Author Archives: Sheila

Listen To Nick Hanauer

Recently, I posted about the difference between tax cuts and tax reform, and why we need the latter but not the former. That argument was made–far more persuasively than I made it–by billionaire Nick Hanauer, in a recent post to Politico.

The Republican tax plan is a scam—a massive and destructive financial giveaway masquerading as pro-growth tax reform. Which is why our first response must be to demand not one penny of tax cuts for big corporations and rich guys like me. In fact, if I were Benevolent Dictator, I would substantially raise taxes on myself and my wealthy friends. Why? It is the only way to sustainably grow the economy, boost productivity, increase business opportunities, and create more and better jobs.

Hanauer takes aim at the central premise of GOP tax policy, what I have referred to as an “article of faith,” because when you take something on faith, it’s because you have no empirical evidence for its validity. In this case, as Hanauer points out, we have substantial evidence that the premise is fatally flawed.

There is is simply no empirical evidence nor plausible economic mechanism to support the claim that cutting top tax rates spurs economic growth. When President Bill Clinton hiked taxes, the economy boomed. When President George W. Bush slashed taxes, the economy ultimately collapsed. It wasn’t until after most of the Bush tax cuts expired during the Obama administration that the post-Great Recession recovery started to pick up steam—an ongoing recovery that, as uneven as it has been, has grown into one of the longest economic expansions in U.S. history.

And then, of course, there’s Kansas.

As we all know, and as Hanauer reminds us, Kansas dramatically “underperformed ” the rest of the country in economic growth and job creation after Sam Brownback, its “true believer” Governor, slashed taxes on individuals and corporations. And as he also reminds us, California, which horrified those true believers when it imposed the nation’s top income tax rate, has thrived.  By 2015, California had the fastest-growing economy in the nation. Kansas? Dead last.

For several years, Hanauer has been arguing that Republicans have the economic argument exactly backwards–that inequality, not high tax rates, retards economic growth and job creation.

But the Republicans’ problem is that they have economic cause and effect reversed: Low wages and rising inequality are not symptoms of slow growth, low wages and rising inequality are the disease that causes slow growth—and inequality cannot be cured by creating even more inequality. In reality, our modern technological economy is best understood as an evolutionary feedback loop between innovation and demand. Innovation is the process through which we evolve new solutions to human problems, while consumer demand is the mechanism through which the market selects and propagates successful innovations. And it is economic inclusion—the full participation of as many people as possible in as many ways as possible, as innovators, entrepreneurs, workers and robust consumers—that drives both innovation and demand. The more we invest in the American people—in our wages, our education, our health care and our infrastructure—the more dynamic that feedback loop, and thus the faster and more prosperous our economy grows.

As I tell my students, if you own a widget factory, and no one is buying your widgets, you are unlikely to hire more workers to increase widget production. When consumers lack disposable income with which to buy your widgets, you cut back–or stop making widgets entirely.

As Hanauer explains:

The real problem with our economy is that we are concentrating wealth in the hands of people who aren’t spending or investing it, while starving working- and middle-class Americans of the ability to invest in themselves—not to mention sapping the consumer spending power that accounts for 70 percent of GDP. We rich Americans may not all be idle, but these days, much of our money is—and you will not get it flowing back through the economy again by cutting our taxes even further. I already earn about 1,000 times more per hour than the average American, but I couldn’t possibly buy 1,000 times more stuff. I only own so many pairs of pants. My family and I can only eat three meals a day. We enjoy a luxurious lifestyle, but we already own several houses, a private jet and one too many yachts (turns out, the optimal number is two). Cutting our taxes will make us richer, but it won’t incentivize me or my venture capital partners to spend or invest more than we already do. What’s holding us back isn’t a shortage of cash, but rather a shortage of demand—from you.

Exactly.

Thank you to everyone who wished me a happy birthday yesterday. It was much appreciated!

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This May Explain Some Things….

Not that the explanation is reassuring. Quite the contrary.

