Bad Policy, Plutocratic Politics

GOP Tax Plan Won’t Help the Economy, But Enriches Their Donors and Punishes Democrats

Republicans pushing the current tax bill promise gifts for all this holiday season. But if you’re not wealthy or a big corporation, it may feel more like Halloween.

Both parties agree that stronger economic growth is needed to raise incomes for the many Americans whose wages have been stagnant since the financial collapse in 2008. They also give lip service to fairness and profess concern about the nation’s national debt.

Nearly every independent analysis of the proposals in the House and Senate conclude they would provide more tax relief to the wealthy and large corporations than to middle and low income Americans. They follow the classic Republican playbook that tax cuts will trickle down into growth and benefits for everyone, and reduce the debt over the long term. Recent history belies that claim.

· The Reagan corporate and individual tax cuts in 1981 increased the federal debt from $1 trillion in 1981 to nearly $3 trillion in 1989.

· The Bush tax cuts in 2001 did not improve economic growth, increased deficits by $1.35 trillion and contributed to a rise in income inequality. The economic collapse also occurred on his watch.

· In 2012, Kansas Governor Sam Brownback rammed through huge income tax cuts and eliminated taxes on pass-through businesses, a feature of the current bills in Congress. Faced with no growth and huge budget shortfalls, the Republican legislature later repealed many of the tax reductions.

The Republican plans this year not only cut income taxes, but give larger and more permanent benefits to businesses, including a lower rate on income kept overseas. They predict large corporations will invest their savings in jobs and equipment in the U.S.

Again, recent history contradicts that assertion. When multinational corporations were allowed to bring funds back to this country at low tax rates in 2004, the money was used to increase dividends and buy back stock to increase its per-share value. Few new jobs were created.

A bit of anecdotal evidence suggests the same phenomenon would happen again. In National Economic Council Director Gary Cohn’s presence, a room full of CEO’s was asked to raise their hands if they planned to invest their foreign tax savings in U.S. economic activity. Only a few did.

It’s also ironic that these huge reductions in tax liability for multinational corporations and wealthy individuals are being proposed at the same time as recent revelations of offshore tax shelter documents indicate that many of these same beneficiaries are avoiding taxes altogether through complex financial maneuvers on Caribbean islands. The current tax bills make no effort to close those loopholes.

The evidence shows little relationship between these tax proposals and economic growth. Nor do they promote fairness.

· The U.S. wealth gap is staggering: the top one-tenth one percent have as much wealth as the bottom 90 percent.

· By 2027, most Americans who earn less than $75,000 will get a tax increase, while everyone above $100,000 will see a tax cut under the Republican bills. Even worse, the tax cuts for individuals are temporary, while the corporate reductions are permanent.

· Other special provisions that benefit the very wealthy include elimination of the estate tax and the alternative minimum tax, as well as lower rates for hedge funds and private equity firms.

The plan by its own admission would also increase the deficit. While the official estimate for the deficit is $1.5 trillion, the Joint Committee on Taxation projects a $14 trillion increase in the national debt between now and 2027 if the plan is enacted, thanks to interest paid on current and future debt. And those numbers will go higher if the temporary tax cuts for individuals are not extended.

Since the tax bills lack fairness, balloon the deficit, and will not spur economic growth, what will they do to our society and strength as a nation? How are our national priorities and values reflected in these plans?

Essentially, the legislation favors corporate capital over human capital, a curious choice when corporate profits are high and many Americans lack the skills they need to succeed in today’s job market. Even worse, it weakens investment in government services that benefit all people, such as health care, education and climate protection.

· By repealing the Obamacare rule requiring everyone to have coverage, premiums will skyrocket and no insurers will stay in the market. That’s exactly what happened in Washington state in the 1990’s. The deficits will also drive huge cuts to Medicare and Medicaid to reduce the flow of red ink, according to the Congressional Budget Office.

· Small tax deductions that help students afford college and enable teachers to buy supplies for their kids are repealed.

· The $15 billion tax break for oil and gas is retained while credits for renewable energy production and electric vehicles are ended.

Most Americans understand these trade-offs and don’t like them. An average of recent independent polls shows less than a third of the country supports the plan while more than half are against it. That’s why these bills are being rushed through the legislative process without the customary hearings, amendments, and independent scrutiny.

So why would Republicans pursue tax proposals voters don’t want and that recent history indicates won’t grow the economy, isn’t fair to lower and middle income people, and will balloon the deficit?

The answer is clear. It’s to satisfy donors and punish people who don’t vote for them.

Helpfully, several proponents of the legislation have admitted this in public.

Rep. Chris Collins (R-NY) said, “My donors are basically saying get it done or don’t ever call me again.”

Sen. Lindsey Graham (R-SC) told reporters that if the bill fails, “the financial contributions will stop.”

Top White House economic advisor Gary Cohn said, “The most excited group out there are big CEO’s.”

Reinforcing this reality, groups funded by the Koch Brothers and other large corporate interests announced they are spending more than $40 million to support the bills.

The legislation also surgically targets blue states and constituencies, particularly California. It eliminates the state and local tax deduction, renewable energy and electric vehicle credits, and deductions for grad students. It even permits write-offs for southern state disasters like hurricanes and floods while eliminating deductions for fires and earthquakes.

Given the stakes, the outcome of this bill represents a defining moment for our country.

Will vast national resources be showered on the rich and powerful at the expense of the poor and middle class, further entrenching a wealth gap that is already among the worst in the developed world? Or will investments be made in infrastructure, environmental protection and healthcare security while giving workers the skills they need to succeed?

The tax plan is a trick on average Americans and a treat for those at the top. In this holiday season, a handful of principled Republicans can bring comfort and joy to the country by voting to reject this disastrous legislation.