Tax Cuts Don’t Equal Tax Reform!

Speaker of the House Paul Ryan (R-WI) has been wanting to pull a Tax Reform initiative out of his hat for years. And now the talk around tax reform is front and center as the GOP controls both houses of Congress and the White House. But the current resident of the White House, President Donald Trump, when he talks about tax reform only touts the biggest tax cuts in history. And right now, tax cuts on their own, are the last thing we need.

I would be the last one to say we couldn’t stand a good round of talks and passage of a reasonable tax reform bill. I don’t think many in elected positions around the country would disagree with that. A fair and simple tax code is a good goal to work towards. But a tax reform bill that is simply a huge massive tax cut doesn’t solve any of our problems.

And if we look at Kansas (and we’ve talked about the near bankruptcy of Kansas due to unprincipled and illogical tax cuts before), some of the provisions of the current tax bill, culled from the Kansas ‘experiment’, will put the economy and government at risk.

Representative Jim Sensenbrenner (R -WI) extols the virtues of tax reform in an op-ed piece in the Milwaukee Journal Sentinel. He dredges up the early history of President Ronald Reagan’s tax cuts and ignores the reversals later in his administration when revenue shortages at the federal level starting to hurt…and the resulting economic issues cost his VP, President George ‘watch my lips’ Bush, a second term as president. They didn’t work as advertised then and won’t work now.

Despite the talk around helping the middle class with tax cuts…the largest cuts still will go to businesses and the wealthy. One goal of tax reform should be flattening out the income inequality across the country. And despite that talk around who the tax reform bill will help, the bill itself is still just talking points and no real policy. What are we (regal we, since the Democrats haven’t been included yet) even talking about without the actual details needed to exclaim a new tax policy.

And I am not the only one concerned that the Republicans may be limiting the tax reform initiative to tax cuts. The Milwaukee Journal editorial board has the same suspicions:

And we agree: True tax reform, along the lines of the 1986 reform, in which tax rates are adjusted and loopholes are closed, would be a good and significant accomplishment.

Settling for only a tax cut would not.

With so many demands on the federal Treasury including a reboot of the war in Afghanistan and big bills for hurricane damage in the Gulf Coast, that’s a recipe for exploding the deficit.

But given the direction the GOP appears to be heading — toward satisfying a highly compensated Republican donor class — their efforts may end up being a tax cut marketed as “reform.” Don’t buy this line.

That previous link includes some video of the MJS editors talking with Speaker Ryan about tax reform. And if you want to see what Politifact Wisconsin has to say about the current tax reform plan: Is GOP tax reform framework aimed at giving breaks to the middle class, not high-income earners? Spoiler alert: For a statement that contains only an element of truth, our rating is Mostly False.

Nothing wrong with tax reform…if it protects the middle class…protects the needs of the federal budget…and helps even out the disparities in society.


Related Articles

7 thoughts on “Tax Cuts Don’t Equal Tax Reform!

  1. Ed, thanks.

    I’ll ignore the macro issues here, but another critical point is that tax cuts for the elites NEVER stimulate the economy. Gannett/Journal Sentinel is an example of what’s crushing retail businesses like theirs. The elites can’t buy enough subscriptions to Gannett to offset the people who cannot, because they have to spend that on shelter, food, transportation, medication, and other necessities.

    Without spending–there are no sales;

    Without sales–there are no profits;

    Without profits–there is no demand for workers;

    Without demand for workers–there is no job creation;

    and without job creation–there is no recovery!

    The elites don’t spend their tax cuts into the economy. Even if they wanted to, their demand for retail items isn’t sufficient to make up for the purchasing power of the 99.999 percent.

    Bringing back the holiday on the payroll tax–FICA–would put money back in the pockets of workers.

    Dems and a lot of Republicans will never agree to that, because they rightly fear that the GOP would use that as an excuse to cut what the payroll tax funds–Social Security and Medicare.

    1. John,

      John, I’m surprised at your simplistic take on this. You’re usually one of the most astute contributors to this forum. How about this: Instead of cutting FICA taxes (which would indeed accomplish exactly what you fear), let’s increase the cap on income subject to same. This has been suggested for a decade or more already, yet has consistently fallen on deaf ears at the legislative level.

