Tag Archives: tax cuts

This Isn’t Governing–It’s Pandering

When he was alive, Harrison Ullmann, a former editor of NUVO, always referred to the Indiana General Assembly as “The World’s Worst Legislature.” I know a lot of states have been competing for the title lately, but he wasn’t far off.

When I was scanning the (embarrassingly thin) news covered by the Indianapolis Star, I saw that the Republicans who have gerrymandered a super-majority in Indiana’s General Assembly are preparing for the upcoming session by discussing plans to cut taxes. After all, thanks to the federal administration they routinely excoriate, the state is currently flush.

The House is considering both a reduction in business equipment property taxes and income tax rate reduction. Senate leaders have at least committed to evaluating whatever legislation the House sends their way. 

Indiana ended its 2021 fiscal year at the start of July with nearly $4 billion in reserves due in part to an influx of stimulus money, unintentionally triggering an automatic refund to taxpayers worth $545.3 million. Since then, revenues have exceeded April estimates by over $560 million…

House Speaker Todd Huston, R-Fishers, wants to see a longer lasting tax cut — assuming revenues continue to exceed expectations —  instead of relying on another automatic refund to give taxpayers more money in their pockets.

“My biggest fear is if we keep it, we’ll spend it,”  Huston said Monday during the Indiana Chamber’s Legislative Preview.

Well, goodness gracious Mr. Huston–we taxpaying citizens sure wouldn’t want that! We wouldn’t want to see you use any of those dollars to patch a few of the gaping holes in Indiana’s pathetic social safety net (TANF pays a munificent $130 per month to households with one parent and one child).

We Hoosiers know it would be too picky to expect you to earmark some of those funds to maintain any of the roads and bridges that the federal infrastructure bill will finally repair–you know, the infrastructure you “fiscal conservatives” have ignored for years.

For that matter, it is highly unlikely that the federal bill will provide Indiana with monies to repair all the crumbling roads and dangerously deteriorated bridges that need such repair. In a state served by a less irresponsible legislature, those “extra” funds might actually be put to that use. (There are 19,327 bridges in the state, and over 1100 of them are classified as structurally deficient. The state has identified 3,198 that need repairs, and has estimated the cost of doing those repairs at $2.3 billion. The feds are highly unlikely to cover all of that–even with a Hoosier as Transportation Secretary.)

We also wouldn’t want to use that money to improve public education, or to replace any of the education funding that Indiana’s legislature has siphoned off and sent to private, mostly religious schools. After all, we aren’t (yet) the worst–Indiana ranks 47th among the states for per pupil spending. That means there are three states worse than us, so no worries, right? And we do even better in teacher pay–why, we are way up there at 38th!

I hate to break it to you, GOP legislators, but “fiscally conservative”lawmakers don’t continue to ignore the multiple needs of the state in order to use an obviously temporary influx of dollars to reward the business interests that donate to their campaigns. They don’t cut taxes so that they can plead poverty when urban areas need added funds for public safety or public works, and so they can keep telling teachers the state can’t afford to pay them competitively. 

Fiscally prudent lawmakers establish sinking funds to retire bonds, plan for the ongoing maintenance of infrastructure, and pay TANF recipients enough to buy food and diapers. They fund education adequately, recognizing the importance of an educated workforce and polity. They don’t act like pigs in slop, “spending” a temporary windfall to curry favor with their donors and supporters while shortchanging everyone else.

Honest to goodness, Indiana! Stop proving Harrison Ullmann’s point!

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Repeating My Mantra…

People who have read this blog for any length of time are familiar with some of my preoccupations–civic literacy and civics education, climate change, competent governance, and job creation. (Admittedly, I have a lot of “hot buttons”…)

I have been fairly consistent in my approach to most of these issues over the years, but I’ve changed my tune when it comes to growing the economy and creating jobs. I used to be persuaded by the argument that significant raises in the minimum wage would lead to job losses–it seemed logical that forcing a business to pay more to worker A would leave that business with fewer dollars with which to hire worker B. What I didn’t understand was the unspoken caveat: all things being equal. In the real world, it turns out that all things aren’t equal.

