The Economics of Failure
3 months ago Citizen#7 0
Secretary Mnuchin and chief economic advisor Gary Cohn (former President of Goldman Sachs) released a two page tax plan yesterday. When asked where the details were, they responded “they’re coming”.
What’s clear is President Trump is following the same worn out and incorrect economic thinking employed by Ronald Regan and George Bush. Regan increased the national debt by 186% or 1.86 trillion dollars in his term in office and George W. Bush increased the debt 101% or 5.849 trillion dollars. To be fair, Bush started two wars which contributed to the deficit in addition to the failed “supply side – trickle down” economic thinking”. Trump, Bush, and Regan all share the Republican lament that corporate tax rate, estate tax, and regulations are what is hampering the US economy. Let’s focus on corporations for now. The Americans for Tax Fairness presents some key facts to better understand the reality of corporate tax rates:
- Corporate share of federal tax revenue has dropped by two-thirds in 60 years — from 32% in 1952 to 10% in 2013.
- General Electric, Boeing, Verizon and 23 other profitable Fortune 500 firms paid no federal income taxes from 2008 to 2012.
- 288 big and profitable Fortune 500 corporations paid an average effective federal tax rate of just 19.4% from 2008 to 2012.
- Profitable corporations paid U.S. income taxes amounting to just 12.6% of worldwide income in 2010.
- US corporations dodge $90 billion a year in income taxes by shifting profits to subsidiaries — often no more than post office boxes — in tax havens.
- U.S. corporations officially hold $2.1 trillion in profits offshore – much of it in tax havens that have not yet been taxed here.
The idea behind Republican thinking that lowering corporate tax rates stimulates the economy benefiting us all comes from an economist who’s name is Laffer. He created the “Laffer Curve”, in 1979. Supposedly, the curve shows how lowering corporate tax rates, and tax rates on the wealthiest among us will impact government revenues in two ways:
- Every dollar in tax cuts translates directly to one less dollar in government revenue.
- Lower tax rates put money into the hands of taxpayers, who then spend it. That creates more business activity to meet consumer demand. Then, companies hire more workers, who spend their additional income. This boost to economic growth generates a larger tax base. That eventually replaces any revenue lost from the tax cut.
Initiatives on Global Markets part of the Chicago School of Business surveyed economic experts regarding the Laffer curve. 39% disagree and 57% strongly disagree with Laffer.
A 40 year period of stagnant wages, a greater portion of higher education costs being passed on to students, crumbling roads and bridges, and the ever increasing wealth gap between those at the top and average working people clearly demonstrate that this tax plan is wrong. Minimally a significant number of tax loopholes would need to be removed before any positive impact of more tax breaks for corporations and the wealthiest among us could show any real progress.