When Barack Obama was president, congressional
Republicans were deficit hawks. They opposed almost everything Obama wanted to
do by arguing it would increase the federal budget deficit.
But now that Republicans are
planning giant tax cuts for corporations and the wealthy, they’ve stopped worrying
about deficits.
Senate Republicans have agreed to
cut taxes by $1.5 trillion over the next decade, which means giant budget
deficits.
Unless Republicans want to cut
Social Security, Medicare, and defense, that is. Even if Republicans
eliminated everything else in the federal budget – from education
to Meals on Wheels – they wouldn’t have nearly enough to pay for tax cuts of
the magnitude Republicans are now touting.
But Republicans won’t cut Social
Security or Medicare because the programs are overwhelmingly popular. And
rather than cut defense, Senate Republicans want to increase defense spending
by a whopping $80 billion (enough to fund free public higher
education that Bernie Sanders proposed
in last year’s Democratic primary, which deficit hawks in both parties mocked
as being ridiculously expensive).
There’s also the cleanup from
Hurricanes Harvey and Irma, estimated to be least $190 billion. And Trump’s “wall” – which the Department of Homeland
Security estimates will cost about $22 billion.
Oh, and don’t forget infrastructure.
It’s just about the only major spending bill that could be passed by bipartisan
majorities in both houses.
Given the state of the nation’s
highways, byways, public transit, water treatment facilities, and sewers, it’s
desperately needed. Trump campaigned on spending $1 trillion on it.
So how do Republicans propose to pay
for any of this, and a big tax cut for corporations and the
wealthy – without exploding the federal deficit?
Easy. Just pretend the tax cuts will
cause the economy to grow so fast – 3 percent a year on average – that they’ll pay for themselves,
and the benefits will trickle down to everyone else.
If you believe this, I have several past Republican budgets to sell you, extending all the way back to Ronald Reagan’s magic asterisks.
The Congressional Budget Office and
the Joint Committee on Taxation don’t believe it. They realistically assume
that the economy won’t grow over 2 percent a year on average over the next decade.
The Federal Reserve estimates the
fastest sustainable rate of economic growth will be 1.8 percent, given how slowly America’s working-age population is
growing as well as the slow rate of productivity gains.
But Trump has already made a fetish
out of discrediting anyone that comes up with facts he doesn’t like, and other
Republicans seem ready to join him.
Senator Bob Corker, a Tennessee
Republican who sits on the budget committee, says he doesn’t want to rely on
estimates coming from economists at the CBO and the Joint Tax Committee.
He’d rather rely on supply-side
economists outside government. “I do think it is time for us to have a real
debate and to have real economists weighing in and we should take other things
into account other than Joint Tax and C.B.O,” Corker said last week.
Unfortunately for the Republican tax
cutters who used to be deficit hawks, we already have real-world historical
evidence of what happens after massive tax cuts. Ronald Reagan and George W.
Bush both cut taxes on the wealthy and ended up with huge budget deficits.
Besides, there’s no reason to cut
taxes on big corporations and the wealthy. If anything, their taxes should be
raised.
Trump says we’re “the highest taxed
nation in the world.” Rubbish. The most meaningful measure is taxes paid as a
percentage of GDP. On this score, the United States has the 4th lowest taxes of any major
economy. (Only South Korea, Chile, and
Mexico ranking lower.)
American corporations aren’t
overtaxed. After taking deductions and tax credits, the typical U.S.
corporation today pays an effective tax rate of 24 percent. That’s only a tad higher than the average of 21 percent among advanced
nations.
The rich aren’t overtaxed. The wealthiest 1 percent in the
U.S. pay the lowest taxes as a percent of their income and total wealth of the
top 1 percent in any major country – and far lower than they paid in the U.S. during the
first three decades after World War II, when the American economy grew faster
than it’s been growing since the Reagan tax cuts.
But we do have a deficit in public
investment – especially in education and infrastructure. And we do have a
national debt that topped $20 trillion this year and is expected to grow by an
additional $10 trillion over the next decade.
What’s the answer? Raise taxes on
big corporations and the wealthy. That’s what rational politicians would do if
they weren’t in the pockets of big corporations and the wealthy.
ROBERT
B. REICH is Chancellor's Professor of Public Policy at the University of
California at Berkeley and Senior Fellow at the Blum Center for Developing
Economies. He served as Secretary of Labor in the Clinton administration, for
which Time Magazine named him one of the ten most effective cabinet secretaries
of the twentieth century. He has written fourteen books, including the best
sellers "Aftershock", "The Work of Nations," and
"Beyond Outrage," and, his most recent, "Saving
Capitalism." He is also a founding editor of the American Prospect
magazine, chairman of Common Cause, a member of the American Academy of Arts
and Sciences, and co-creator of the award-winning documentary, INEQUALITY FOR
ALL.