Vox recently ran an article about the healthcare perks that members of Congress enjoy while they are working hard to deny poor Americans access to basic health insurance. Here’s the WTF section of that article:

Mike Kim, the reserved pharmacist-turned-owner of the pharmacy, said he has gotten used to knowing the most sensitive details about some of the most famous people in Washington.

“At first it’s cool, and then you realize, I’m filling some drugs that are for some pretty serious health problems as well. And these are the people that are running the country,” Kim said, listing treatments for conditions like diabetes and Alzheimer’s.

“It makes you kind of sit back and say, ‘Wow, they’re making the highest laws of the land and they might not even remember what happened yesterday.’”

The article noted that the current Congress is the oldest in our history. It appears that more than half of the senators who plan to run for reelection in 2018 are over 65. (Dianne Feinstein just announced that she plans to run for another 6 year term; she will be 85 at election time.) The average age in the House of Representatives is a (comparatively) youthful 57, and the average age in the Senate is 61.

We all age at different rates, and thanks to breakthroughs in medicine and nutrition there are growing numbers of people nearing 100 who remain mentally and physically sharp. It is also true that most of us begin to figure life out as we grow older–there is some validity to the adage that wisdom comes with age. So I would oppose a blanket rule requiring lawmakers to retire at an arbitrary age certain.

That said (since today is my own birthday, and at 76 I am by no means a “spring chicken”), I can personally attest to the indignities the years bring. Memory and recall play tricks on the aging mind; the accelerating rate of technological change is especially disorienting to those of us who grew up with typewriters and rotary phones affixed to walls. Cultural changes embraced by our children and grandchildren can be difficult for us old folks to assimilate and accept.

And all of that is what aging does to healthy seniors, those of us who have retained substantial amounts of our physical vigor and intellectual capacities.

One positive consequence of the 2016 election–assuming we live through the disaster that is Donald Trump–is a new appreciation of the importance of a President’s mental health. It is likely–again, if we survive this–that along with a mandatory disclosure of taxes, a clean bill of physical and mental health will become legal requirements of presidential candidacies.

We need to seriously consider imposing a similar requirement on candidacies for the House and Senate. It’s bad enough that we have only cursory background checks for gun purchases; surely, voters are entitled to similarly cursory physical and psychological checks on people seeking positions where they can do considerably more harm than a deranged shooter.

We may not be able to disqualify the wackos like Roy Moore, but surely we can make Alzheimers a disqualification for public office.

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“Tax” Is Not A Four-Letter Word

As Congress takes up consideration of the tax bill of 2017–what the President and GOP have labeled “tax reform,” and what impartial observers describe as tax cuts mostly for the wealthy–it’s time for a re-run of my rant on the subject of taxation.

I’ve been particularly incensed by the appearance in Indiana of a TV spot aimed at Senator Joe Donnelly. Donnelly is a Democrat (moderate, of the Hoosier variety) considered vulnerable in 2018. The spot features a lovely young woman talking about the importance of tax reform–no specifics, no definitions, just a plea to Donnelly to support “fair” taxation.

I’m all for fair taxation, and I’m willing to bet everyone reading this is, too. I’m also willing to bet that definitions of a “fair” tax system vary widely (the devil, as we all know, being in the details). The one thing we should all recognize, however–whatever our personal opinions about “fairness”–is the difference between tax reform and tax cuts. 

As Jared Bernstein recently wrote in an article in the American Prospect,

In D.C. tax-debate parlance, “tax reform” means something specific: cutting tax rates and broadening the tax base. Rate reductions lose revenue, but you make it up by closing loopholes, exemptions, and favorable treatments of one type of income over another, thus broadening the income upon which taxes are levied.

As Bernstein points out (and we all know), most loopholes are the result of lobbying by special interests, not some disinterested analysis of their utility, making them very hard to eliminate. Even more pernicious is the belief–an article of faith in the GOP–that lower rates will generate more economic activity and thus more tax revenue. There is absolutely no evidence supporting this theory, and considerable evidence rebutting it, but it refuses to die.

In the current tax debate—no surprise—the Trump administration and the Republican Congress are predicting that their tax cuts will return large growth effects. They claim their plan—and to be clear, there is, as of yet, no plan—will increase the real GDP growth rate by at least half, from around 2 percent to 3 percent or 4 percent, and that this increase will offset much of the costs of the cuts.

