Ready to go for a ride? A ride back in time? A "Back to the Future" experience? Then, lets take a look at the "new and improved" tax plan as announced by President Trump in the person of Merlin Mnuchin. And, if you get the uncomfortable thought that you have been there before.... a "deja' vu" experience..... a "been there, done that" feeling.... a sort of, back to the future moment.... you might be right.
Turns out that Mnuchin's magical thinking moment - otherwise known as the Trump Tax Reform Plan - now showing at a theater near you, is just that - "THEATER." And, it is a movie that we have seen over and over, time and again, and each time that the voting public is duped into voting a Republican into the White House since the 1980's. From Regan to Bush I, Bush II, and now Trump, not to mention the reactionary Republicans holding court in the House and Senate, we have experienced similar "Tax reform" proposals that all have a common denominator - each lowers taxes on these with the most wealth and/or income, lowering taxes on corporations, large and small, and stripping the enforcement tools that the IRS needs to compel compliance. And, in each case, the massive deficits resulting from the revenue reductions suffered as more wealth was concentrated on the top 1% of income earners in the country, were never re-captured by the promised economic growth. In fact, not only did the projected increased economic growth and the taxes that might have resulted failed to appear, the reverse actually took place. In the case of Regan, a deep recession began and continued under his successor, George Bush I which, in turn led to the election of Bill Clinton in 1992. And, when George Bush II was handed the presidency over Al Gore by the Supreme Court, his "trickle down" tax cuts resulted in the largest recession since the Great Depression of the late 1920s-early 1030s, leading to the election of Barak Obama. In both of these contemporary examples, not only didn't the promised "rising tide lift all boats", but the revenue losses crippled government and increased deficit spending so as to put pressure to ignore other pressing national needs such as health care. In both cases, jobs evaporated, unemployment rose, and economic growth tanked. So much for the "job creators" and their desire to expand opportunity with their new-found cash assets. Instead, the oceans of cash accumulated by individuals and corporations wound up in tax sheltered investments or off-shore accounts through tax loopholes and remained beyond the reach of the tax collectors.
Treasury Secretary Mnuchin, in his role as Magical Merlin, waved his magic wand over the tried and failed program of "trickle down" economics, enacted by President Regan (described by Bush I as a primary candidate running against Ronald Regan and, later as his VP, as "voo-doo economics"), and trumpeted the plan as the "single largest tax cut in our nation's history." It turned out to be a one-page re-hash of tax cuts for rich individuals and wealthy corporations, and, as with the other magical thinkers of the trickle-down school of economics, came with the promise of dramatic growth of economic activity - some 3% or 4% or as much as 6% (notably, derided as impossible by legions of economists). Merlin Mnuchin, as with all alchemists, promised that drinking of this potion would result in a hyper-growth in jobs and wealth so great that, "the net cost of the plan would be paid for by the revenue receipts from the new growth." Looking at the revenue deficit that would result from the full implementation of the plan - both personal and corporate - is calculated at a reduction of $6.2 TRILLION over ten years. The most optimistic economist's calculation of growth and resulting tax receipts if enacted stands at $2 TRILLION over the same period. That leaves over $4 TRILLION over ten years in deficit growth! Most economists view growth at 3% and more as highly unlikely.
So, where does that cash come from? Obviously not from the military side of the budget that Trump has committed to increasing in large numbers.
So, what is the reasoning behind this re-visit to the failed "trickle-down policies of the past? Merlin Mnuchin and advocates for this massive transfer of wealth to the already wealthy would say that there are 2 reasons. First, that the US has the highest corporate tax rates on the planet. And, second, that the US has the highest personal income tax on the planet. The result, so the argument goes, is that there "oppressive" tax rates - on corporations and on the "job creators", prevent our economy from the robust recovery that it should have. Sounds good, right? Are you kidding me? Let's take a look at the FACTS, not the ALTERNATIVE FACTS. The following are easily discovered with a small amount of research. FACTS MATTER!
HIGHEST PERSONAL TAXES ON THE PLANET....
