Last week the Republican-controlled Senate passed its version of “tax reform” and has since begun reconciling the differences with the equally awful House version. But the bottom line in this effort isn’t “jobs.” It’s doing what has been mandated by the GOP’s masters—the donor, dividend, and investment class of America—who’ve demanded these tax changes or else the money will dry up.
Congressional Republicans have warned in recent days that if the party fails to pass a massive package of tax cuts in the next year, their donors will desert them.
Such bluntness is rare in Washington D.C. — an instance of lawmakers saying the quiet part out loud. In this case, it has the added benefit of being true.
Several GOP donors contacted by The Daily Beast said that they would either stop writing checks to the party of divert their money elsewhere should tax cuts end up being stalled.
“If they don’t get tax relief done, as they promised they would, then we will support challengers who will do their jobs for them,” said Doug Deason, a Dallas investor and high-dollar Republican donor. “Donations will still flow, just to different politicians.”
Understanding what GOP lawmakers are doing isn’t any more complicated than this.
It’s not about helping the nation, improving the economy, increasing the GDP, or “Making America Great Again.” It’s about giving the donor class the rewards they’ve been paying for over the last 30 years. These tax changes are the giant payout they’ve been longing for—for decades. Understanding that puts the following statement by GOP Sen. Chuck Grassley in the proper perspective.
"I think not having the estate tax recognizes the people that are investing,” Grassley (R-Iowa) told the Des Moines Register, “as opposed to those that are just spending every darn penny they have, whether it’s on booze or women or movies.”
Many would agree that some booze, at least [a] woman, and a good movie is probably an impending good time. It also happens to be one key way that the economy moves forward. Besides betraying their true motivations and disdain for average Americans, this view is also wildly incorrect economically. The simple truth is that investments don't drive the economy by generating a supply of goods and services: people who “spend every darn penny they have,” providing the demand for those services, do. The GOP doesn’t get that, they never have, and they never willOf course Trumpsters claim this tax cut plan will “Make America Great Again,” but not even Republican economists think that’s true, as noted by TPM.
“I don’t see how this bill makes America great again,” said Bill Hoagland, a self-described “deficit hawk” Republican who worked for decades for the Senate Budget Committee and now serves as the senior vice president of the Bipartisan Policy Center. “With the populist direction the country has gone in this year, it just doesn’t seem right to give big corporations a permanent tax cut and not individuals. And it’s an open question with those companies—will they translate that back into actual jobs and not into stock options and buybacks?”
So the question is whether this will spur jobs and “super charge” the economy—or not?
Let’s take a couple of recent examples before we get into the long, sad history of supply-side failures. Now, no one is arguing that investors aren’t important—of course they are. They provide the cash that allows a new concept of business to get its feet off the ground or to expand on the hope that ultimately they will be granted a return on that investment. Products don’t go into the market magically on their own: investors make that possible. However, just because you can produce something doesn’t mean an audience or a client base will necessarily flock to that product in the numbers needed to break even, let alone produce a profit. And that’s specifically true in one area that that Grassley brought up—movies.
Example No. 1: The Marvel cinematic universe.
Beginning almost a decade ago with Iron Man in 2008 staring Robert Downey Jr., Marvel comics finally branched out and began directly making and marketing their own films. They had had some previous success with the first set of Spiderman movies starting Toby McGuire, and then X-Men movies staring Hugh Jackman, Halle Berry, and Patrick Stewart. But Iron Man was taking things to a brand-new level because they weren’t just introducing one character for one story: they were building a universe of inter-related characters starting with Samuel L. Jackson as Nick Fury, director of S.H.I.E.L.D., along with Clark Gregg as Agent Coulson, which has now spanned across 17 different movies with a reported 20 more movies to come.
They had already had the supply of characters and stories but it wasn’t until Iron Man that the demand began to appear. Technically, Iron Man wasn’t even the first film produced by Marvel Studios: that was actually Ghost Rider starring Nicholas Cage. A lot of people don’t even realize they kept making Ghost Rider movies anyway, and the difference in the final results is shocking.
