Trump’s Tax Cut is a Disaster, and It Will Get Worse

Posted in Politics and Justice by EloiSVM42 on February 28, 2018

Okay, I assume you have read my blog – “Econ 1” – or Samuelson’s introductory economics text used at Harvard, so here’s my follow-up on why the Republican tax cut bill is the worst thing that Trump – and Paul Ryan and Mitch McConnell – could possibly do to us during Trump’s administration, however long it lasts, which is really saying something.

Let’s begin by reviewing three data points:

1)    When President Obama took office from President George W. Bush (still the worst president in our history, in my view) in 2008;

2)    When President Trump took office in 2017; and

3)    The end of Trump’s first full year in office, and roughly where the tax cuts began to kick in.

Jan. ‘08      Dec. ‘16     Dec. ‘17

Unemployment Rate                                              11.1%          4.7%          4.1%

GDP Growth                                                            -0.3%          1.5%          2.3%

Personal Income Growth (Dec.)                            0.4%          0.3%          0.4%

Dow Jones Industrial Average                            12,800      19,964       25,075

Source: U.S. Chamber of Commerce

These data support the narrative agreed to by most economists and historians over the last decade. President Bush left us in extreme economic doo doo at the end of his term, and still spiraling downward when Obama took office.

Against total obstruction by Mitch McConnell, the most unprincipled person to run the U.S. Senate since the Civil War, Obama pulled us out of what became the “Great Recession,” our worse economic catastrophe since the Great Depression, and got the economy growing again. He reduced unemployment by more than half; turned GDP from contraction to positive growth, and the stock market began to rebound.

To accomplish this, Obama bailed out the banks, which he had to do or there would have been a complete economic collapse globally, though in my view he executed it poorly. I blame Bush’s Secretary of the Treasury Henry Paulson and Obama’s Secretary of the Treasury Tim Geithner for that; both Wall Street insiders themselves – Paulson was CEO of Goldman Sachs; Geithner heads a private equity firm – were way too easy on the banks.

Among his other recovery efforts, Obama proposed an infrastructure plan to stimulate the economy and put people back to work, but the Republican-controlled Congress rejected him.

So, in circumstances exactly the opposite of Bush to Obama, Obama turned over to President Trump a healthy and growing economy.

Trump’s crowning achievement in his first year in office was a $1.5 Trillion dollar tax cut. This was a monumental heist of the Treasury for the rich, and the ultimate example of opening the barn door after the horse had already bolted into economically greener pastures. But it is even worse than that, and it is going to get worse still. Here’s why:

This tax cut not only added a $1.5 Trillion to our debt, an outrageously irresponsible thing to do, but it emptied the Treasury, as well. There’s no money left. Anything else Trump  wants to  do, such as for an infrastructure plan, we will have to borrow for, and it will just add more to the debt. In other words, Trump gave all our money to his rich friends, and now he wants to borrow more, which debt you and I can pay for.

To be sure, the tax cut has stimulated the stock market, at least for now. Big corporations have more money, much if not most of which is going to buying back stock. It helps stockholders, but does little for the economy. (Remember, there’s a big difference between the economy and the stock market, especially in the short-term.)

Trump says the tax cut will stimulate the economy, but the economy was already growing, and there are limits to how much faster our economy can or should grow at this point. We are already at full employment, and we are beginning to see personal income (read wages) increasing, finally.

Wage increases are a good thing, and long, long overdue. (Economists still don’t understand why it didn’t begin sooner. I told you it is a dismal science.) So Trump’s tax cut could blow an already warm economic engine. The Fed is now sufficiently concerned about overheating and inflation that it has signaled three more interest rate hikes in 2018.

All or most of us are seeing a little more in our pay envelope, but the vast majority of the cut went to the very, very richest. Warren Buffet announced last week that he gained $29 Billion (with a “B”) from the tax cut. How much did you get?

Trump’s infrastructure proposal would have been a good thing in 2009, when so many people were out of work. It could have helped a lot of people. But today, at full employment, the economic impact won’t be as helpful. It would be nice; we need to rebuild and maintain, but at this point, we don’t have the money to do it. It will only increase the debt, thanks to the tax cut.

Keynes said to deficit spend in hard times to stimulate the economy, but he also said to return the budget to balance during good times. We should have raised taxes on the rich, not lowered them. President Clinton did just that.  He raised taxes, mostly on high income earners, and the economy improved. He spent the so called “war dividend,” on debt reduction, and the economy improved even more.

Turns out too much debt is a drag on the economy. Who knew? Certainly not Republicans. Clinton, with some luck and savvy, left office with a budget surplus, our first since 1969 (under another Democratic president), which George W. Bush maintained…for exactly one year then started the Great Recession.

This tax cut is a disaster. We needed that money badly. With a nod to Jesus Christ Superstar, “Think of the things you can do with that money.”  Trump gave it away to the very rich. And don’t even get me started on the additional billions we are pissing away on our bloated military. That’s a carol for another Christmas. I hate this, and you all should, too.

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