As you begin to understand the tax bill, you quickly realize that if you own a corporation, are a 1%er or better yet a .1%er, have more than $20 million that you plan to leave to your heirs, or are a major real estate mogul, it is time to break out the fine champagne since you will be easily able to afford the best.
As this tax cut quickly maneuvered its way through Congress, it went from a bill that most economists estimated gave about 65% of the tax benefits to the top 1% to one that raised that amount to about 83% going to the top 1%. That is five out of every six dollars going to the top 1%. Currently, the United States has an income and wealth distribution that is the most skewed toward the wealthy of all the advanced, industrialized, democratic countries. This bill has just made it much worse.
To pay for this big tax shift to the wealthy, we are going to add well over a trillion dollars to our national debt. All of the Republicans led by Paul Ryan bemoaned and fought against adding to the debt when President Barack Obama had to run deficits in order to pull the U.S. economy out of the Great Recession in 2009. Now they are eagerly supporting these deficits even though the economy is quite strong, but this time the money is going to their wealthy donors, like the Koch brothers, so apparently it’s all OK.
So, are Deficits Good or Bad?
Why did the Democrats support deficits when Obama was president and now oppose them? Deficits, of course, lead to a rising national debt, which is not good because each year we have to pay the interest on the national debt with dollars that could otherwise have gone toward education, job training and health care for those in need or for improving our infrastructure. It hurts the average American. However, there are times when running a deficit can be important, especially when the economy is going into recession. Without deficit spending, virtually every recession will become a depression.
In a recession/depression, workers are losing their jobs and are cutting back on spending. Businesses are not investing but rather laying off workers because consumers aren’t buying their products or services. Without some intervention, the economy spirals downward until it hits rock bottom. Eventually, it will begin to spiral upward. That process could result in decades of high unemployment and great social distress. To stop this downward spiral, basic economic theory explains that government, the spender of last resort, needs to step it up and spend a lot to begin to turn the economy around. Of course, this increases the debt.
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If the federal government spends money to build roads and bridges, workers are hired, and they spend money at local stores who then hire more workers, and the economy begins to rebound. That is how you turn around an economy in a recession—you put money in the hands of people who will spend most or all of their salary. Remember, it was the massive spending of World War II that eventually pulled the U.S. out of the Great Depression.
It’s Not That Difficult
There is no magic to the economy. If working people have money and are spending it, only then will businesses invest and create more jobs. You can give businesses all kind of tax breaks, but businesses will only invest if they see demand. The government needs to get money in the hands of the average American who will spend it, not the super wealthy.
Back in 2009, if the Republicans in the Senate would have put the national wellbeing above politics and enabled the Obama administration in its first year in office to spend more on stimulus such as infrastructure improvements, we would have had a much quicker and stronger recovery, and fewer people would have lost their jobs, their businesses and their homes. It was sad to watch the Republicans and Mitch McConnell deliberately prolong the pain of the recession for their own political gain. Sen. McConnell was very clear about his strategy of doing whatever he had to do to make Obama a one-term president. It worked to the extent that the Republicans won big in the 2010 elections, and the Republicans took control of both houses of Congress.
Paying Down the National Debt
Once the economy gains its strength back and begins to produce a surplus, the debt can be bought down. The last time we saw a surplus and began to see the debt paid down was in the last years of the Clinton administration. Bill Clinton actually raised taxes on the wealthy and stimulated a booming economy that produced 23 million jobs in addition to running budget surpluses in his final years. Then, George W. Bush was elected, and one of the first things the Republicans did was cut taxes for the wealthy and convert Clinton’s surplus into a deficit.
Donald Trump did the same thing. The U.S. economy during the final years of the Obama administration was the economic engine that was pulling the rest of the world out of recession. Trump inherited an economy from Obama that had been growing steadily for more than six years but unnecessarily added more than a trillion dollars to the debt to give a big tax break to Trump and other 1%ers.
What this tax plan could have (and probably should have) been was a cut in the corporate income tax to make our corporations more competitive in the world economy and try to keep more jobs in the U.S. Then, as these corporations pay fewer taxes and have more money for their shareholders, we should have raised the top tax rates for the wealthy and raised the taxes on dividends to keep the entire tax bill revenue neutral—rather than raising the debt by more than a trillion dollars. No matter what Trump calls this tax bill, it is essentially taking from the middle and lower income families and giving to the wealthy. So much for “Draining the Swamp.”
Louis G. Fortis is editor and publisher of the Shepherd Express and an economist who taught at Smith College and graduate seminars in economic development at UW-Milwaukee.
