The Republicans are throwing a ball for billionaires and calling it tax reform. The GOP tax proposal, which among other things, cuts corporate taxes deeply and eliminates the estate tax, is a gift to the people who make up the party’s real base: the haves and have more, as George W. Bush called them.
Who will be the biggest winners? CEOs and big shareholders of major corporations and the heirs of enormous fortunes, a minuscule percentage of all taxpayers, in short, the rich and the ultra-rich. If Republicans prevail on taxes, those who have much will get more.
The Robin-Hood-in-reverse nature of the latest Republican tax plan is no surprise. For four decades the GOP has been carrying out a massive economic redistribution from the bottom and the middle to the upper reaches of the economic pyramid, amounting to a capitalist counterrevolution against the very mild form of social democracy advanced by FDR and LBJ.
This they have accomplished through two massive tax cuts, courtesy of Ronald Reagan and George W. Bush respectively. Now Trump and the GOP-dominated Congress are scheming to outdo them both with what the president describes as the biggest tax cut ever, significantly radicalizing the capitalist counterrevolution begun by Reagan.
Beside showering the economically privileged with a lot more money, so far the Republican economic counterrevolution has hollowed out the middle class and made the underprivileged poorer and more insecure. During this long counterrevolution, the real income of typical Americans stalled or fell. The living standard of the poor, the number of which increased, has nearly collapsed as Republican policies systematically shredded the country’s flimsy social safety net. Cuts in programs for the poor have been big and too many to enumerate. As a result, many of the poor have gone from merely needy to borderline or outright destitute.
Republicans and their allies among conservative economists and policy analysts have portrayed this counterrevolution through so many falsehoods and distortions that it is necessary to cut through the fog.
The most brazen lie is the recurring GOP thesis that such tax cuts more than pay for themselves by stimulating economic activities and thus increasing total tax revenues. The reality is that both Reagan’s and Bush’s tax cuts, far from paying for themselves, created a huge hole in the budget that made the deficit soar.
The hypocrisy of the Republicans is evident in the fact that deficits are anathema for them when they are caused by programs for the poor and the middle class but a non-issue when they benefit the rich. The perversity in all this is that Republicans then use the deficits they create through tax cuts for the wealthy and other policies (such as grotesque levels of military spending, which benefits defense contractors) as a justification to further reduce middle class programs and aid to the poor. It’s a clever and despicable trick.
A second big lie is that inequality is solely the result of “natural” forces in the economy, such as globalization and increasing returns to education. The reality is that public policy plays a huge part in driving the ongoing counterrevolution, not only with tax policy but also with policies that disempower workers and their unions.
The Reagan and Bush tax cuts produced enduring inequality but not enduring prosperity. The latest evidence of this comes from a report by the Federal Reserve Board published last month (“Wealth Grew Broadly Over 3 Years, but Inequality Also Widened,” The New York Times, September 28, 2017). Two things stand out. Under Obama, much-maligned as anti-growth, the data show that in 2016 “the typical American family had a net worth of $97,300, up 16 percent from 2013 after adjusting for inflation.” Moreover, “the gains were broad-based, cutting across racial, educational and economic categories—a significant shift from the years after the recession, when both income and wealth continued to decline for many families.”
Thus, under Obama the recession, brought on by the Republican lust for cutting regulation of capital and abetted by the right faction in the Democratic Party in the person of Bill Clinton, was basically overcome without a return to the economic boom that characterized the post-war years. And, despite Obama, the only president to try to chip away at inequality, the disparity continued to increase. Data from the Fed report indicate the richest 1 percent of households controlled 36.3 percent of wealth in 2013 and 38.6 percent in 2016.
Several factors prevented Obama from stopping the increase of inequality, much less reversing it. In previous decades, whenever the GOP controlled the government, it built barriers against a quick or easy reversal of the trend toward inequality, such as razing welfare and decreasing the real value of the minimum wage. Then, with Obama in power, Republicans in Congress worked hard to stop or limit policies to combat inequality. Finally, capitalism left to its own devices generates inequality.
The basic reason for this is explained in Thomas Piketty’s “Capital in the Twenty-First Century:” Under capitalism, on average the economic returns to capital are greater than the returns to labor—unless there are strong countervailing forces. In the twentieth century there were several countervailing forces: two world wars that destroyed much capital and ruined many capitalists; the rise of the welfare state and the labor unions; and the emergence of communism in the Soviet Union, China, and parts of the Third World as an alternative model and competitor, which had the effect of making a somewhat softer capitalism in the long term interest of capitalists themselves.
The upshot is that inequality will continue to increase unless governments institute strong policies to combat it. When governments, such as the United States and Great Britain, institute policies that promote inequality, the sky is the limit. Such a level of inequality is incompatible with democracy, a decent standard of living for most Americans, and access to the basic needs of life for the poor. The American Nightmare commenced under Reagan and supercharged by George W. Bush threatens to turn even darker under Trump. But this too shall pass.