The highest personal tax rate in history was a whopping 94%! That was the rate on those earning over $200,000 in 1945, with inflation factored in, equivalent to around $2.8 million today. And, although some economists, including Nobel Laureate Peter Diamond, argue that the top rate should be 73% today, the top rate stands at 39.6%. There is nothing magic about that number - if you go back to the 60s, 70s, and 80s, the top tax rate was much higher - between 50% and 91%. In fact, the rate didn't come down below 50% until 1987 with the "Tax Reform Act" of 1986 sponsored by Senator Bill Bradley. Even a small change in the top rate, a few percent - say on those earning more than $1 million a year - would make a big difference in how much the federal government brings in - and that revenue can be used for anything - military outlay, health care, Social Security and Medicare, student aid/or free college, or deficit reduction. But, lets take a look at the Republican claim that we pay the "highest taxes on the planet", another "alternative fact."
In a study published last month and reported in Bloomberg News last month, the UN-based Organization for Economic Cooperation and Development (OECD) reported on the relative individual tax burdens in 35 nations, including the US. The 584 page report, "Taxing Wages", shows that the US tax burden on most American workers has not budged much over the last two decades although there have been substantial tax cuts for upper income earners under George Bush and slight increases on the same class of taxpayers under Barack Obama. So, considering all 35 nations under the tax microscope, guess who came out at the top of the list for highest relative tax burden? No, not the US. At the top are Belgium and France. Workers in Chile and New Zealand are tax least. The US is in the bottom third (25th out of 35), just 1% above Canada. In fact, the US rate for the average worker was 32%, 4 point below the 35 nation average of 36%. Other countries included in the study are Belgium at 54%, Germany at 49%, Italy at 48%, Austria at 47%, Greece at 40%, and Denmark and Norway at 36% to name a few. The average tax burden for all 35 OECD nations is 36%. Again, the US falls in the bottom 1/3 of the list leading to the conclusion that the average US worker pays quite a bit LESS than he/she would elsewhere in the developed world! And, that's a FACT!
HIGHEST CORPORATE TAX RATE ON THE PLANET
According to the National Priorities Project in a 2017 report of federal budget expenditures, noted that more than 80% of the federal budget comes from personal and payroll taxes. Last year, only 11% of federal revenue came from corporate taxes - a number substantially down from a high of 43% in 1943. This is partly due to a comparatively low tax rate at 35% and partly due to loopholes and holding assets off-shore. In fact, over an 8-year period, out of 258 profitable Fortune 500 companies (no-profit = no tax), 100 of them managed to pay NO TAXES AT ALL in one or more years. These 100 companies made some $336 BILLION in pretax US profits. But, instead of paying $118 BILLION in taxes as the 35% rate requires, not only did they NOT pay federal taxes, but ehy RECEIVED TAX REBATE CHECKS FROM THE TREASURY OF $32.1 BILLION. Eighteen profit-making companies - including General Electric, Priceline.com, International Paper, and PG&E (not to mention the Trump Real Estate Group) - paid NOTHING for all 8 years, despite making a profit in every year. Zero, zilch, nada - in-spite of making substantial profits.
Aside from dodging taxes altogether, the 258 Fortune 500 companies have become expert in avoiding paying the full freight that the law requires due to "loopholes" in the tax law, hard won by their well-paid congressional lobbyists. Taken together, these companies - profits and all - paid an average of 21.2% over the 8 years in the study (2008-2015) - far lower than the official rate of 35%. A fifth of these companies (48) paid an effective rate of less than 10%. And, of those companies that have significant off-shore profits, more than half paid higher rates to foreign governments where they operate than they paid in the United States on their US profits. Only 66 companies paid 30% or more in taxes on their profits over the 8 year period. In essence, the 35% corporate rate is a MYTH. The Beltway notion that US corporate taxes are more a burden than elsewhere and that makes us "uncompetitive" is patently false! And, that is a FACT!
SUBSIDIES: The hidden tax benefits picked from the pockets of wage earners.