Just look at some of these numbers:
MOVIE |
YEAR |
BOX OFFICE |
BUDGET |
PROFIT* |
GHOST RIDER |
2007 |
$228 M |
$110 M |
$118 M |
INCREDIBLE HULK |
2008 |
$263 M |
$150 M |
$113 M |
IRON MAN |
2008 |
$585 M |
$140 M |
$445 M |
IRON MAN 2 |
2010 |
$623 M |
$200 M |
$423 M |
CAPTAIN America:First Avenger |
2011 |
$370 M |
$140 M |
$250 M |
THOR |
2011 |
$449 M |
$150 M |
$199 M |
AVENGERS |
2012 |
$1.5 B |
$220 M |
$1.3 B |
GHOST RIDER : SPIRIT OF VENGENCE |
2012 |
$132 M |
$70 M |
$60 M |
THOR: DARK WORLD |
2013 |
$644 M |
$170 M |
$474 M |
CAPTAIN AMERICA: WINTER SOLDIER |
2014 |
$713 M |
$170 M |
$543 M |
GUARDIANS OF THE GALAXY |
2014 |
$773 M |
$170 M |
$603 M |
AVENGERS: AGE OF ULTRON |
2015 |
$1.4 B |
$250 M |
$1.15 B |
ANT MAN |
2015 |
$519 M |
$142 M |
$377 M |
CAPTAIN America: CIVIL WAR |
2016 |
$1.3 B |
$220 M |
$1.1 B |
GUARDIANS OF THE GALAXY: VOL 2 |
2017 |
$833 M |
$200 M |
$633 M |
THOR: RAGNOROK |
2017 |
$816 M |
$180 M |
$636 M |
This is what supply and demand really means. Investors invest by putting up the money for the budget with the hope and expectation they’ll make a profit. Not every movie does, even within a generally successful franchise such as this one. In the end (technically because of promotional costs) a movie isn’t considered *profitable* until its box office is essentially three times its budget. [As a result I put each film that had profits double its budget in italics.]
What’s shown in the above chart is that not only did the first installments of Incredible Hulk and Ghost Rider fail to make real profit, but so did the first Captain America and Thor movies. Investors are important because none of those movies would exist otherwise, but in the end consumers who supply the demand are the ones who ultimately made those investments worthwhile by showing up at the theater, at the stores when the DVD/BluRays went on sale, and on streaming services.
Consumers make the difference between a success and a failure of an investment. They have to “spend their darn money.” It just doesn’t work some other magical, mystical way. And if people don’t have any money to spend, it doesn’t work at all. You can invest all you want, but if the product doesn’t leave the shelves it doesn’t do anything for anyone. [Well, anyone except short sellers in the stock market, but that’s an issue to revisit later.]
Example No 2: The Kansas supply-side disaster.
Five years ago Republican Gov. Sam Brownback ushered in a new tax plan for Kansas which he proclaimed would bring in “new growth” by bringing rates down dramatically. That didn’t go anywhere near as well as advertised.
In 2012, Kansas lawmakers, led by Gov. Sam Brownback, a Republican, enacted a tax cut that eliminated state income taxes entirely for pass-through entities — such as sole proprietorships and limited liability partnerships — which are taxed at the owner’s individual income tax rate. The law also lowered individual income tax rates, cutting the top rate to 4.9 percent from 6.4 percent.
The tax package reduced state revenue by nearly $700 million a year, a drop of about 8 percent, from 2013 through 2016, according to the Kansas Legislative Research Department, forcing officials to shorten school calendars, delay highway repairs and reduce aid to the poor. Research suggests the package did not stimulate the economy, certainly not enough to pay for the tax cut. This year, legislators passed a bill to largely rescind the law, saying it had not worked as intended.
“It caused a lot of budget instability,” said State Senator Jim Denning, a Republican who led the effort to repeal the pass-through exemption this year. Mr. Denning, who earns pass-through income from his interest in a commercial real estate firm, said he had personally benefited from the exemption, but the state’s economy had not.
Cutting taxes actually reduces revenues taken in by government? Golly gosh, who knew that?
CBO’s analysis of the current GOP tax proposal indicates that it will increase the deficit by $1.4 trillion in 10 years, and that isn’t all.
