Looking at the reactions to Republican tax plans, I found myself remembering what people used to say about former Sen. Phil Gramm, whose presidential ambitions never went anywhere but who did help cause the 2008 financial crisis: "Even his friends don't like him."
So it is with GOP tax "reform," especially the Senate version, which would raise taxes on most individuals, especially in the middle and working classes, and add around 13 million Americans to the ranks of the uninsured, all to pay for big cuts in corporate taxes. The general public strongly disapproves--by a 2-1 majority, according to Quinnipiac, although the majority would be even bigger if people really understood what's going on. But surely at least CEOs like the plan, right?
Actually, not so much. A few days ago Gary Cohn, Donald Trump's chief economic adviser, met with a group of top executives. They were asked to raise their hands if lower taxes would lead them to raise capital expenditures; only a handful did. "Why aren't the other hands up?" asked Cohn, plaintively.
The answer is that CEOs, living in the real world of business, not the imaginary world of right-wing ideologues, know that tax rates aren't that important a factor in investment decisions. So they realize that even a huge tax cut wouldn't lead to much more spending.
And with that realization, the rationale for this tax plan, such as it is, falls apart, leaving nothing but a scheme to make the rich--especially those who rake in investment income rather than working for a living--richer at everyone else's expense.
For what it's worth, here's the story the Trump administration and its allies are telling. Their claim is that cutting taxes on corporate profits would lead to an explosion in private investment and faster economic growth. Furthermore, the fruits of this growth would trickle down to American workers in the form of higher wages--and rising incomes would raise tax receipts, so the tax cuts would end up paying for themselves.
Even if some part of this story were true, there would be side consequences they're carefully not discussing. After all, if we're talking about a big increase in capital expenditure, where does the money for that expenditure come from? Nothing in the bill would make Americans consume less and save more. So the money would have to come from abroad--from selling stocks, bonds and other assets to foreigners, on a massive scale.
And this inflow of foreign money would drive up the value of the dollar and lead to huge trade deficits: according to my analysis of the most optimistic forecast out there, more than $6 trillion in deficits over the next decade. These trade deficits would have a devastating effect on manufacturing--remember those jobs Trump promised to bring back?--to the likely tune of more than 2 million jobs lost.
Oh, and about that economic growth: Foreign investors would be earning profits and taking them home. So much--probably most--of any growth we would get from cutting corporate taxes would accrue to the benefit of foreigners, not Americans.
But don't worry too much about this stuff. Most serious economic analyses agree with those CEOs who disappointed Gary Cohn: Corporate tax cuts wouldn't actually do much to raise investment. They would, however, explode the budget deficit.
So in an attempt to limit that deficit blowout, Senate Republicans are proposing significant tax increases on working families. In fact, according to Congress' own Joint Committee on Taxation, taxes would rise on average for every group with incomes under $75,000 a year, and would surely rise for many families even in higher-income groups. The only significant winners would be those making more than $1 million a year. Populism!
Oh, and this doesn't even take account of the health care sabotage that's an integral part of the Senate plan. By repealing the mandate--the requirement that people purchase insurance--the plan would, as I said, cause 13 million to lose coverage; that loss of coverage, and the associated government subsidies, is why mandate repeal saves money that can be given to corporations.
But the move would also drive up premiums for those who keep their insurance, because the dropouts would tend to be those with lower health costs. So that's an additional, hidden indirect tax on the middle class.
Nor does it take account of what would inevitably come next: tax-cut-induced deficits would, by law, trigger cuts in Medicare, and this would just be the start of a GOP assault on programs like disability insurance that provide a crucial safety net for millions of working-class Americans.
All of which raises the question, why are Republicans even trying to do this? It's bad policy and bad politics, and the politics will get worse as voters learn more about the facts. Well, last week one GOP congressman, Chris Collins of New York, gave the game away: "My donors are basically saying get it done or don't ever call me again."
So we're talking about government of the people, not by the people, but by wealthy donors, for wealthy donors. Everyone else hates this plan--and they should.
Paul Krugman, who won the 2008 Nobel Prize in economics, writes for the New York Times.
Editorial on 11/18/2017
Print Headline: The plan everybody hates