Let’s Talk About Tax Policy and I Promise It Won’t Be That Painful
The Affordable Care Act remains the law of the land…until the inept GOP fail to pass tax reform and decide to revive the zombie legislation for the seventh? eighth? Ah who cares.
Tax law is real fucking boring but it’s also really important. I’m going to do my best to do a topline layman’s terms explanation of what the coming tax debate is going to look like. As with a lot of things, there’s a ton of disinformation and just in general it’s a wonky thing that nobody fully understands. But this is going to be the next debate/fight/all-out war in the legislature, so we need to discuss it.
Taxes are, at a fundamental level, redistributive. Whether you like them or not, that’s just what they do. The people who make more money pay more taxes and the people who don’t pay less in tax. Democrats tend to believe in a robust progressive tax policy. The GOP tends to believe is a progressive tax policy, but a far less aggressive one. Some of the crazier elements of the GOP — WHATUP KANSAS — have eliminated taxes at the state level full-stop (spoiler alert: it didn’t work).
The history of income tax is long and complicated. For a long time we didn’t have income taxes. Then we did and they were super high. Now they’re lower. That stuff is on Wikipedia.
Taxes are important because it’s how the US government raises money to pay for things. This should be exceedingly obvious, but I’m not sure that it is. Roads, bridges, social security, national defense…all taxes! When things are going well, we aim for a balanced budget or even a budget surplus (haven’t had that since Bill Clinton). When they’re going less well, we accrue debt by lowering taxes without spending cuts (the last 20 years wahoo!). Tax policy directly impacts our national debt.
There have been two rounds of sweeping tax cuts in the last 40ish years. The first was Ronald Reagan, who axe murdered the rate for high earners. The second was George W Bush, who, in 2003, used our old friend budget reconciliation to pass sweeping tax cuts that had to expire after 10 years. 10 years later, the GOP forced Obama to sunset the tax cuts, making them permanent. Why liberals don’t talk more about these tax cuts is frankly beyond me. By some estimates, they added as much as five trillion dollars to our national debt. Now it’s worth pointing out that a lot of people believe there’s nothing wrong with deficit-financing a country or running up a high national debt. I believe that’s true up to a point. But W was a big-spending Republican (No Child Left Behind, Afghanistan, Iraq, Medicare Part D) and he cut taxes while he was doing it. These tax cuts should have been repealed in 2013 when they were supposed to expire. They also shouldn’t have been passed in the first place.
Now the GOP is gearing up for another swing at the tax code because if you read Atlas Shrugged, it’s all about how the evil government taxation is bad for geniuses…or something. The rules that the GOP is writing themselves will allow them to cut 1.5 trillion dollars in revenue. Some estimates believe long-term they’ll cut 5 trillion dollars. That’s on top of the 5 trillion that W added to the debt and our current 20 trillion dollar debt. So please ignore Republicans who claim to be fiscally responsible, because it’s mostly bullshit.
The way the GOP usually passes these tax cuts is to take advantage of a recession. This was the case in 1981, 1986, and 2003. Unemployment goes up and they promise the fabled unicorn that is “job creators” returning to the economy in droves, showering the peasantry with jobs and free money, hallelujah. Again, it’s been a while since I read the fine print of Atlas Shrugged. The problem for Trump and the modern GOP is that the economy is doing relatively well. GDP growth is fine if not ideal (between 2 and 3 percent). Unemployment is actually below 5%, which is full employment in economic terms. The job creator myth doesn’t work when we don’t need jobs to be created. Sure, the gig economy is bullshit, but cutting taxes isn’t going to fix that.
As far as GDP growth, hoo boy. I’ll spare you the even drier economic shit, but basically in a post-developed economy like ours, GDP growth should be 2–4% annual. The magic math that the GOP uses to justify cutting trillions of dollars in revenue is that it’ll drive growth. The plan unveiled today counts on the potential of 6% GDP growth, which is ludicrous for an economy like ours. That’s what China is getting as a developing nation with a billion people entering the middle class.
I mentioned Kansas briefly, but I want to dive in more specifically. Kansas elected a wholly-owned Koch Bros patron, Sam Brownback. Brownback promised the glories of deregulation and a business friendly environment. He cut state business taxes to zero percent. The Koch Brothers, headquartered in Kansas, got their money’s worth on that investment. Then their unemployment rate went up, their GDP growth went down to an anemic .3%, and their budget deficit ballooned out of control. Around the time Kansas was shutting down public schools because they couldn’t pay for anything, people decided maybe the money was not in fact trickling down. So a wave of moderate GOP legislators led one of the most aggressive tax hikes in history. Brownback, clinging to his failed ideology, vetoed it. They overrode the veto. Now they want to take that plan (or a variation of it) national. Cut taxes, increase corporate profits, promise jobs that can’t be created, balloon the deficit, and wait for the manna from Capitalist Heaven.
Why Democrats have forfeited the high ground on the deficit/debt is beyond me. The GOP were the ones responsible for ballooning it out of control. Sure, Obama added a couple trillion but he was busy saving the global economy. Now we need to wrangle the debt under control and we won’t do it by cutting more fucking taxes. I think our position should be that we repeal the Bush 03 tax cuts in their entirety. I’m not a Bernie Sanders guy out to raise top tax rates to 50%. Let’s just undo the damage done by W. And I wouldn’t tie it to new spending. Keep the current spending levels the same, repeal the taxes, and get us to a budget surplus so we can start paying back some of our outrageous national debt.
Don’t get me wrong: I’m all for middle class tax cuts. We had two decades of wage stagnation and in the absence of making more money, keeping more of the money you make is a solid alternative. The middle class has been hollowed out starting with Reaganomics in 1981 (seriously, look at a graph of income inequality). We should put that genie back in the bottle as soon as possible. Reaganomics didn’t work for Reagan, they didn’t work for Bush, and they’re just a dumb idea. California is a highly-taxed state but we also have robust GDP growth (looking, again, right at you Kansas). Increasing taxes on top earners gives us more liquidity to do things like repair infrastructure. And you know who gets those jobs paving roads and building buildings? American workers.
My last comment on tax policy is just a quick explainer of the foreign inversion tax loophole. This is the statute by which Apple and others have moved their corporate headquarters to Ireland or the Caribbean to avoid US taxes. There is currently 2.5 trillion dollars stored overseas. We’re going to have to repatriate this money somehow, but the reality is that we’ll probably offer a cheap buyback on it. Regardless, imagine what a trillion dollars not tied to spending cuts or offsets would do. For starters it could reduce our debt by 5%. But the GOP is going to use this repatriated money to try and offset tax cuts for high earners.
Repeal the Bush tax cuts. Get the budget deficit under control. Provide responsible relief to the middle class. The GOP will do none of these things and will further exacerbate the problem. We need responsible tax policy and that starts with actually understanding the recent history of US tax policy.