What the real world evidence shows is that paying workers a living wage–and thus providing them with a modicum of disposable income–is what creates jobs. As I now understand, demand is what creates jobs, not the beneficence of the factory owner. The guy who owns the widget factory isn’t going to hire more workers to make widgets if no one has the money to buy them.

A recent article in The Week emphasized the point

For many years, rich oligarchs have posed as the engines of the economy — the entrepreneurs whose beneficence and wise decisions create economic prosperity. In a 2019 article for Fox News, Sally Pipes, president of the right-wing Pacific Research Institute, called for Americans to “celebrate America’s job creators” during Labor Day. “Let’s honor the people responsible for that grandeur — namely, the profit-seeking entrepreneurs and business people who make our economy hum,” she wrote.

This is bunk. The real engine of the economy is the dollars in the pocket of the humble average citizen.

The article goes further, however. Most economists now recognize that putting additional money in the hands of workers stimulates demand, but they tend to think of that demand in the context of a fixed economic capacity–as a mechanism for getting to full employment in existing factories and other enterprises.

In reality, as Skanda Amarnath and Alex Williams argue at Employ America, spending also affects overall capacity. A factory, for instance, is not some immortal thing — at a minimum, it must be continually maintained because of entropy and ordinary wear and tear on equipment. To remain competitive, it must be regularly upgraded with the latest production technologies. But businesses will logically invest in new capacity only if they see a market for the goods and services that capacity would produce. This is especially true with respect to high-tech manufacturing investment, which is very complex and expensive — taking over half a decade to pay off.

Amarnath and Williams argue that slack demand afflicted America’s economy well before the 2008 recession, and that it is only surging again now because of the huge boom in sales of computer products–a boom generated by two things; the pandemic surge in working from home, and government transfers to individuals, also due to the pandemic.

All of the available evidence confirms that giving poorer people more money generates economic growth. When you give rich people more money–through Republican policies like deregulation, union busting and especially the numerous, generous tax cuts so dear to GOP hearts–they disproportionately save it, rather than spending it and boosting the economy.

As the article says, cash in the pockets of the working poor isn’t just good in in a humanitarian sense (giving people money they need to live.) It’s good because spending those dollars is what will keep businesses humming, investment high, and the economy healthy.

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Proving Nick Hanauer Right

I have previously cited Nick Hanauer, the billionaire who has repeatedly pointed out that the belief–embraced by the GOP–that raising the minimum wage depresses job creation is a fallacy.

As Hanauer has emphasized, this economic theory has cause and effect backwards: jobs are created by demand. (If you aren’t selling your widgets, you aren’t hiring more people to produce greater numbers of them.) Pay workers a living wage, putting disposable income in the hands of people who hadn’t previously had any, and increased demand will boost both job creation and the economy.

I get an email newsletter from Axios, (link unavailable) and a recent one included a report on fast-food industry earnings that certainly seems to confirm Hanauer’s thesis.

Between the lines: The fast-food industry’s biggest tailwind is coming from a surprising source — the increased pay of low-wage workers.

After trailing higher-paid workers for years since the financial crisis, earnings for the bottom 25% of workers have been growing at a rate much faster than the national average, and weekly earnings for the bottom 10% of full-time workers have grown even faster, data shows.

Generally, rising wages would be seen as a negative for the industry, but coupled with stable gas prices, the increasing paychecks of low-wage workers means more money spent at fast-food and fast-casual restaurants.

Be smart: Goldman’s research team estimates 70% of the industry’s sales growth over the past 5 years can be explained by rising wages, lower gas prices and a boost from third-party apps like GrubHub and Uber Eats.

Traditional economic theory says that if I have to pay employee A more, I will have less money available and I will thus be unable to hire B.  That makes all kinds of sense–all else being equal. What real life tells us, however, is that all else isn’t equal. As the Axios report shows, the increase in buying power more than compensates for the increase in payroll.

You would think that a political party devoted to the theory that cutting taxes will  generate revenue sufficient to pay for those cuts would understand this.

