In a post written two years ago, I pointed out the need for new thinking as we approached the 2016 elections, recognizing the problems that both major parties were confronting with their monotheistic adherence to ideological dogma! Glad I got THAT off my chest.
Equally absurd, Republicans espouse the need for lower taxes convinced that higher economic growth will foot the bill, while Democrats push for greater social support but with only a single idea of how they would pay for it – higher taxes. What sounds like a simple, binary choice for American voters is, of course, much more complex.
You Get What You Vote For
So what has happened in the last two years? Has the U.S. been cleansed by a clear-eyed, rational approach to the budget deficit problem and the lead weight of our national debt? Did the election polarize, or harmonize America’s approach to matters financial (seemingly the ONLY thing Americans really care about)? Are we doing the right thing by our descendants and working to fix the problem before it drags us, and them down?
No, it hasn’t.
It got polarized, big time.
No, we most assuredly aren’t.
The surprise result of the 2016 Presidential election (and that topic will not be re-litigated here) gave Republicans a rare but powerful opportunity to shape the country under what has been their ideological banner – fiscal conservatism; strong defense; family values; smaller government.
Tax Reform
Focusing on fiscal conservatism alone, the outcome has been absurd (and the others aren’t too impressive either). Republicans have achieved the major goal that has obsessed them for years – a comprehensive lowering of income taxes, especially for the business class – but there a few holes in that story:
What To Do With All That Money?
Companies get to keep a larger share of their profits which, especially to adherents of the Laffer Curve orthodoxy, will lead to greater investment in new jobs, higher wages and salaries for workers, and higher tax receipts for government – everyone wins! Well, not exactly. A majority of the lower tax “bonus” has been spent on share buy backs, a transitory benefit at best; one-time bonuses for workers, rather than higher wages and salaries; and a slightly higher interest in mergers and acquisitions which, while popular with investment bankers and shareholders, tend to be engines of consolidation rather than expansion, with a predictable impact on jobs.
Consequences
The immediate (and probably longer-term) impact of the government’s income statement is a disaster. Short-term, the deficit will increase by at least $1 trillion, all of which needs to be funded. With a meager chance of trickle down growth and with no appetite, ideas or enthusiasm to meaningfully change expenditures (mainly defense and social programs), the deficits and, hence, the national debt will grow ad infinitum at a time when interest rates are heading higher. NOT a recipe for success.
Other Tax Reform Implications
And while the reductions in deductions for state and local income taxes and property taxes may help a bit, the left and right coast states (including California, New York, New Jersey and Massachusetts), those hot-beds of liberalism, will be hit disproportionately hard. Given their importance to the US economy, lower taxes on business profits should help but some of that impact will be lost by the change in deductions.
Personal income taxes have fallen too under the guise of a tax cut for everyone. While apparently fulfilling a major presidential campaign promise, the detail is less exciting. A working class family of four (making less than $75,000 pa, for example) can expect to receive approx. $800 a year extra, barely enough to buy the adults a cup of coffee every day. That’s not progress, that’s absurd.
Opportunity lost?
It sure feels like it, especially in an environment that is more obsessed with the politics of the insane rather than ideological differences in policy. What seems crystal clear is that the tax cuts have only really benefited those at the very top and perhaps we should just accept it was designed that way. Of course, the price will be paid, and soon: politically (in the mid-terms); financially (in a general lowering of living standards as rising government debt crowds out businesses and individuals); and morally (as the Make America Great Again slogan gives way to Keep America’s Wealthy Wealthy) – absurd and unsustainable.