The President and the Republican controlled Congress are ready to move onto what they are really interested in and have been too worried about incidental blow back to confront. Their focus is on how to deliver significant tax reduction for their many supporters who have shelled out the billions to get the GOP crowd elected. One might sayits “pay back” time.
So, why the reluctance?
Republicans realize that if they do not handle the messaging parts extremely well the public will wake up and see what a one sided deal Republicans are offering. With this new awareness, voters might put the screws to a few GOP Senators and Representatives. And, if enough GOP Senators cave, Americans will see a repeat of repeal and replace. Hmmm.
Is this a legitimate concern?
The President has announced the tax reform will be a huge break for the hard working middle class and the wealthy, like him, will get little, maybe nothing. Doesn’t that make you want to sign up right away? Hmmm, but does the President have a track record of telling the truth on important matters? Or for anything?
Like healthcare, the Republican plan lacks any input from public hearings, assessments from reputable think tanks, or the public existence of any plan details. But this lack of information has not inhibited Republican spokespersons from explaining why the tax reform is necessary and in America’s best interest.
The tax reform, the President says, is about stimulating the economy and creating jobs. Why? Entitlements are projected to increase the size of our yearly Federal deficit and unless the economy grows faster than the current 1.5-2%, the increase in tax revenues will not keep up, the deficit will grow, and the $20 trillion debt will get bigger.
This is a reasonable and logical argument which deserves a fair review. Admittedly, one has a perceived debt problem and the answer is to lower taxes. Hmmm.
The first problem is there is no evidence this works based upon previous attempts at supply side economics. Most corporations and wealthy individuals take the tax cuts and say thank you and do not reinvest. With interest rates currently so low, any sensible business person would borrow and invest if there was a reasonable prospect that there were customers.
Second, with 4% unemployment now, where are the workers going to come from and where are they going to suddenly find the skills need to expand the economy. Are all the new to be employed going to work at Starbucks or Walmart?
Third, global macro forces can unexpectedly influence US economic performance. Add to this the current US hostile trade negotiations, what are the chances that other countries will want to trade with the US? A global slowdown, if not a recession, is a distinct possibility.
Are Congress leaders telling us everything?
Not withstanding the sincerity of some supply side economists, Congress is regrettably tied to huge campaign election costs. At one end of this rope is the Senator or Representative and at the other end is a special interest or wealthy donor. What one must acknowledge is that the rope is both real and susceptible to being cut. If cut, the Congress member can say goodbye to his seat. Under these circumstance there should be no surprise that items like eliminating the AMT, lowering corporate taxes from 35% to 20% while still allowing pass through earnings, and reducing the top bracket from 39.5% will be in the final bill. These provisions represent payback for the billions already advanced in general elections.
The ‘free lunch” theorists will offer assurances that the tax code can be cut, Americans will flock back to work as new jobs are created, and the economy will blossom while the Federal Debt shrinks. If this could happen, it truly would be a great tax reform, but what if it doesn’t happen this way?
The first signal will be the deficit increases faster than currently projected. Americans will be advised to be patient and next quarter these stimulations will take affect.
The second signal will be income inequality continues to grow, possibly even faster.
The third signal will be a desire from many conservatives and deficit hawks to cut government programs like Medicare, Medicaid, and Social Security (but not Defense) because America can’t afford to spend with its deficit and debt so high.
Sadly, the fourth signal, if history repeats, will be the initiation of a war requiring Americans to turn their attention from domestic issues to supporting our flag and troops overseas.
Belatedly, Americans will realize that the “free lunch” was served only to the very wealthy while the rest of America had to pick up the bill.
The size and shape of tax reform should be know soon and at that time, the predictions of this post can be judged. The best outcome, IMO, will be that in pursuit of greed, GOP Congress Members will choke on this ambitious reform, and consequently, this reform fails to pass into law. With Republicans in control of both house failure is a long shot but hope still shines eternal.