If Republicans Aren’t Stressing About Deficit Spending, Why Should Democrats?

Trump’s tax plan shows the GOP cares about cuts for the rich, far more than it cares about debt.

Kate Aronoff

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. (Photo by Mark Wilson/Getty Images)

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.

'There is absolutely no factual basis for the assertion that cutting corporate tax rates causes growth to increase.'

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 Brook­lyn-based jour­nal­ist cov­er­ing cli­mate and U.S. pol­i­tics, and a con­tribut­ing writer at The Inter­cept. Fol­low her on Twit­ter @katearonoff.
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