The Trump White House got something wrong. It would be more surprising if it got something right. Do you remember when Trump and his various minions told those tall tales about their tax plan—one that overwhelmingly benefited the wealthiest Americans?
“Not only will this tax plan pay for itself, but it will pay down debt,” Treasury Secretary Steve Mnuchin promised. “I think this tax bill is going to reduce the size of our deficits going forward,” Sen. Pat Toomey (R-PA) told reporters in early November.
Those predictions turned out to be false—as almost every economist surveyed last November by the University of Chicago said they would (37 out of 38 agreed—one responded “uncertain”—that it would increase the federal debt not only in raw dollars but, more importantly, as a percentage of Gross Domestic Product [GDP]). A New York Times analysis this week looked at recently released government data and explained how Trump’s millionaire’s tax cut is ballooning the federal deficit. The White House earlier this month announced it had revised its projections for the federal budget. It was not a small revision. In fact, the Office of Management and Budget now projects the U.S. will accumulate almost $1 trillion in additional debt over the next 10 years above what it estimated in February, i.e., just after the Republicans passed their rich man’s party of a tax cut.
In fiscal year 2019, which begins in October, the White House says we will run a deficit of $1.1 trillion—that’s 5.1 percent of GDP. By comparison, in fiscal year 2016 it was 3.14 percent, FY 2017 it was 3.43 percent, and the most recent estimates for the current year—Trump’s first full fiscal year as president—show that it has already climbed to 4.2 percent. The deficit is not supposed to go up when the economy is running as strong as it is right now. Now is the time to be running lower deficits, or even paying down debt, as Bill Clinton did, in preparation for the next recession—when higher deficits would make sense.
Corporate tax receipts—what the U.S. collects from corporations—have plummeted to a level not seen since the World War II. The Times analysis cited that as the primary factor driving the deficit through the roof. And why, pray tell, are corporations paying so little in taxes suddenly? “The reason is President Trump’s tax cuts.” As the adjacent graph shows, other big, recent drops largely coincide with recessions (1980, 81-82, 1990-91, 2001, and, of course, 2007-09). The current one is the outlier. It is the result of a policy choice made by the Republicans.
It’s not as if corporations were actually paying that much in taxes before Trump came along. This second graphic shows that a good number of big, profitable companies avoided paying income taxes under the pre-Trump tax code. Yet somehow they needed the sweet relief that could only be provided by Mr. 46 Percent of the Popular Vote.
Corporate taxes as a percentage of GDP in 2016 were already about 25 percent lower than the average among wealthy countries. It has now dropped to less than one-half of that average. That lost money has got to come from somewhere. As Joan McCarter rightly pointed out, the Republicans are declaring a “war on poor people” in order to find it.
Moreover, the Trump tax scam is not delivering the goods, as documented by Eric Levitz at New York Magazine:
In the first six months after the Trump tax cuts were passed, corporate investment in equipment declined, America’s projected long-term deficit swelled by nearly $2 trillion, and wages for the vast majority of American workers fell on an inflation-adjusted basis.
Now that’s a Trump-tastic trifecta. As Levitz also noted, businesses are reporting that they expect to decrease capital spending moving forward. What are companies spending their tax cut bonanza on? Mostly, they are buying shares of their own stock. In the second quarter of 2018, publicly traded companies bought back $436.6 billion worth of shares, a number that doubled the previous quarterly record set, wait for it, in the first quarter of 2018, just after the Trump tax scheme took effect. Given that the wealthiest 10 percent now own 84 percent of the total stock market, this is simply another way Trump is benefiting them at the expense of average Americans.
The Man Who Lost the Popular Vote may be crowing today about the first estimate on GDP growth for the recently ended quarter. However, as the New York Times analysis of the GDP report by Ben Casselman explained, the increased growth rate was the “result of a confluence of events unlikely to recur.” A big chunk derived from Trump’s trade war, as companies abroad, looking to save money, bought large numbers of U.S. goods just before tariffs kicked in. That’s obviously a one-time bounce that will be countered by lower sales in the third quarter, as those same companies won’t be making their normal purchases.
The tax cuts for the rich and recently enacted goverment spending increases also provide a temporary stimulus—albeit without making long-term investments in infrastructure that could pay more dividends down in the road in the form of increased productivity. Casselman noted that Trump’s plans do not meet with the approval of people who actually know something about economic policy: “Many economists question the wisdom of passing what amounts to a deficit-funded stimulus package when unemployment is low and the economy is strong.”
What’s also important, politically speaking, is that Trump’s tax scheme is not meeting with the approval of voters. After an initial increase in popularity—demonstrating the impact of fawning, misleading media coverage of one-time bonuses that a few corporations gave out specifically to help pump up support for the tax plan—the American people have realized the plan won’t help most of them. Republicans know it, too, as seen in their abandonment of the tax cuts on the campaign trail in race after race this year. Democratic candidates, on the other hand, should hang this rich man’s tax cuts around the necks of their Republican opponents.
If there’s one thing true about the Republican Party, from Trump to Dubya to Reagan, it’s this: their primary goal is to ensure that the rich keep on getting richer. That’s why they spew all that racially, culturally, and/or religiously divisive stuff—which they know keeps us divided and distracted while they send tens of billions up the economic ladder. Now that, despite Republicans’ promises, those tax cuts for the rich aren’t paying for themselves, those same Republicans are telling us we have to cut spending on the safety net in order to avoid piling up debt that our kids and grandkids will have to deal with. And they’ll criticize that safety net by talking about certain people being “dependent” or—when they’re really feeling hateful—“lazy” and “shiftless.” On Friday we learned that GOP Rep. Jason Lewis of Minnesota called Americans who receive assistance from their government “parasites.” Meanwhile, the rich will have gotten theirs either way.
Please bear in mind the words of Lyndon Johnson, whose Medicare, Medicaid, and Great Society programs have helped tens of millions of Americans of every race:
“If you can convince the lowest white man he’s better than the best colored man, he won’t notice you’re picking his pocket. Hell, give him somebody to look down on, and he’ll empty his pockets for you.”
That’s exactly how Donald Trump campaigned for president—and it’s exactly how he’s governing from the White House.