Don’t expect much from a tax reform bill either

On July 28, 2017, in Latest News, by The Somerville Times

By William C. Shelton

(The opinions and views expressed in the commentaries and letters to the Editor of The Somerville Times belong solely to the authors and do not reflect the views or opinions of The Somerville Times, its staff or publishers)

One doesn’t often hear a robber baron complain that U.S. public policy is “hurting average Americans every day.” Much less that, “It’s almost an embarrassment being an American traveling around the world and listening to the stupid shit Americans have to deal with.”

But that’s what Jamie Dimon told journalists this month when we he announced that Morgan Stanley Chase, the corporation he leads, had made record high profit for a U.S. bank.You may remember that Morgan Stanley helped bring us the Great Recession, and for their efforts, received a $25 billion federal bailout.

Two legislative priorities that Mr. Dimon cited as urgent are infrastructure investment and tax reform. Although Donald Trump promised us a yuge trillion-dollar infrastructure bill, his team is already backing away from it, while making noises about obtaining $800 billion of the trillionfrom private investment.

Presumably, those investors anticipate lip-smacking returns from becoming bridge and highway trolls. This would follow such privatization schemes as lowest-bidder prisons that produce criminals, a healthcare system that produces illness, and military contractors who produce corruption and collateral damage, while all produce wealth for Mr. Dimon’s fellow oligarchs.

I suppose that in the Orwellian newspeak political culture we now inhabit, he expects to be taken seriously. After all, Donald Trump promised that, “You’re going to have such great health care at a tiny fraction of the cost, and it is going to be so easy.” But he is now castigating Congressional leaders who can’t get a bill passed that would savage Medicaid and withdraw coverage from more than 20 million Americans while passing the savings on to the wealthiest of us.

Congressional leaders are eager to dispose of healthcare, one way or another, so that they can move on to tax reform, Mr. Dimon’sother priority. Considering what past Republican tax legislation has done for his class, one can understand why it might be a priority for him.

Prior to Ronald Reagan’s presidency, corporations bore 25% of America’s tax burden. They now bear 5%. And income from working is now taxed at double the rates of income from capital.

So one element that we can anticipate in a “tax reform” bill is further lowering of taxes on the wealthy. It will be justified by the same tired lie that we’ve heard for forty years.

The lie is that with lower taxes to pay, rich folks will invest in enterprises that create jobs and generate even more tax revenues than were lost. The myth most often recited by tax-cut evangelists is that Ronald Reagan’s massive cuts, which were negligible for working people, stimulated exceptional economic growth.

In fact, his administration’s deficit spendingalmost tripled the national debt that had previously taken two centuries to accumulate. The billions thus pumped into the economy, along with favorable monetary policy, account for the resulting economic stimulus. Even then, the percentage gain in jobs during the Reagan years was the worst performance of all post-War presidencies, except for the Bushes.’

Harvard’s Martin Feldstein was Reagan’s chief economic adviser. He had been all for the tax cuts. But a year after Reagan left office, he felt obligated to publish a paper acknowledging that the “Reagan recovery” had nothing to do with personal tax cuts.

During the Clinton Administration, the highest personal tax rate increased from 35 percent to 39.6 percent, the economy created 22 million jobs, and we had two balanced budgets. Bush Jr. reduced the top rate to 33 percent. During his eight years, the country lost 670,000 jobs. The average American’s income shrank by six percent.

The tax cutters argue that if the top corporate tax rate weren’t so high, U.S. corporations would bring home some of the $2 trillion that they have parked overseas to avoid taxes. While thecorporate top marginal tax rate of 35% is high relative to the world average—22.5%—the truth is that the 1,900 largest U.S. corporations, all with assets greater than 2.5 billion, pay only 14.7% after loopholes are accounted for.

Yet the “tax cuts = economic growth” trope remains a zombie idea—one that is itself dead, but,animated by the Republican Party, still staggers across the landscape, bringing death and suffering to the living.

What was untrue during the Regan years is even less true now. Capital goes to where it will yield the highest return. Except for certain predatory industries like pharmaceuticals and finance, this is increasingly somewhere other than the U.S. And domestic expenditures by wealthy individuals tend toward things like upscale real estate, art, and luxuries that, proportionally, don’t produce jobs or reinvestment.

While tax cuts have not brought economic growth, they have produced declines in what an economy needs to sustain itself—infrastructure, education, and research. The American Society of Civil Engineers reports that, “Deteriorating infrastructure is impeding our ability to compete in the thriving global economy.” Itgrades U.S. infrastructure at D+, or “poor and at risk.”

We rank 23rd in the world in literacy rates. We rank 27th in math test scores and 22nd in science. The growth in U.S. patents is slowing, year-over-year, while the proportion going to the largest corporations is increasing.

Of course, the net effect of reducing both taxes on the wealthy and investments in what we need is that our nation is now 146th in wealth inequality, out of 150. The Wall Street Journal, which promotes itself as “the daily diary of the American dream,” reports that, “In recent decades the typical child starting out in poverty in continental Europe (or in Canada) has had a better chance at prosperity.”

It will probably come as no surprise that the countries that rank higher on all of the foregoing indicators pay more in taxes, and their tax burdens are distributed more progressively. The tax-cut evangelists tell us that we are cruelly overtaxed. But when tax revenues at every level of government are added together and then expressed as a percentage of GDP, the U.S.at 25.9% comes in fourth-to-last among the 36 OECD nations.

Interestingly, the people who pay the most taxes—the Danes—rank as the happiest people on earth year after year, according to the Satisfaction with Life Index. In fact, of the 22 countries that rank above the U.S. on that index, all the developed ones pay higher taxes.

The reasons for this relationship are worth a column in themselves. Buy they can probably be summed up by a bit of my parents’ folk wisdom: You get what you pay for.

And when those Americans with the most aren’t paying their fair share, you get less.

 

 

3 Responses to “Don’t expect much from a tax reform bill either”

  1. ovr_taxed says:

    Jamie Dimon is CEO of JP Morgan, not Morgan Stanley.
    What about personal responsibility? What is the virtue of a Dr who pays hundreds of thousands of dollars and years of their life to better themself, then find that they will pay the highest tax rate while a layabout gets free housing, free health care, free cell phone etc?
    I’m all for ‘fair share’, but how is it that 50% of people pay no federal tax – what is their fair ‘share’? So let’s tax work and reward non-work?
    The war on poverty and great society have not lifted people up, but created generations of people who just rely on government to take care of them. I do agree that bailouts were wrong – banks should have failed, and maybe the recession would have been deeper and longer, but would have removed moral hazard.

  2. Legal Immigrant says:

    Ovr-taxed is right on. The liberal progressive left wants to tax the average worker to death in order to funnel money to the average shirker.

    I certainly want to give to the truly needy, but look at what our State spends on Illegal immigrants on a yearly basis-two(2) billion dollars a year. This is an outrage.

  3. Matt says:

    all of this so called tax reform is going to shift burden away from wealthiest people leaving the masses to make up the difference.

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