Another Bad Re-Make of a Reagan “Tax Plan”

Believe or not, two Republican senators actually proposed a tax plan instead of simply blocking every attempt that Democrats have put forward since Barack Obama took the oath of office. They even made a salient point of fact in a joint op-ed in the March 4th Wall Street Journal and pointed out the somewhat obvious conclusion (that the preponderance of Americans have been saying for the last twenty years), which is:agenda2

that our current federal tax structure is broken, and that its problems are “rooted in the same fundamental unfairness and inequity of a government that picks winners and losers… furthermore, we believe that America’s best days are still ahead. But we also recognize that restoring the shared prosperity that comes from a strong economy requires reforming the most antiquated and dysfunctional government policies, beginning with the federal tax system.”

-Senators Marco Rubio and Mike Lee

Remarkable right? Something we can all agree on, right? Something that makes both common sense and macroeconomic sense, right? Ummm, no.

For too long, our tax code has helped the very few at the top (1%) of the earnings totem at the expense of the many (99%) farther down. Unfortunately, an analysis of the “plan” the esteemed senators proposed shows that they completely missed the same mark that their Republican predecessors have been missing since Saint Reagan successfully sold enough snake oil-voodoo economics to the American public to fill the Grand Canyon.

The first step Rubio-Lee proposed was lowering the top corporate tax rate to 25 percent. Now, normally, I would be all for this—the U.S. after all, does have the highest corporate tax rate in the world–if not for the fact that, with offshore tax havens and a wealth of other tax benefits, America’s largest corporations currently pay an effective tax rate of just 12.6 percent. Furthermore, if corporations were treated as people, (which the Supreme Court has so inauspiciously ruled when it pertains to campaign contributions but not when it comes to paying their taxes) they would have to pay taxes on income earned no matter where they were headquartered or sold their wares. If that were the case, I would be for a much more competitive rate of 15%, but without all the exemptions, taxpayer subsidies, (see: Monsanto, Dow Chemical, etc.) and if they paid taxes on their actual income.

Senators Rubio-Lee then argue that, in order to incentivize investment, they would make all capital expenditures 100 percent tax-deductible, suggesting that taxes have squeezed corporations out of the investment business. But if this were actually the case, then how do they explain the $2 trillion currently being held abroad by America’s largest corporations? And what about the enormous sums that companies like Apple and Home Depot are spending on buybacks, which, only serves to enrich investors—not grow the business, create jobs, increase market-share or any other productive measure? Handing out extra money to corporations does not encourage them to hire more employees for pete’s sake….one thing and one thing alone causes businesses to expand…..DEMAND!! And until politicians in both the Eurozone and the U.S. come to this obvious realization, there can be no meaningful recovery.

In fact, new research from the Roosevelt Institute clearly demonstrates that the link between corporate cash flow and productive investment has been all but disconnected since the shareholder revolution of the 1980s. Shareholders now pocket an increasingly large portion of corporate earnings and borrowing that would have once gone to capital investments, job creation, or raising workers’ pay. Given these facts, as well as the current level of historically high profts, it is clear that corporate investment is not suffering from lack of funding, and that more spending on corporate welfare is the wrong way to go. I can only assume that citizens of both The U.S. and the Eurozone sat through Econ 101 the week they were teaching that Supply and Demand principles apply to BOTH sides of the equation. How in the hell we’ve lost sight of this simple notion is completely beyond me.

Lee and Rubio suggest that corporate taxes drive American industries abroad. I could not agree more. Corporations want to benefit from American security, infrastructure, and human capital, but they don’t want to pay their share to maintain those invaluable assets, so they shelter themselves in tax havens like Ireland, leaving the American taxpayers to literally give them that which most American citizens have to pay for. The problem, therefore, is not, as Rubio and Lee suggest, that the tax code excessively, needlessly or unproductively taxes corporations. The problem is that it allows wealthy corporations to avoid taxes altogether.

We need policies that will ensure corporations contribute like the rest of us, not ones that will commit more public money to private enterprise.

The senators assert that their plan is directed by the principles of freedom, fairness, and growth. But in whose mind is it fair to spend hundreds of billions of dollars on wealthy corporations, while Americans drive on pothole-pocked roads and send their children to overcrowded schools to learn from underpaid teachers? It certainly doesn’t occur to me that fairness is being applied and I feel strongly that 99% of the over-burdened  and rapidly vanishing middle-class feels the same way.

As for individuals’ income tax, Rubio and Lee recommend reducing the number of brackets to two — one at 15 percent and one at 35 percent. The significant part of this proposal, however, is the 11 percent tax break for top income earners, which would further tip our economic balance toward the wealthy while reducing the amount of public funds available for things like crumbling roads, deteriorating national parks, disintegrating interstate bridges, under-funded schools, and the rapid de-industrialization of the United States (the average U.S. home, as of 2010, has 3 televisions, almost 60% of adult Americans own smartphones as of 2013, and more than 80% of U.S. households have at least one computer…Yet not a single one of any of those televisions or smartphones or computers are being made in this country!!).

No doubt senators Rubio and Lee would argue that this tax break will stimulate productive spending, give the “job-producers” incentive o hire more employees, blah, blah, and damn blah….but trickle-down economics did not work under Reagan, it will not work now, and it will never work, no matter how many times it’s repeated.

Toward the end of their op-ed, the authors propose a series of pro-family tax reforms, like tax credits for children and tax breaks for couples filing jointly. Quite simply, our learned senators are proposing things that already exists!! Wow. Now that takes gumption…not to mention an ill-informed, disconnected, and economically illiterate public.

Whatever miniscule incentives are included in this bad re-make of virtually every other Republican “plan” for American middle-class families, it is scarcely more than lip service, because, as usual, this Republican “plan” largely forsakes the American middle-class in favor of more tax cuts for large corporations and the wealthy.

Rubio and Lee frame their entire plan as a benefit to average Americans, but in fact, all it does is gloss- over policies that will continue our current trend of supporting the wealthy few at the expense of the country as a whole.

But as I said at the beginning of this piece, it’s nice that we’ve all agreed on the problem. But it would be fan-damn-tastic if we would look to solutions that real economists tell us actually work and quit placing trust in politicians who simply want to placate wealthy lobbyists so that they can pad their own pockets or advance their own political agendas like senators Rubio and Lee are so blatantly doing in their latest incarnation of a Republican “tax plan”.

 

Harvey A. Gold