning our radio to Scott Simon's news program on Weekend Edition (National Public Radio). 

Perhaps listening to the radio seems old fashioned these days, but Simon is a modern news man with old fashioned experience. In other words, Simon reports the real news (not entertainment), accompanied by balanced commentary. 

Frankly, I apologize for linking Simon's august program with the name of a sleazy lobbyist like Grover Norquist. But, this morning's show included commentary from former Senator Alan K. Simpson (R-Wyoming), who segued this blog for me. Thank you, Senator, for revealing, with appropriate disdain, the evil impact Norquist has in his campaign to dismantle modern American politics. Norquist uses procrustean (i.e. coercive) tactics, by spending inherited money,  for the nefarious political purpose of dismantling government.  In fact, Norquist wants to reduce government to a small enough size to fit inside a bathtub.  For many, who abhor this intent, the unsaid action following the bath tub analogy is obvious, allowing government to "circle the drain". In so doing, his intention is to eventually eliminate spending on government sponsored programs like Medicare, Social Security, Medicaid, Pell Grants for poor students and foreign aid. In other words, cut government programs for the poor where ever in the world they happen to be.

Who is Grover Norquist?  He's an American lobbyist born on October 19, 1956, and a radical conservative activist. By conservative, I mean, his idea of government flies in the face of Christian principles, which call us to care for the least of our people.

Norquist is the beneficiary of the Polaroid company money, which he inherited; but, he's best known for having all Republican Senators and Congress sign a "no tax" pledge (meanwhile, they've also taken a pledge to uphold the US Constitution.)

In a Norquist world, if our publicly paid elected officials refuse to sign his no tax pledge, his political action committee launches a campaign to defeat them in their primary elections. A threat?  Is this coercion really "ransom".  Isn't ransom illegal? 

Which brings me to the point of this blog. 

During this Thanksgiving weekend, I've been party with millions of Americans to receive a litany of messages about how grateful we are for our Constitutional freedoms.  Of course, this freedom includes Norquist's quest to do whatever he wants with his inherited money - which he didn't earn. 

Some people who generate these Thanksgiving love messages are professed Christians. Nonetheless, I dare say, some might jump in line to follow Norquist, especially if he provided them with enough of his money to parrot the "put government in a bath tub" mantra.

If we really believe these colorfully flowered "gone viral" messages, illustrated with American flags and fall foliage, then it's time to step back and think about the essence of their meaning. 

By appreciating our freedoms, we also want every citizen to enjoy opportunities to live in a country where government is compassionate. I want my American governmental freedoms to include providing opportunities to all citizens.

Compassion is more than prettily packaged Internet messages.  Isn't it time for "nation building" at home, as well as for other countries? Let's provide health care, good roads and retirement security to all our citizens.

Norquist is looking for a special bath tub to flush out Americans who live on the edge of financial disaster, who work three jobs to make ends meet, as Scott Simon reported on this morning.  It's not because these hard working people are paying too much in taxes - some hardly earn enough money to pay much in taxes at all. They struggle because they're poor.

In a Norquist world, Darwinian survival of the fittest is the rule, providing security for those too financially fat, like he is, to slip down the drain.

Keeping with the Thanksgiving spirit, I will extend this Internet love message to Grover Norquist.  

Dear Mr. Norquist "....what ever you do for the the least of my brothers (and sister), so you do unto me...." 

Mr. Norquist, many Christians may not know the intention of your bath tub message. In my Internet world, the Thanksgiving message is simple  "...he who oppresses the poor shows contempt for their Maker..."