Peeing on Our Shoes Redux
This is a 2017 post, updated in response to the loathsome Star Parker's op-ed in today's paper. She leads with "Joe Biden doesn't care about the deficit." The typically delusional Ms. Parker slights Biden's unwillingness to cut certain "people programs" and ignores the huge portion of the deficit stemming from burgeoning Medicare drug costs. Why? Because Pharma lobbies the hell out of Congress to make damned sure Medicare Part D continues paying $600 for epi-pens which cost Mylan Pharma less than $30 to make.
Following that canard, and even more significantly, which is why I repost this essay, she then tosses out a remarkably uncharacteristic (for her) comment that spending money we don't have, without raising taxes, is foolish. Well no shite, Sherlock! In truth, the last century from 1970 on has been a lab experiment in proving that cutting taxes does not, contrary to GOP claims, increase federal revenue, but actually reduces it. The essay addresses several presidents, their tax cutting, and the results. In two cases (Reagan and Bush 43) tax cuts for the wealthy were a campaign centerpiece and both of them then spent as if the cuts worked (they didn't).
In Reagan's case, it was greatly ramped up defense spending following the insane tax cuts because Reagan, apparently alone in the opinion, ignored Laffer's guidance that said Supply Side only works for marginal rates above 50%. (Reagan cut it to 28% and then ramped up massive debt with "Star Wars."
Bush 43 also cut taxes on the wealthy and then went to war with Iraq and Afghanistan, spending all the while. The deficit followed the spending.
Obama reduced taxes slightly on the middle and lower class earners during the Great Recession, but increased marginal rates on the top 1%.
Enter Donald Trump. His cuts on the lower earning sector expire soon, but the top tier cuts don't. Meanwhile for the 4th consecutive GOP President, tax cuts have resulted in reduced federal income vice more as promised.
Note: This is about
the fallacy of the “trickle down” theory of economics and the falsehoods “spun”
from it and put into bad fiscal policy.
A major early
entry in the bottomless pit of Trump administration "don't piss on my
shoes and tell me it's just raining" absurdities was revealed as simply a
tax cut on the wealthy, redux.
It is tragic
that a man who apparently, especially after the additional feces flinging
economic fiasco of his tariff games, had zero understanding of economics ever
had any shred of control of the nation's financial welfare. Don't give me that
"He's a financial genius" bullshit, show me his taxes and recall his
6 bankruptcies along the way. George
Santayana (not to be confused with guitar legend Carlos Santana) once wisely
said, “Those who do not remember the past are condemned to repeat it.”
There was another, man, also Republican, also
ignorant in the field of economics, who entered office with claims of economic
guru status. He knew all about how tax cuts on the wealthy would make us all
happy and financially well off. That man doubled the national debt, and Trump’s
record deficit is a harbinger of worse. That
man, of course, was Ronald Reagan,
Nationally
known economist and advisor to both Kennedy and Johnson, Pierre Renfret was asked
by Reagan's handlers to counsel Reagan, as in talk some sense
into the man regarding Supply side economics, which even his eventual VP, George H.W. Bush (Bush 41), called "voo-doo economics." Renfret soon gave up, stating that Reagan
staked the entire economy on his "feeling" that "I just know
that it works." Taking office
during an economic period when growth was stagnant, but by no means in
recession, such as when Bush 43 left, he doubled the national debt, because he
continued to spend ("Star Wars?") as if supply side economics worked,
when it clearly didn't.
In high school,
those of us who stayed awake during the mandatory semester of economics learned
this as "The Trickle-Down theory." It is based on the following
supposition: That every dollar cut in taxes will be "multiplied"
through the economy and stimulate growth, ergo everybody's happy. A corollary to
this canard is the insistence that deregulation of business is in everyone's
best interest, when in fact, while that would probably hold true for the
immediate fortunes of the top 1% of the body politic, it is blatantly phony
when applied to the rest of us, for reasons I'll explain directly. One wag has described “Trickle Down”, as “the
Rich pissing on the rest of us!”
Supply siders
begin their justification for their position with a palpable lie. They insist
that If taxes are cut on top earners including (especially) corporations, the
money not spent on taxes will be plowed back into the economy in terms of
expansion, increased salaries and infrastructure. The only actual statistical
analysis study done to test this theory (by the National Bureau of Economic
Research) reveals that, counter to the promises of the supply siders, the
promised results simply never materialize. The results show that for
every dollar reduction in income tax, a mere 17 cents per dollar in revenue
materializes. For corporate tax reductions, a better, but still woefully short
of the pie in the sky promise, 50 cents per dollar revenue results. Read this
again: Corporate tax cuts cost twice as much in reduced tax revenue as they
produce in actual economic stimulus! This math has been validated
through both the Reagan and Bush 43 administrations. It is also being validated
by analysis of the Trump tax cuts. In fact, all three were leading
"cutters" of tax on the top earners and lead the league in percentage
debt increases. "What?" more than Obama? In terms of percentage increases in the
national debt, absolutely.
