Commentary

Another False Argument for Tax Cuts for the 1%

September 29, 2017

By Arturo Castañares / Publisher and CEO

Donald Trump has now launched his next wedge issue that is sure to further divide the country along socioeconomic lines: tax cuts for the rich disguised as helping the middle class.

This week, amid chaos in Puerto Rico after Hurricane Maria nearly destroyed the island, Trump looked to pivot to another campaign promise he made during last year’s election.

Trump had pledged to pass tax reform that would lower taxes for working families and stimulate the economy. During the campaign, he provided no details of exactly how he would accomplish both goals. As with just about every other campaign promise, Trump simply asked voters to trust and believe him, two things that have become increasing difficult to do.

This week’s announcement of his tax plan proved to be true to Trump’s form. He provided only broad details of lower tax rates and higher standard deductions. He did not address the impact on the national debt or budget deficit. The largest tax cuts would benefit business owners with pass-through entities like LLCs and s-corporations, the group that pays over 90 percent of the tax revenues received by the IRS each year, but the only tax bracket increase would be for the lowest wage earners.

Although the higher standard deduction would help simplify tax filings for many middle income families, the majority of working class taxpayers would see little, if any, help from the latest Republican tax plan. Instead of real tax reform, this proposal is just another in a long line of GOP tax cuts aimed at helping the rich get richer.

Since the late 1970s, Republicans have argued that tax cuts are the way to a more prosperous country. The concept of trickle-down economics holds that leaving more profit in the hands of the rich through tax cuts will inevitably lead to greater economic growth and will more than replace the lost tax revenues from the cuts.

Republicans so vehemently argue that the economic growth after Ronald Reagan’s 1981 tax cuts are proof of the concept that they now refer to it as Reaganomics.

The only problem is that there is more evidence against the concept of Reaganomics than for it.

The growth experienced in the 1980s had more to do with the drastic cut in interest rates by the Federal Reserve than the tax cuts themselves. Interest rates fell from 19 percent to 9 percent. The cumulative economic growth for the decade totaled 35.9 percent, but the period also experienced two devastating market crashes in 1987 and 1989, and the beginning of a recession in 1990.

By comparison, the 1990s saw a tax increase passed by President Bill Clinton and a Democratically-controlled Congress. During the decade, the cumulative economic growth was higher than in the 1980s, and the budget flipped from a $290 billion deficit to a $236 billion surplus. The period of economic growth was the highest in 30 years and one of America’s most prosperous periods.

For more examples, George W. Bush’s famous tax cuts of 2002 led to a cumulative economic growth of only 19.5 percent, lower than during Barack Obama’s terms when tax rates on the highest earners were raised to the highest levels since the 1980s.

The argument for lower taxes has become one of the staples of Republican campaigns for Congress and the White House. The promise of prosperity disguises the true goal of reducing the tax burden on the wealthiest 1 percent of Americans.

The tension between the haves and the have-nots will only increase if Trump succeeds in passing his latest policy proposal. Trump ran his campaign as the champion of the little guy, the forgotten many left behind by the swamp creatures of Washington, D.C.

Yet Trump’s latest proposal is just another version of the typical insider plan; a tax cut for the rich that will add to the deficit, further burden our children with a higher national debt, and continue to leave working families behind.

Trump’s own economic advisor this week said he can’t guarantee that some middle class families won’t experience higher taxes under the new plan, and he also didn’t answer whether Donald Trump himself will see a tax cut under his own proposal.

If Trump truly cares about the average family, he should propose ways to address the increasing cost of health insurance in a meaningful way, provide pathways to job training and education, and reform the justice system to be less discriminative toward majority communities.

Tax cuts for the rich is an easy way for Trump to please his wealthy supporters, but does nothing, if not hurts, many of his MAGA voter base.
It’s always been curious how lower income, working voters support Republican candidates that make tax cuts for the rich a top priority in their campaigns.

If working-class voters of both parties banded together and voted with their own economic interests in mind, politicians would never propose tax cuts for the rich before taking care of the real problems working families face.

An old caution in politics is to be careful when choosing sides in issues between kings and peasants. Politicians should remember the peasants always outnumber the kings.

And when kings cross the peasants, they usually end up losing everything, including their heads.
Trump would be wise to honor his promise to middle class voters desperate for help, and put aside his instinct to help millionaires and billionaires first.

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