Unless You’re Rich, the Economy Is Not Working for You. And the GOP Tax Plan Will Only Make It Worse

Nell Abernathy, The Roosevelt Institute

The Republican tax reform package is a catastrophe as economic policy. (Photo By Tom Williams/CQ Roll Call)

By this point we’ve all heard about the car­toon­ish immoral­i­ty of the GOP tax plan — rais­ing tax­es on the work­ing poor while cut­ting tax­es for the super-rich.

But set­ting aside these moral con­sid­er­a­tions, the Repub­li­can tax reform pack­age is also a cat­a­stro­phe as eco­nom­ic pol­i­cy. As designed, it will super-charge trends that have stalled growth and wages in the Unit­ed States for the last four decades. Nei­ther the House nor the Sen­ate plan will do any­thing to spur invest­ment and both will bol­ster a tax code that incen­tivizes short-term spec­u­la­tion and the squeez­ing of work­ers, sup­ply chains and consumers. 

Our econ­o­my has plen­ty of prob­lems, but too lit­tle cash at the top is not one of them. Tax cuts for cor­po­ra­tions and the rich — along with a suite of poli­cies pushed over 40 years — have shift­ed how, when and where cor­po­ra­tions and indi­vid­u­als decide to invest, spend and save.

Today, cor­po­ra­tions are not invest­ing because share­hold­ers pres­sure man­agers to deliv­er imme­di­ate returns and because indus­tries are so con­sol­i­dat­ed that dom­i­nant firms don’t actu­al­ly need to invest or inno­vate to remain com­pet­i­tive. Pri­vate investors are not putting their mon­ey into pro­duc­tive new enter­pris­es, but rather are earn­ing their returns from the sky-rock­et­ing val­ue of assets — stocks, finan­cial prod­ucts, real estate, art — that can be passed down to future generations.

What this means is that busi­ness­es have plen­ty of prof­its, but they’re not using those funds to do things that actu­al­ly cre­ate jobs or grow the econ­o­my. Instead of fund­ing new research to cre­ate bet­ter prod­ucts, expand­ing oper­a­tions to boost jobs or increas­ing wages, these busi­ness­es are instead choos­ing to give mon­ey to share­hold­ers — a prac­tice that ben­e­fits short-term investors but not the work­ers who make the com­pa­ny run. A mas­sive tax cut to cor­po­rate prof­its will increase that pool of avail­able mon­ey, while also increas­ing the returns to short-term investors now tempt­ed by an even big­ger poten­tial payout.

When not reward­ing share­hold­ers direct­ly, busi­ness­es have been busy buy­ing up oth­er firms. By pro­vid­ing com­pa­nies more cash on hand, the GOP tax bill would like­ly mean even more merg­ers, which fre­quent­ly result in cuts to jobs, the erec­tion of bar­ri­ers for small busi­ness and the curb­ing of con­sumer ben­e­fits. Activist investors will have greater incen­tive to push for such merg­ers as the super-rich see a chance to pass un-taxed estates on to the next generation.

The GOP tax plan will exac­er­bate these trends, increas­ing share­hold­er pay­outs at the expense of cre­at­ing jobs. As a result, mid­dle-class Amer­i­cans will face both tax increas­es and a weak­er safe­ty net.

Under the Sen­ate tax plan, almost every­one los­es. On aver­age, the bot­tom three-fifths of income earn­ers would see a tax increase, accord­ing to analy­sis from the Insti­tute on Tax­a­tion and Eco­nom­ic Pol­i­cy. As a result of the indi­vid­ual man­date repeal, 13 mil­lion Amer­i­cans could lose health insur­ance by 2027, accord­ing to the CBO. New methods for cal­cu­lat­ing the Earned Income Tax Cred­it will result in low­er pay­outs to the work­ing poor. The loss in gov­ern­ment rev­enue fore­clos­es the pos­si­bil­i­ty of job-cre­at­ing pub­lic invest­ment in infra­struc­ture, edu­ca­tion and care work.

All of this is unfair, but it’s also bad eco­nom­ics. Too often, pro­gres­sives cede eco­nom­ic argu­ments to the Right, but we should not hes­i­tate to com­bat the tax plan over the issues of jobs and growth. By fur­ther con­sol­i­dat­ing wealth and pow­er in the hands of the very few, the GOP tax plan is designed to dou­ble down on the same strat­e­gy that has failed work­ing Amer­i­cans for decades. 

Nell Aber­nathy is the Vice Pres­i­dent for Research and Pol­i­cy at the Roo­sevelt Institute.
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