      1. Charles, thank you.

        Elites will find some way around eliminating what’s known as “the Reagan cap.”

        IMHO the higher priority is “spending” into the “real economy,” the part that makes stuff, the part that matters. “Tax fairness” is critical, but it’s a tougher lift.

        WRT the “federal debt,” which is the unnecessary burden you’re carrying, as former PIMCO chief economist, Paul McCulley put it, “…the government sector’s liability is the private sector’s asset.”

        If you know any senior people at R.W. Baird, they should remember former Federal Reserve Bank of N.Y. chair, Beardsley Ruml. He nailed it in the address gave to the ABA in ’45, “Taxes For Revenue Are Obsolete.”

        Important to note that he’s not saying taxes are obsolete. They are not. He explains in detail what function they perform.

        We can run out of drinkable water, safe food, sustainable energy, some metals, minerals, medicines, and metals. Can’t run out of the fiat currency. It’s a public monopoly, belongs to all of us.

        Continued below.

        1. Thanks very much, John.

          Glad to see you expressing your insight again (there’s nothing wrong with being humble, I too am in that position where I wish we all could be less so; why not take the bull by the horns and make things better?).

          Your comments truly do put these economic conditions into perspective, which will be needed for Dems in the coming years.

      2. If U.S. borrows in gold, oil, something that’s not dollar denominated, all bets are off.

        Elites understand Ruml and what’s now known as Modern Monetary Theory. They use that to soak up the vast majority of federal welfare. U.S. taxpayers already provide $193 trillion in free derivative insurance coverage.

        “The notional amount of derivative contracts held by insured U.S. commercial banks and savings associations in the first quarter increased by $12.0 trillion (6.6 percent) to $192.9 trillion from the previous quarter (see table 10).” p.13

        For perspective, annual U.S. GDP—Gross Domestic Product—is around $18 trillion.

        There was no “pay-as-you-go” on the $193 trillion. Went through after 2008 crash, because elites didn’t want to come hat-in-hand to the taxpayers for another hand-out.

        Ruml missed that federal spending on anything–for example IT and engineering for the military–always drives up the price of the associated supply chains.

        Warren Mosler explains that and honor Ruml in 2010.

        The relative cost of stuff really matters. Just because we can’t run out of dollars doesn’t mean we should spend on something.

        Economist Pavlina Tcherneva’s four-page “An Antidote to Deficit Phobia,” is excellent.

        Here’s the last paragraph, “Should the government spend willy-nilly on whatever it pleases since it doesn’t face involuntary default?” and the answer to that question is most definitely no. Not all deficits are created equal: some create more inequality and more rentier income, as it seems to be the case in the current crisis. Others can cause inflation. Yet others can directly create jobs, public investments, and productive capacity without generating inflationary pressures. In sovereign currency nations, a truly responsible government spending is one that is measured not by the debt-(or deficit)-to-GDP ratios, but by the real impact of that spending on the economy—job creation, poverty alleviation, stable prices, income distribution, social goods provisioning are all good measures for assessing how responsible government policy has been.”

      3. More from Ptcherneva, “If we want the government to correct its budget stance, then we must necessarily be asking ourselves to correct ours. If we demand that the government runs a surplus, then we are demanding that we, the private sector run a deficit.

        Fraud against Medicaid or any other federal program is still fraud. That doesn’t change.

        Since the federal gov’t controls the dollar, why are we impoverishing Americans with regressive taxes to put its budget in “surplus?”

        Who do I make the check out to pay off the “national debt?” How do I send real output–an Omaha steak, a 2017 Jeep Cherokee for example–back in time? Who back in time will pay for either?

        Although real federalists–there aren’t many–would oppose federal spending to the states through block grants–it could replace state and local taxes.

        Federal spending on health care, education, green infrastructure, military, research makes sense. Think of it as a capitalist version of “luxury communism.”

  2. As an aside, just how long will the DCCC allow the ad slandering Tammy Baldwin for her “standing in the way of tax reform” to go unanswered? October, 2018?

Comments are closed.