It’s often thought that Democrats care about fairness and not
economic growth, while Republicans care about growth even at the cost of some
fairness.
Rubbish. Growth and fairness aren’t opposites. In reality,
Democrats are the party of economic growth and fairness.
Republicans are the party of neither.
The only way to grow the economy is by investing in the
education, healthcare, and infrastructure that average Americans need in order
to be more productive. Growth doesn’t “trickle down.” It rises up.
Consider the two biggest legislative initiatives over past
decade – the Affordable Care Act, achieved without a single Republican vote,
and the current Trump-Republican tax overhaul, speeding ahead without a single
Democrat.
The ACA extends coverage to 21 million mostly lower-income
Americans, including millions of children.
It’s largely paid for by two tax increases on the rich – a 3.8
percent increase on their capital gains taxes and other investment-related
income, and a 0.9 percent surcharge on their Medicare taxes. Those
tax increases are a major reason why Republicans have wanted to repeal it.
But the ACA isn’t just about fairness. Healthier Americans are
also more productive workers. Children who receive health care are better
learners. The Act thereby fuels economic growth and widens prosperity.
Republicans say their tax overhaul will promote growth by
increasing the profits of American corporations and investors. This is
trickle-down nonsense.
Every major study (including Congress’s own Congressional Budget
Office and Joint Committee on Taxation) finds that its benefits would go mainly
to big corporations and the wealthy.
Share prices may rise for a time. They’re already at record
highs in anticipation of the tax cut. But higher share prices don’t trickle
down, either. The richest 1 percent owns almost 38 percent of the
stock market. Eighty percent of Americans together own
just 8 percent of all shares of stock.
This won’t fuel growth. Corporations expand and invest only when
customers are eager to buy what they produce. And most of these customers are
middle-income and below, who spend just about all they earn. The rich spend
only a small fraction.
Profits are now at record levels but corporations aren’t
investing them. They’re using them instead to pump up share prices and
executive pay.
After the Bush tax cuts of 2001 and 2003, economic growth
stalled and then dissolved in recession. After the 2004 corporate tax holiday
for bringing foreign profits home, corporations didn’t invest or expand. The
Reagan tax cut of 1981 didn’t cause wages to rise; they flattened.
What’s the real formula for growth? Better access to education,
healthcare, and transportation, all of which make workers more
productive.
These more productive workers command higher wages. With higher
wages, they purchase more goods and services. These purchases motivate
companies to expand and invest, and create more and better jobs.
American experienced this virtuous cycle for thirty years after
World War II. We invested unprecedented sums in education, healthcare, and
infrastructure. We financed these investments through higher taxes on the rich
and on big corporations.
The economy boomed and wages shot upward. The wages of the
bottom fifth rose even faster than the wages of the top fifth. This unleashed
consumer spending, which generated more growth.
The Clinton administration tried this formula on a much smaller
scale in the 1990s, raising taxes on the top and investing in education and
infrastructure. The economy boomed, 23 million new jobs were created, and for
the first time since the late 1970s the typical American’s wage rose.
The Trump-Republican tax overhaul would take us in the opposite
direction. It raises taxes on the middle class, which would reduce their
purchasing power. The Senate version would cut the Affordable Care Act, causing
millions to lose coverage.
It also explodes the federal debt, which will stymie growth.
Debt service itself would likely require cuts in other programs such as
Medicare, Medicaid, education, and transportation.
Senator Orrin Hatch warned last week that the Children’s Health
Insurance Program may not be refunded “because we don’t have money anymore.”
The current tax proposal would also eliminate the state and
local tax deduction, which would likely cause states to cut back spending,
including education and infrastructure.
All of this would slow economic growth.
For years, Republicans have been selling tax cuts by lying that
they spur growth, which trickles down to average Americans.
For just as long, Democrats have been selling fairness, but
without explaining why a fairer economy is also more productive and prosperous.
It’s time for Democrats to make the case. It has the virtue of
being true.
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.