This was the same story told by Reagan, Bush I, and Bush II, and in every case the results belied the claims. The most recent example, from the state of Kansas, is particularly germane to this discussion, because it reveals flaws in the same ideas being bandied about by the current Congress.

Tax policy experts estimate that the measures being discussed would cost government $6.5 trillion in revenues over ten years, and dramatically increase the deficit the GOP pretends to care about.

The vast majority of the benefits of these measures accrue to the wealthiest households: Almost 50 percent of the cuts go to the top 1 percent, while 6 percent go to the middle fifth. About 27 percent of the gains go to the 120,000 families in the top tenth of the top 1 percent, whose average pretax income is $11 million.

If anything remotely like this package passes, it will exacerbate levels of inequality that already exceed those of the Gilded Age.

According to the Brookings Institute,

this tax reform plan gives a lift to growing inequality, and signals that the GOP is okay with persistent poverty and with the inability of one-third of us to feed our kids. It’s time to ask ourselves, how do we craft tax reform for the long term—reform that tackles American poverty and inequality and creates the conditions for inclusive economic growth?

I would suggest that genuine tax reform begins with the recognition that “tax” is not a four-letter word. Taxes are the dues we pay for social peace and stability, for the myriad of services that modern societies require and their citizens demand, and from which we all benefit.

We currently have a system that incentivizes the “haves” to evade their responsibility to pay a fair share, or even to discuss what a fair share would look like. Until we have that conversation, we may see tax cuts–mostly for the already privileged– but we won’t see anything resembling genuine tax reform.

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Tyranny Of The Minority

A recent op-ed in the Washington Post revisited what has become an interminable discussion: why, when poll after poll shows a majority of Americans in favor of stricter gun laws, has Congress not responded? When it comes to guns, why are our Representatives so unrepresentative?

The authors–E.J. Dionne, Norman J. Ornstein and Thomas E. Mann— acknowledge the outsized influence of the NRA, but then they make a crucial point about American governance today.

But something else is at work here. As we argue in our book, “One Nation After Trump,” the United States is now a non-majoritarian democracy. If that sounds like a contradiction in terms, that’s because it is. Claims that our republic is democratic are undermined by a system that vastly overrepresents the interests of rural areas and small states. This leaves the large share of Americans in metropolitan areas with limited influence over national policy. Nowhere is the imbalance more dramatic or destructive than on the issue of gun control.

Michelle Goldberg made much the same point in a recent column for the New York Times, titled “Tyranny of the Minority.”

The Republican Party has essentially become a majority party through minority rule. Accounts of the growing resistance to Trump often ignore the ways in which Republicans have shaped the rules of the game in their favor (you could almost called it “rigged,” to use one of the president’s favorite words). The authors write: “Our system is now biased against the American majority because of partisan redistricting (which distorts the outcome of legislative elections), the nature of representation in the United States Senate (which vastly underrepresents residents of larger states), the growing role of money in politics (which empowers a very small economic elite), the workings of the Electoral College (which is increasingly out of sync with the distribution of our population) and the ability of legislatures to use a variety of measures, from voter ID laws to the disenfranchisement of former felons, to obstruct the path of millions of Americans to the ballot box.”

The vast over-representation of rural areas and small states would be less troubling if there were not a substantial and growing divide between the political preferences and social attitudes of rural and urban Americans. That divide–illustrated by political maps showing blue cities in red states–means that the over-representation of rural Americans gives Republicans an unwarranted and unearned electoral advantage.

There’s a famous anecdote (probably apocryphal) in which a woman asks Benjamin Franklin what sort of government the founders had created, and Franklin responds “A republic, madam, if you can keep it.”

America’s founders were (rightly) concerned with the tyranny of the majority; they worried about the effect of “popular passions” on the exercise of individual rights. Those concerns were– and remain–valid. What they failed to foresee was the situation accurately described by these and other writers, a time when–thanks to urbanization, technology and rabid partisanship– the United States would be neither a democracy nor a republic.

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