It’s time for everyone to understand reality.

Why this question keeps coming up is simply amazing to me.  But, too many of our politicians- and obviously the American populace- have an unbelievably strong affinity for magic.

Way back when Reagan was President, he promised America that supply side economics was the solution.   Just to make sure everyone is on the same page, let’s discuss this macroeconomic theory (sic) that stipulates that countries can achieve economic growth by lowering taxes.  (One of the opposing theories is demand-side economics.)  One of the “proofs” for this theory is the Laffer curve (I always want to change the spelling to laugher- even though it makes me cry)- which stipulates that the economy will grow so grand that lower tax rates will actually increase the amount of government revenue, because of the economic expansion that results from these lower taxes..

 

Oh, and not only will businesses benefit from this scenario, so will average folks- because the supply of good and services will be augmented at lower costs- and employment will increase.  (A corollary to this concept is “trickle-down”, where the vast benefits afforded the 1% and corporate America will trickle down and benefit the bulk of the populace. [Many of us recognize what really trickles down.]).  One of the biggest proponents of this chicanery was David Stockman, who recanted almost immediately after he ceased being Reagan’s budget director.

Except the real reason for the Reagan tax cuts was to diminish the ability of the US government to provide safety nets for its citizenry.  By bankrupting the treasury, it would be impossible for the government – as long as the Defense budget stayed stable or grew- to provide Medicaid, educational assistance, Food Stamps (now called SNAP- supplemental nutritional aid program), etc to the citizens who needed help.

And, while the subliminal Reagan plan worked, it failed to completely turn off the spigots for social services because Congress was (and is) willing to appropriate funds for services and programs beyond the ability of the government to pay for them in full.  (This is known as deficit spending.)

And, now, in 2017, TheDonald and his GOP minions passed their version of this chicanery- the Tax Cut and Jobs Act.  Promising the American people that this radical restructuring of the tax code- dropping the ballyhooed 35% corporate tax rate (by the way, that rate was only ever paid by  small businesses, not those who were public and  large) down to 21%.  This also meant the very smallest American companies had a doubling of their tax rate from the prior rate of 10%; plus dramatic decreases in taxes paid by the top 4% of individual taxpayers would entice US businesses to invest in new equipment, hire more folks, and raise salaries.

Now, it is true that there was some increase in capital investment.  But, that was far more related to the bonus depreciation (read as the ability to write off the costs of new equipment immediately, instead of depreciating it over 5, 10, or 15 years) that was part of this package- not because of any diminished tax rates.  (Bloomberg research, among others, understand that tax rates matter- but not very much.  And, demand-side proponents understand that business invests when they realize that they will be unable to meet the demands for their products and services.)

What is certain is that corporate profits have exploded!  Since the tax cut was enacted, big business has managed to increase their profit margins by 8 to 10%.

Oh- and those wage increases- even now (the month of February 2019) where there was a demonstrated increase in wages (with the lowest increase in employment gains- 20K, compared to 180K+ for the past months going back years) of all of 0.3% (which means,  almost 4% on an annual basis).   Had this been true for the past year, it would be grand- but the raises have barely hit 2% on an annual basis.

It gets better.  (Or, should I say worse?)

Since the new tax law was enacted, our deficit (do you remember when the GOP railed against deficits?) has ballooned. To the exact dollar amount that the CBO (Congressional Budget Office) predicted when the tax changes were proposed.  (Of course, the GOP poo-pooed the findings, claiming that the CBO simply doesn’t understand supply side economics.  Right.  Because their magic wands ran out of batteries.)

How big is the deficit?  How about $ 900 billion by the end of the fiscal year.  (By the way, that’s a low-end estimate;  $ 984 billion is far more likely, according to OMB [Office of Management and Budget].) It was $ 675 in FY 2017- and would have been about the same in FY 2018, but once the tax cuts were effective in January 2018 (FY 2018 ends in October), collections plummeted and the deficit zoomed to $ 779 billion.

As a matter of fact, the February 2019 monthly deficit alone was $ 234 billion- and that’s including the collections from those insane tariffs (up 91% to some $ 30 billion this year) that TheDonald wants you to believe foreign companies are paying.  (They’re not- we, the American people, pay the tariffs into the US Treasury, no foreign government or business is subjected to those tariffs.)

And, it should surprise no one who has read this far that the GOP solution is to slash non-defense spending for FY 2020.  Thereby doing exactly the same Ronald Reagan did.  Enact a tax cut to render the government impotent to care for its citizenry.

What did Albert Einstein say?  “The definition of insanity is doing the same thing over and over again, but expecting different results.”

Except- the Reagan and Trump tax cuts really had only two specific goals- to promote crony capitalism and to eradicate the safety net the federal government provides its citizenry.  It’s just the selling job to the American public that provided us with “trickle down” with no Laffer (or glee)…

We’ll continue this discussion tomorrow.  (Don’t worry- I will be dealing with folks on the left who have their own version of magical thinking.)