The theories may be similar, but reality can be a cruel mistress: when the issue is raising the minimum wage, real-world outcomes demonstrate that Hanauer’s approach works, but when the issue is tax rates, the Republican approach– cutting taxes on rich people– doesn’t.

As Paul Krugman has written,

In late 2007 the Trump administration pushed through a large tax cut, whose key component was a drastic reduction in the tax rate on corporate profits. Although most economists were skeptical about claims that this would do wonders for economic growth, conservatives were ebullient. Lower tax rates, they claimed, would give American corporations the incentive to bring back trillions of dollars invested overseas, and foreign corporations a reason to invest huge sums in the U.S.

And Republican politicians bought this argument. Even Susan Collins, the most moderate Republican in the Senate (although that isn’t saying much) declared herself convinced that the tax cuts would pay for themselves.

Krugman followed those opening paragraphs with graphs and statistics demonstrating rather dramatically that the tax cuts did not pay for themselves.  Not even close.

For example,Krugman says

Business investment was 13.2 percent of G.D.P. before the tax cut went into effect. It’s now … 13.5 percent. That’s a rise of around 0.3 percentage points, or less than a tenth of what the tax-cut advocates predicted.

As a result of the GOP’s 2017 tax cuts, deficits and the national debt have ballooned. Republicans would have marched on Washington with pitchforks if debt levels this steep had been generated by a Democratic Administration.

Real-world evidence says: pay working people a living wage, and everyone benefits.

Give the rich a tax cut, they sock their savings away in a tax haven, and no one else benefits.

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Patriotic Millionaires

Prejudices against “those people” tend to be the familiar age-old biases based upon race, religion and the like, but other stereotypes abound and can be equally misleading. (In his teens, my middle son looked askance at  anyone in the “business class”– he felt they all valued profit over people.  When he grew up, he came to recognize the infinite variety of people who own businesses, and adjusted his expectations accordingly.)

Too many Americans these days characterize “the wealthy” as uniformly predatory capitalists with their boots on the necks of the working class–a description every bit as over- inclusive as my son’s earlier stereotype. Just as there are greedy and unattractive folks at the top of the income ladder, there are also good, caring people who are working for economic fairness.

Vox recently reported on a group of millionaires doing just that.

A group of millionaires dedicated to decreasing the influence of money in politics is planning to endorse candidates for the first time, in the 2018 midterm elections.

The only requirements: The candidates it backs have to be running against an incumbent who voted for the Republican tax cuts, and they’ve got to be able to talk about taxes in a way that doesn’t put voters to sleep.

Erica Payne, a progressive strategist, is the president of Patriotic Millionaires, the group making the endorsements.

Patriotic Millionaires is a group of about 200 wealthy Americans who advocate for less income inequality and against the concentration of wealth. It’s a bipartisan group, but it’s opposed to a central Republican idea: that benefits for the wealthy will eventually “trickle down” to the rest. That’s the thinking behind the 2017 tax cut bill, which reduced the corporate tax rate to 21 percent from 35 percent and disproportionately benefits businesses and the wealthy.

The group first came together in 2010 to oppose the extension of Bush-era tax cuts for millionaires. Since then, it’s expanded its focus beyond taxes to also include issues such as the minimum wage and campaign finance reform.

It has also expanded its membership to more than 200 people— to join, you have to have an annual income of more than $1 million or assets of more than $5 million. Morris Pearl, a former director at the investment firm BlackRock, chairs the group.

Patriotic Millionaires is a bipartisan organization concerned about the concentration of wealth; it advocates for less income inequality and rejects the argument–parroted by  “policy wonks” like Paul Ryan— that benefits for the wealthy will eventually “trickle down” to the rest of us. “Trickle down” of course, was  the purported justification for the 2017 tax cut bill, which reduced the corporate tax rate to 21 percent from 35 percent.

Despite claims that the measure would create jobs, it has disproportionately benefited businesses and the wealthy–while exploding the deficit.

According to estimates from the Center on Budget and Policy Priorities, the top fifth of earners get 70 percent of the bill’s benefits, and the top 1 percent get 34 percent. The new tax treatment for “pass-through” entities — companies organized as sole proprietorships, partnerships, LLCs, or S corporations — will mean an estimated $17 billion in tax savings for millionairesin 2018. American corporations are showering their shareholders with stock buybacks, thanks in part to their tax savings, and have returned nearly $700 billion to investors this year.

