Immorality, Irrationality, Inaccuracy and Inequality: the Fundamentals of the Republican Tax Plan

In June I wrote several blog posts pertaining to increasing U.S. income inequality, and then my last post in October briefly (remember Twitterization?) tried to assess what was then a skeletal Republican tax reform proposal.  We now know much more about the Republican plan, in which curiously the word ‘reform’ is now frequently being replaced by the more straightforward term ‘cut.’  So it’s time for an update.  If you’re in a hurry my title above subtly hints at the bottom line – it’s even worse than I thought.  Oh and yes, I’m a fan of alliteration, but not of hyperbole.

Let’s review a few income distribution facts:

• The United States has the most unequal income and wealth distributions in the developed world, and they have become significantly more unequal over the past 40 years.
• In 2015 the bottom 50% of U.S. households earned only 12% of total national income and owned only 1% of the nation’s wealth.
• At the same time the top 1% earned 25% of total income and owned 40% of our total wealth.
• The richest 1% own more wealth than the bottom 90%.
• Between 1965 and 2015 inflation-adjusted wages in the nation’s  largest companies increased a total of 10.3%.
• Over the same period inflation-adjusted CEO compensation for these same companies increased by 941%.

As noted in previous posts, there is NO moral rationale and NO rational economic justification for this scale of inequality.  In addition, history establishes pretty clearly that gross social inequalities are not sustainable over time without substantial societal unrest.  Immoral?  Irrational?  Sure seems that way.

But wait!  There’s allegedly hope in sight, in the form of the current Republican tax plan.  None other than President Trump recently told reporters that “It’ll be the largest tax decrease in the history of our country for the middle class,”  and “the rich will not be gaining at all with this plan.”  Boy, what a relief!

You may recall my prediction in the last ‘twitterized’ post that “rich guys will win” from the proposal, but Trump now says just the opposite.  Who’s right?  We now know enough about the plan to render an objective judgment, even with some details still missing (Hint:  this is where the ‘Inaccuracy’ label comes in.)  We could look at Fox News or MSNBC for “evidence,” but since objectivity is the goal lets rely on the analysts at the nonpartisan Tax Policy Center.  Their predictions:

• Nearly 75% of the tax savings from the Republican plan will go to the top 20% of earners – those households making more than $149,000.
• More than 50% of the tax breaks will go to the top 1% – those making more than $732,800.
• By the 10th year of the plan, more than 80% of the savings accrue to the top 1%.
• While the average middle class household will get an immediate tax break, estimated at a not inconsequential $940, that saving is dwarfed by the $146,470 average savings for a top 1% household.
• Impact on the U.S. budget deficit?  Don’t even ask.

The Trumps of the world will not be gaining at all from the plan?!  Seriously??  And where are the great middle class benefits?  It turns out that most are speculative, dependent on the alleged job expansion and economic growth that will be unleashed bigly and trickle down when we give rich folks $150,000 more to spend.  Quick but fascinating digression:  when I just typed ‘bigly’ as a cheap attempt at satire, even my simplistic autocorrect function recognized that it is not a word and corrected it to ‘bigot.’  Coincidence?  I think not.

Here’s the thing – the rich and the corporations that are the primary source of their wealth are ALREADY awash in cash, so why hasn’t this trickle down miracle already happened?  Haven’t we heard this song and dance before?  As I noted in my previous entry Toto, Are We Still in Kansas?, trickle down supply-side theory is snake oil economics.  It has never worked effectively but is always used by Republicans to justify tax cuts at the top.  So ‘inaccurate?’  That’s putting it mildly.  Denial of reality?  Closer.  Lying?  Absolutely.  Moore 1, Trump 0.

There is of course a real danger in this charade.  It’s called plutocracy – government by and for the wealthy.  Many in the middle class may be satisfied with an additional $900 in crumbs, even if it erodes away in a few years and exacerbates the national debt.  But the CEO who gets the $150,000 tax break under the plan ALREADY earned 300 times more than his/her average employee BEFORE the tax cut, up from 20 times more in 1965.  One might reasonably ask how such an economic perversion could even be contemplated in a representative democracy.  The answer may lie in the premise.

Author: garygram

I spent my career as an economics professor and administrator at universities in New York, Texas, Florida and the United Arab Emirates. Since some part-time consulting in 2013-14 in Qatar, I have been retired with my spouse in Hilton Head's naturally spectacular Moss Creek community. My current passions are public policy, music, tennis, grandkids, community service (I currently serve on the Moss Creek Board of Directors), the Nebraska Cornhuskers and now blog writing, not necessarily in that order. While I will always attempt in my blog writing to be objective and evidence-grounded, it will probably become apparent that I am what is typically today called Progressive, a status that seems quickly to be coming back into favor. View all posts by garygram