Analyzing the
probable immediate results of reducing personal income taxes paints a stark
picture. Under what we can discern re: the effects of Trump's Tax reform, proposal
(it wasn’t really his, he was and remains incapable
of such formulation) the lower 60% of Americans would see essentially no
change, but the top .01% would see a monumental reduction in tax obligation. While
current budget reconciliation rules dictate that no law shall increase the deficit
after 10 years by a single dollar, the recent tax change proposal could
increase the deficit after 10 years by $10 trillion in the following decade. This
amounts to 50% of the present national debt!
So, what did
Reagan and his Republican Congress do? In other word, where’s the lesson for
those who can appreciate it? The Economic Recovery Tax Act of 1981 also known
as the ERTA or "Kemp-Roth Tax Cut", was signed on August 13, 1981, by
President Ronald Reagan at Rancho del Cielo, his California ranch, (You know, like
Mar a Lago West?) in 1981. Its
stated goal was "to amend the Internal Revenue Code of 1954 to encourage
economic growth through reductions in individual income tax rates, the
expensing of depreciable property, incentives for small businesses, and
incentives for savings, and for other purposes". Included in the act was an across-the-board
decrease in the marginal personal income tax rates in the United States by 23%
over three years, with the top rate reduced from 70% (that figure should resonate,
as it’s what AOC mentioned and took a shit storm of abuse for) to 50% and the
bottom rate from 14% to 11%.
In the following
year the deficit ballooned, which in turn, drove interest rates from around 12%
to over 20%, which, in turn, drove the economy into the second dip of the
1978-82 "double dip recession". The Dow Jones average, which had been
over 1000 before enactment of ERTA, fell to 770 by September 1982.
Without
the decency of so much as a simple acknowledgement that they had been grossly incorrect
in their belief in supply side theory, much of the 1981 ERTA was reversed out in
September 1982 by the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA),
sometimes called the largest tax increase of the post-war period.1
Sadly, the only way to make supply side theory work is to spend less. In truth,
it still doesn't work, but as in our daily lives, spending less saves money. Of
course, we all know who the targets of these spending cuts would be, and it
isn't the fat cats of Exxon, Morgan Stanley et al, is it?
So, you ask,
where does the money “saved” by big corporations go, if not reinvested and used
to grow the economy? A lot if it goes to foreign bank accounts such as those of
the recently failed Credit Suisse (CS), which was sheltering millions in
untaxed US dollars for US CEOs and other high earners. Although they were
required by Swiss law to ascertain that all relevant taxes had been paid before
accepting foreign deposits, CS simply didn’t. Even some of the money from the
Bush 43 “too big to fail” $700 billion dollar bailout of Wall Street investment
banks hurt in the housing bubble collapse of 2008, paid instead as bonuses (yes
you read that right) to top execs, ended up, untaxed, in CS accounts. Trump
himself had accounts in several foreign banks, including China and the UK.
Obviously, this
is, or should be, ample recent precedent for anyone willing to dispassionately
evaluate it. Even so, Trump, who is far more an economic dullard than Reagan,
Kemp/Roth and their ilk ever were, was also seduced to trickle down by what one
must assume are several issues. First, it helped his own business interests, which
needed more help than even he could give them, by reducing his tax obligations,
and he even was candid enough to admit that he was not distanced to any real
extent from his business interests. Additionally, it curried favor with those
of his social stratum (I originally typed "class" for
"stratum", but my computer almost crashed when I used the word
"class" in a monograph on Trump. Finally, and saddest to consider he
was, and remains, simply too ignorant to learn from recent history and too lazy
to educate himself. Hopefully, he will have time in custody to consider these
flaws but, narcissist that he is, he will remain simply unable to own them.
In the final analysis, as tax cuts on the top and
tariffs on manufacturers continued to induce suffering at the bottom, Trump and
his rubber stamp Senate tacitly echoed the line from Mel Brooks' "History
of the World, Part I", where, when a Roman Senator asks, "But what
about the poor?" the rest of the Senators respond as one, "Fuck the
poor!" That sums up Trump’s
non-existent social conscience and yet, far too many of those whom he loathes
still support him.
1 The consequences of the Reagan Tax cut fiasco
and its sub- sequent reversal a year later should have been enough
of a real time example of the “Tax Cuts spur the economy” fiction to deter
future similar folly. Enter Donald Trump, whose tax cuts have generated zero
growth in federal income.
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