Over the 2008-2015 period, these 258 companies earned $3.8 TRILLION in pretax profits. At 35%, they would have paid $1.3 billion in income taxes over that period. Instead, they paid only 60% of that amount due to tax SUBSIDIES. These tax subsidies, totaling a staggering $527 BILLION over 8 years, are legal under the current tax code and have been concentrated in just 25 or 10% of the Fortune 500 profit centers. Some $286 BILLION in tax subsidies were provided to these 25 companies including ATT, Wells Fargo, JP Morgan, Verizon, IBM, GE, Exxon Mobile, Comcast, Goldman, and Time Warner Cable. It seems to me that what we need is a dose of tax fairness and not further subsidies or reductions.
Opponents argue that the US corporations and businesses pay "the highest taxes in the world!" Not only is this simply hyperbolic language that adds little to the debate, but is is simply FALSE! And, adding more "alternative facts" to this discussion is of little use. A report issued by the Congressional Research Service in 2014 concluded that the effective corporate rate in the US and the other OECD nations "is about the same" and the rate applied to new investments is "only slightly higher." The report also states that a change in the statutory rate from say 35% to 25% would, at best, produce a "modest positive effect on wages and output" but at a cost of some $1.3 TRILLION in revenue deficits over 10 years. The US is not a corporate tax monster. And, that is a FACT!
Proponents of a massive tax cut also claim that a reduction from 35% to 15 % as proposed in the Trump plan would result is a giant growth in jobs as businesses invest in expanding job opportunity. In a December, 2013 report, "The Corporate Tax Rate Debate", the Center for Effective Government studied the link, if any, between corporate profits and job growth. They studied corporate taxes, profits, and job growth. The report cited the US Government Accountability Office report on corporate taxes that noted that US corporations pay just 12.6% of their profits in federal income taxes. And, they examined the job creation track record of 60 large, profitable US corporations from the list of 280 profitable Fortune 500 companies with the highest and lowest effective tax rates between 2008 and 2010. The study found:
1. 22 of the 30 companies that paid the highest tax rates on their profits created almost 200,000
jobs between 2008 and 2012. Only 8 firms with high tax rates reported reducing employees in
that period;
2. The 30 profitable companies that paid little or no taxes over three years collectively shed 51,289
jobs, half created new jobs and half shed jobs in the period;
3. Lowe's, the nation's 2nd largest home improvement store, paid 36% in taxes in the period
on profits of $9 billion between 2008 and 2010 and hired an additional 28,820 workers in that
period;
4. Verizon, the USs largest wireless provider, reported $32 billion in US profits between 2008
and 2010, received tax refunds totaling $951 million, and REDUCED the number of employees
by almost 56,000 between 2008 and 2010.
5. In 2004, a "tax holiday" (similar to that being discussed today) was adopted to encourage
companies to bring back to the US cash assets held off-shore. 58 firms brought back some
$218 billion in profits for a saving of $64 billion in taxes. In the following 2 years, those firms
eliminated 600,000 jobs.
The report notes that US corporations currently (2014) have more than $1 TRILLION in cash or liquid assets on hand. In other words, they have the cash to invest in expansion and new jobs should they choose to do so. The report concludes, however, that there is NO EVIDENCE that cutting the tax rate on corporate profits induces firms to create new jobs in the US. And, that is a FACT!
Facts matter in any debate. And, facts certainly matter in the congressional debate yet to come this year. That debate, as with all discussion in the congress, will be filled with loose rhetoric, facts, and "alternative facts." Facts need to matter in this discussion. Because, decisions on tax and budget policy made this year will define economic opportunity for the future - both ours and that of our children. We need to get this one right. And, the goal should be tax fairness, sharing the tax burden between working families, wealthy earners, and profitable corporations. And, we should aim for economic opportunity for our people, a minimum wage and a living wage to lift our citizens out of poverty in back alleys and onto the main street of America. Trickle down doesn't work, never worked, and will not work. We have tested this out several times and each time has resulted in a failure of the claims made. What may work, some would argue, is an expanded economy with good wages for more workers, more taxes on wealth - personal and corporate - and less on labor that would put more money into the hands of legions of consumers thereby increasing demand for goods and services and spurring the economy to greater heights. That has always been a formula for American expansion and success. And, it can be again. If only we have the will to pay attention to the FACTS.
Stand up! Speak out! March on!
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