Despite a decades-running PR campaign stoking fears of devastating defaults and vigilante bondholders, the tax plan unveiled by National Economic Council director Gary Cohn and Treasury Secretary Steve Mnuchin this week could blow a $6.2 trillion hole through the federal budget over the next decade.
Applying traditionally-held notions about how government programs are funded, where tax revenues pay for government programs on a one-to-one basis, the GOP’s tax overhaul would leave Trump with a multi-trillion-dollar gap to fill to pay for his proposed $54 billion boost to defense spending, among other things. Responding to these and other concerns at the White House on Wednesday, Cohn and Mnuchin argued that the lost revenue would be made up through economic growth. The plan would “pay for itself,” in Mnuchin’s words, by incentivizing businesses to invest in the economy.
“There is absolutely no factual basis for the assertion that cutting corporate tax rates causes growth to increase,” Roosevelt Institute senior economist Marshall Steinbaum counters. “This is one of the key areas in economic policy where there is a radical disjunction between what the evidence actually shows versus what the rhetoric says and what the policy that comes from the rhetoric is.”
The last time lawmakers altered the tax code in corporations’ favor at this scale, Steinbaum said, was in the Jobs and Growth Tax Relief Reconciliation Act of 2003. Then-president George W. Bush predicted the bill would boost investment and “draw more money into the markets to provide capital to build factories, to buy equipment, hire more people.” None of that happened, with analyses showing that corporations that benefited from the change invested in the economy at rates virtually indistinguishable from those that didn’t, Steinbaum says. Instead, it was corporate shareholders who reaped the rewards of companies being able to hold on to more of their profits.
“What corporations do when they get a gigantic rate cut,” Steinbaum explains, “is pay out more money to their shareholders.”
The GOP’s nakedly greed-fueled ambivalence toward the budget is nothing new. The dirty secret of Republican policymaking is that Republicans actually love deficit spending — so long as they get to put the money toward items like bloated defense budgets and tax cuts for the wealthy. A Brown University study, for example, pegs the total cost of GOP-started wars in Iraq and Afghanistan at $5 trillion, and counting.
“They talk a lot about deficits when spending proposals are on the table, or in justifying cuts to spending and welfare programs, but when gigantic tax cuts for the rich are on the table, suddenly their concerns about the federal deficit disappear,” Steinbaum tells In These Times.
With more than four decades at Goldman Sachs, combined, Cohn and Mnuchin know better than most about deficit spending in all the wrong places. In the aftermath of a financial crisis it helped engineer, Goldman Sachs received a $10 million bailout. While Mnuchin left the banking giant in 2002, Cohn was serving as its president at the time. A New York Times article from 2009 sums up the bank’s response to the recession and bailout: “Over all, the events of the past year have not changed the way Goldman views or manages the risks it takes.”
The issue here isn’t that deepening the federal deficit is inherently bad, as the GOP has scolded for years. As economist Pavlina Tcherneva said back in January, “Deficits absolutely matter, always and everywhere.” But what matters more than the morality of a ballooning number on a computer screen is what the money behind it is being spent on. Is the deficit going to put people back to work? Upgrade crumbling infrastructure? Prepare the country for an onslaught of rising tides?
In the case of Trump’s new tax plan, the answer to those questions is pretty straightforward: Hell no. The president’s tax plan would slash the corporate tax rate from 35 percent to 15 percent, eliminate the estate tax and the ability to write-off personal expenses, like interest paid on student loan debts. “The people who are going to benefit are the owners of large major corporations that have been running high profits,” says Steinbaum. Trump will see the fruits of his own tax plan, too, since it offers vast savings for his personal empire.
So, if the fears of federal deficits really are myths, why not reflect that in calls for progressive policy and propose driving up the deficit in a way that would benefit all Americans? No longer seeing the federal budget as a simple balance sheet opens up a whole range of possibilities. A proposal from the Next System Project, making the rounds again this week, proposes using federal funds to nationalize and then rapidly scale down the fossil fuel industry. Others have suggested a federal job guarantee, which could drive spending while giving workers more bargaining power.
“The Democrats have been punished severely by taking the deficit rhetoric too seriously,” Steinbaum says, “because that constrains what they can propose in office.”
With Republicans now controlling more power than at any point since 1928, today’s Democrats have nothing left to lose but the chains of their regressive approach to fiscal policy.
Kate Aronoff is a staff writer at The New Republic and author of Overheated: How Capitalism Broke the Planet — And How We Fight Back. She is co-author of A Planet To Win: Why We Need a Green New Deal and co-editor of We Own the Future: Democratic Socialism—American Style. Follow her on Twitter @katearonoff.