Editor’s note: This op-ed is by John Fairbanks, a Vermonter currently living and working in Washington, D.C.
[I]n 1789, Benjamin Franklin famously, if not originally, observed that “In this world, nothing can be said to be certain except death and taxes.”
Other current events notwithstanding, I would add one more certainty: outlandish promises on tax cuts.
Congress recently approved a budget resolution in a parliamentary maneuver that allows $1.5 trillion to be added to the deficit over the next 10 years in order to make room for the estimated cost of a tax bill the majority party wants to pass by the end of this year with only a simple majority vote. Somewhere, Dick Cheney is nodding and smiling. Now, we await the actual tax plan, which could be public this week.
The majority needs this; for one thing, mega-donors are threatening to withhold their enormous campaign contributions if said majority doesn’t deliver on this. Insiders are convinced that passing a tax plan is absolutely essential to keeping control of Congress, or at least the House. Outside groups are planning to spend tens of millions of dollars to gin up public support. Given that kind of pressure, outlandish claims for benefits are to be expected. Tax cuts are being sold as “rocket fuel for the economy,” and backers state, as usual, that the cuts will pay for themselves by sparking economic growth. As a sweetener — and to try to combat the fact that about 80 percent of the proposed tax cuts go to the 1 percent — they’re claiming the plan’s central component, a corporate tax cut from the current 35 percent to 20 percent, “would likely give the typical American household around a $4,000 pay raise.”
When we finally see an actual plan, don’t be surprised if the majority tries to force it through with little or no time for analysis, debate and amendment, with good reason. This plan, at least as far as the bits and pieces we know, is a deficit-busting measure providing huge benefits — including zapping the estate tax — to a wealthy few and setting the stage for massive social spending cuts, particularly in Medicare and Medicaid.
The budget resolution allows Congress to add an additional $1.5 trillion to the deficit over 10 years. This is their estimated cost of the tax cuts. It could be optimistic. The Tax Policy Center projects the overall federal debt, including interest, would soar by $7.2 trillion over 10 years under the tax plan, based on what we know. But let’s stick with the $1.5 trillion figure for now. Averaged out, that would be about $150 billion a year over the 10 years, or about 0.7 percent of annual GDP (so much for this being “the biggest tax cut in history”).
As for Medicare and Medicaid, the budget plan assumes Medicare spending over the next 10 years will be about $470 billion less than currently projected, and Medicaid spending about $1.1 trillion less. That means the writers were assuming Congress would cut spending by about $1.5 trillion from those two programs alone.
But what about the offsetting benefits? Well, I’ve been through the “rocket fuel” argument several times before on these pages, so let’s just focus on the $4,000 promise to American workers.
First off, this is a number largely pulled out of the air. The president’s Council on Economic Advisers floated the suggestion that cutting corporate taxes would raise average household incomes by $4,000 to $9,000 a year. However, one of the experts the council cites as support for this claim, Harvard economist Mihir Desai (who favors corporate tax cuts), said “whoa.” He thinks the benefit would be more like $800. That works out to $15.38 a week.
Then there’s some other basic math. There are about 126 million households in the U.S. If you assume each of them will get $4,000 a year, that’s just over $500 billion. For the fiscal year that just ended, the federal government collected less than $300 billion in corporate income taxes. That gives a whole new concept to the phrase, “deficit spending.”
Third, I’m not seeing much in the way of real-world evidence that corporate tax cuts help workers’ paychecks. For example, the 1986 tax bill (which took two years to finish, by the way) cut corporate taxes. That did not change what has become a decades-long decline in real wages for American workers. The United Kingdom had a similar experience as it cut corporate taxes from 30 percent to 19 percent.
Finally, since it’s unlikely Congress will force corporations to pass through any benefits to workers, calculating that benefit may be an empty exercise. Reuters ran a story on Oct. 26 reporting that CEOs are telling investors and securities analysts that “they would use a tax reform windfall to buy back shares, retire debt and other shareholder-friendly moves.”
So the push is on. Someday, perhaps soon, we’ll actually see a bill. One thing is for certain: Whatever that bill looks like, it will not be able to make good on its promises to most Americans.