The
estimate summary found that enacting the White House-backed Tax Cuts and Jobs Act would lead to an on-budget deficit increase of about $1.44 trillion. The CBO also estimates that with the removal of Obamacare's individual mandate that is included in the bill, which taxes individuals who opt out of purchasing insurance, "nongroup insurance markets would continue to be stable in almost all areas of the country" over the next 10 years.
However, "average premiums in the nongroup market would increase by about 10% in most years of the decade ... relative to the CBO's baseline projected. In other words, premiums in both 2019 and 2027 would be about 10% higher than is projected in the baseline."
In addition, the report estimates "(t)he number of people with health insurance would decrease by 4 million in 2019 and 13 million in 2027."
Republicans argue that this won’t happen because:
reasons. But really what they hang their hat on is the idea that “investment drives” the economy and more tax revenue will be generated to close the gap. However, the Joint Committee on Taxation’s analysis (which does take dynamic growth forces into account) still sets that estimate at
only $1.1 trillion in increased deficit and debt.
Now Congress's official estimators have weighed in: The Senate GOP bill would add $1 trillion to the debt even after accounting for economic growth generated by the tax cuts. The estimate from the Joint Committee on Taxation, a nonpartisan group of experts, was released Thursday afternoon as lawmakers hotly debated the tax bill on the Senate floor.
The Senate GOP tax plan would cause faster economic growth -- about 0.8 percent more over the next decade, JCT found. But that amount of growth only covers about a third of the cost, far short of what is needed to have revenue-neutral tax reform, as the White House initially claimed.
And yet GOPers continue to argue the counterfactual: that lower taxes drive greater GDP, which will close the deficit gap for them without having to actually work to raise the revenues. They tell us that the economy is “doing gangbusters” right now under Trump at 3 percent, and that it was so weak and anemic under President Obama at 1 to 2 percent. But there’s something in the midst of all this they continue to ignore.: During Obama’s tenure the deficit fell by over $900 billion and since then it’s actually gone up (mostly) under Trump by almost $200 billion in the last 18 months.
Deficits in billions |
2007 |
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
|
$161 |
$458 |
$1,413 |
$1,294 |
$1,295 |
$1,087 |
$679 |
$485 |
$438 |
$585 |
$666 |
|
So how exactly did this happen? How did we go from a deficit of $1.4 trillion in 2009 to one of just (by comparison) $438 billion in 2015 for a total improvement of over $900 billion? And why has it climbed back up to $666 billion this year? How does the GOP explain this?
Well, they don’t.
Particularly not when this has been the GDP over the past decade. And by their logic it couldn’t have produced a $900 billion reduction in the deficit. But somehow, it did.
Dec 31, 2016 |
1.84% |
Dec 31, 2015 |
2.02% |
Dec 31, 2014 |
2.70% |
Dec 31, 2013 |
2.66% |
Dec 31, 2012 |
1.28% |
Dec 31, 2011 |
1.68% |
Dec 31, 2010 |
2.73% |
Dec 31, 2009 |
-0.24% |
Clearly something else is going here beyond what the GOP is claiming, because the above GDP numbers don’t exactly explain the following according GOP tax/deficit dogma:
In 1998 America was running at a surplus. Let me repeat that because it doesn’t ever seem to sink in: a budget surplus. Two things ended that period. The first was the bursting of the dot com bubble, which is exactly the type of “economic super-charging” of an average of greater than 4 percent year-to-year GDP that the GOP seems to clamor for. The second was the Bush tax cuts, which went largely to the wealthy and yet somehow didn’t supercharge the economy. Of course, there was also the spending on the Iraq and Afghanistan Wars.
A few years later and largely because of Bill Clinton’s mistaken repeal of the Glass-Steagal Act, a new bubble began as investment banks were allowed to co-mingle with mortgage lenders. Investors primed the pump to generate (false) demand by raising prices but not quality of the product while Bush handcuffed regulators from paying any attention to Wall Street short sellers with their credit default swaps who profited from creating deliberate pain for others they suckered into hand-grenade mortgages. That led directly to the mortgage crash of 2008 and the massive $1.4 trillion deficit we see above occurring in Bush’s last year.