As noted above, the 2018 midterms will be the first time Patriotic Millionaires will endorse candidates.

Patriotic Millionaires is currently considering about 60 candidates for potential endorsement, most of whom are Democrats opposing incumbent Republican lawmakers in the House of Representatives in competitive districts. The candidates on the list tend to fall into the more moderate, establishment camp, but some, such as Katie Porter in California and Kara Eastman in Nebraska, are avowed progressives.

The group is bipartisan and would therefore theoretically be willing to back a Republican who voted against the tax bill— there are 12 of them. I also asked if they were willing to back a democratic socialist candidate, to which Payne, the group’s president, replied that they will consider endorsing any candidate who is running against one of the lawmakers who voted to support the bill. “This tax bill is such a complete abomination that anybody who voted for it should be hurled from office,” she said.

Patriotic Millionaires joins other rich activists–Nick Hanauer and Tom Steyer come to mind–in arguing for economic sanity.

Think about these activists before you diss all rich people.

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Those State “Laboratories”

Ah, federalism.

Life in the 21st Century challenges our federalist system in a number of ways; it gets more and more difficult to decide–at least at the margins–what sorts of rules should be applied to the country as a whole, and what left to the individual states.

However those issues get resolved, however, our federalist system pretty much guarantees that state governments will continue to be the “laboratories of democracy” celebrated by Justice Brandeis, who coined the phrase in the case of New State Ice Co. v. Liebmann.  Brandeis explained that a “state may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.”

Most recently, state governments have been “laboratories” for the GOP’s belief that low taxes are all that is needed to stimulate economic growth.

As David Leonhardt of the New York Times recently noted,

Until recently, Kansas offered the clearest cautionary tale about deep tax cuts. The state’s then-governor, Sam Brownback, promised that the tax cuts he signed in 2012 and 2013 would lead to an economic boom. They didn’t, and Kansas instead had to cut popular programs like education.

Now Kansas seems to have a rival for the title of the state that’s caused the most self-inflicted damage through tax cuts: Louisiana.

Those who follow economic news have been aware of the painful results of the  Kansas experiment for some time. Evidently, however, the news of its dire results and the subsequent, ignominious retreat by the Kansas legislature failed to reach Louisiana–and that state’s legislators appear unable to deal with the reality of their own failed experiment.

“No two ways about it: Louisiana is a failed state,” Robert Mann, a Louisiana State University professor and New Orleans Times-Picayune columnist, wrote recently.

A special session of the State Legislature, called specifically to deal with a budget crisis caused by a lack of tax revenue, failed to do so, and legislators adjourned on Monday. No one is sure what will happen next. If legislators can’t agree on tax increases, cuts to education and medical care will likely follow.

Leonhardt places the blame for this state of affairs on Bobby Jindal, who came to the Governor’s office having drunk deeply of his party’s ideological Kool-Aid:

Louisiana’s former governor, Bobby Jindal, deserves much of the blame. A Republican wunderkind when elected at age 36 in 2008, he cut income taxes and roughly doubled the size of corporate tax breaks. By the end of his two terms, businesses were able to use those breaks to avoid paying about 80 percent of the taxes they would have owed under the official corporate rate.

At first, Jindal spun a tale about how the tax cuts would lead to an economic boom — but they didn’t, just as they didn’t in Kansas. Instead, Louisiana’s state revenue plunged. The tax cuts helped the rich become richer and left the state’s middle class and poor residents with struggling schools, hospitals and other services.

Unfortunately, these “laboratories” aren’t working the way Justice Brandeis envisioned, because Republican representatives elected by the rest of the country refuse to learn from their failures. Ideology has once again trumped evidence– the tax bill passed by Congress and signed by Trump is patterned after those in Kansas and Louisiana.

The rich will get richer, and the poor and middle-class will pay the price. And those who refused to learn from the experiences of our “laboratories of democracy” will profess astonishment.

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