Barack Obama pulled us back from the precipice by yes, investing in the American auto industry, saving them from collapse, and also with the TARP backstop which kept the financial institutions from completely self-destructing as a result of the Bush mortgage feeding frenzy (which mirrored the Clinton dot com frenzy), both which we had just barely survived. The last thing we need is for that to happen again. But that seems to be exactly where Trump and the GOP seem to be taking us with their investment in extra heavy-duty deregulation. It boils down to all the power with no responsibility.
Obama’s recovery could very well have been better with stronger GDP if the GOP Congress hadn’t blocked his American Jobs Act, which was projected to produce millions of jobs.
Some of its highlights included:
- Tax Credits and Career Readiness Efforts to Support Veterans’ Hiring: The President is proposing a Returning Heroes Tax Credit of up to $5,600 for hiring unemployed veterans who have been looking for a job for more than six months.
- Preventing Layoffs of Teachers, Cops and Firefighters: The President is proposing to invest $35 billion to prevent layoffs of up to 280,000 teachers, while supporting the hiring of tens of thousands more and keeping cops and firefighters on the job.
- Modernizing Over 35,000 Schools – From Science Labs and Internet-Ready Classrooms to Renovated Facilities: The President is proposing a $25 billion investment in school infrastructure that will modernize at least 35,000 public schools – investments that will create jobs, while improving classrooms and upgrading our schools to meet 21st century needs.
- Making an Immediate Investment in Our Roads, Rails and Airports: The President’s plan includes $50 billion in immediate investments for highways, transit, rail and aviation, helping to modernize an infrastructure that now receives a grade of “D” from the American Society of Civil Engineers and putting hundreds of thousands of construction workers back on the job.
- Establishing a National Infrastructure Bank: The President is calling for Congress to pass a National Infrastructure Bank capitalized with $10 billion, in order to leverage private and public capital and to invest in a broad range of infrastructure projects of nationa land regional significance, without earmarks or traditional political influence.
- Project Rebuild: Putting People Back to Work Rehabilitating Homes, Businesses and Communities: The President is proposing to invest $15 billion in a national effort to put construction workers on the job rehabilitating and refurbishing hundreds of thousands of vacant and foreclosed homes and businesses. Building on proven approaches to stabilizing neighborhoods with high concentrations of foreclosures.
- Expanding Access to High-Speed Wireless in a Fiscally Responsible Way: The President is calling for a deficit reducing plan to deploy high-speed wireless services to at least 98 percent of Americans, including those in more remote rural communities, while freeing up spectrum through incentive auctions, spurring innovation, and creating a nationwide, interoperable wireless network for public safety.
That’s what we could have had, but Congress wouldn’t do it. Yes of course, direct spending has a direct impact on the deficit, but when done in his way—specifically targeting not just investors, but actual demand generators by putting money and resources in their pocket—you are pretty much guaranteed that they will “spend the darn money” and put it directly into the economy. Investors might “invest,” or they might not. Their investment might succeed, or it might not. People getting a paycheck, or an increase in their paycheck—spend it.
Obama’s GDP growth would have been much better than 1 to 2 percent if that had happened and the GOP hadn’t blocked it from happening.
The American Jobs Act never became law, however, because Republicans opposed it from the start, blasting it as another form of “failed stimulus” that wouldn’t help the economy. (They ignored the fact that the first “failed stimulus,” the American Recovery and Reinvestment Act, wasn’t a failure at all.) One month later, the GOP blocked the bill in the Senate, preventing the creation of more than a million jobs and the added growth that multiple economists predicted would occur if the bill passed:
— Moody’s Analytics estimated the American Jobs Act would create 1.9 million jobs and add two percent to gross domestic product.
— The Economic Policy Institute estimated it would create 2.6 million jobs and protect an addition 1.6 million existing jobs.
— Macroeconomic Advisers predicted it would create 2.1 million jobs and boost GDP by 1.5 percent.
— Goldman Sachs estimated it would add 1.5 percent to GDP.
just imagine for a minute that the GOP were anything like consistent. If Obama’s GDP went up another 1.5 percent it would have been between 3 to 4 percent, which is pretty much exactly what they say their current bill will do. They say that they have to do this because it didn’t happen then and yet they were the ones who stopped it.
Why?
So that they can do exactly what they’re doing now: reward their donors will billions in tax cuts but not really do that much for the economy, and deliberately explode the deficit in order to justify further spending cuts on the poor and middle class. They’ve even admitted as much.
High-ranking Republicans are hinting that, after their tax overhaul, the party intends to look at cutting spending on welfare, entitlement programs such as Social Security and Medicare, and other parts of the social safety net.
House Speaker Paul D. Ryan (R-Wis.) said recently that he wants Republicans to focus in 2018 on reducing spending on government programs. Last month, President Trump said welfare reform will “take place right after taxes, very soon, very shortly after taxes.”
As Republicans advocate spending cuts, they have frequently cited a need to reduce the national deficit while growing the economy.
“You also have to bring spending under control. And not discretionary spending. That isn't the driver of our debt. The driver of our debt is the structure of Social Security and Medicare for future beneficiaries,” Sen. Marco Rubio (R-Fla.) said this week.
So let’s put this all in perspective.
Reagan’s original tax cuts in the 1980s taking the top marginal tax rate from 70 percent ultimately down to 28 percent did generate some economic benefit, but unfortunately it wasn’t enough to cover his wild spending on defense, and the deficit bloomed. He even managed to slow the rise of the deficit somewhat in 1985 by raising taxes on the middle class, but that didn’t fix the problem. Republicans love to blame that spending problem on congressional Democrats, but the fact is that several of the budgets they approved were less than what Reagan requested, so if they’d done things entirely his way, the problem would have been worse.
The deficit problem caused by Reagan’s cuts eventually led George H.W. Bush to go back on his “No New Taxes” pledge and actually raise the top rate to 32 percent in 1990, but that still didn't ‘fix the deficit hole, which grew dramatically worse as a result of the Black Monday Market crash of 1987 that had been fed by the funky investment tools such as Wall Street junk bonds and the unregulated malfeasance of the savings and loans crisis. The only thing that began to bring the deficit down was Clinton raising the top marginal tax rate from 32 percent to 39 percent in 1993, which not a single Republican voted for and Vice President Al Gore had to put in the deciding vote. That’s quite obvious from this chart showing the deficit impacts of Reagan, Bush I, and then Clinton.
The bottom line is that Republican tax cuts have repeatedly increased the deficit from Reagan to both Bushes. This has been by design so they can use “out-of-control spending” to roll back the Great Society and New Deal. Meanwhile, Democratic efforts (including both Clinton and Obama) to either raise taxes on the wealthy and/or directly invest in the economy with a stimulus package have decreased the deficit.
History has shown this in large examples, as described, and also in smaller ones such as in Kansas.
And yet Republicans are determined to kick the tax cut fail boat one more time in a period where we again have increasing deficits, while our economy is supposedly “swimming along” with more than 3 percent GDP.
The truth is that the GDP and economy may continue humming along doing just fine, as it did in the ‘80s and in the ‘90s, and that these tax cuts just might help the economy somewhat as they did with Reagan and also frankly with Obama. People forget he actually cut taxes on the middle class as part of his recovery package, but then he also raised them back to Clinton’s 39 percemt rate for people earning over $250K. But that doesn’t mean that the average person will see rising wages and an improved quality of life, which they generally didn’t during the ‘80s and the ‘90s. It means that investors and donors will again reap a windfall. And as the deficit again climbs above $700 billion/year, the GOP will claim to have “no choice” but to start trying to “trim the fat” from the services that help many people who are barely struggling to stay afloat and keep their heads above the rising waters.
They are ready and willing to literally yank the lifejackets right off people who are on the verge of drowning.
Meanwhile, Hollywood is not going for Ghost Rider III or the Even More Incredible Hulk. That’s not happening because those franchises haven’t proven they’re worth the investment, just like this GOP Magical Tax Cut Bonanza hasn’t shown its value.
They are literally stealing from the poor to give to the rich. It’s a heist. It’s a scam. They’ve tried it before and it’s failed every time.
They need to be stopped.
And if they aren’t stopped, they need to be made to pay dearly at the ballot box because they will have finally shown everyone, once and for all, exactly what they are: shills for the robber barons.
.
Monday, Dec 11, 2017 · 1:38:55 AM +00:00 · Frank Vyan Walton
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