If the Trump administration’s wantonly destructive approach to the pandemic has left you in tears, in a panic, in a rage, or feeling like you’ve just downed a COVID-laced cocktail of all three, you’re not alone. As you continue to process those emotions, perhaps consider what might have been had our country been led by a functioning adult.
Forget for a second all the really bizarre stuff The Man Who Lost The Popular Vote has done, and just focus on two big picture questions: How might we have spent our money differently in the years before the coronavirus, and how might that have affected our response once it hit?
Without going too deep into the weeds of Keynesian economics and countercyclical spending, let’s look at some fairly simple principles, and some basic lessons from recent history. When President Barack Obama took office, our economy was in the shitter (I told you we’d keep things basic).
Remember: In early 2009, the private sector was getting crushed, people were losing their jobs in massive numbers, and consumers and businesses were afraid to spend money. Obama and congressional Democrats set out to “stimulate” the economy. They passed the $800 billion American Recovery and Reinvestment Act, which had a significant, positive impact—even if it was too small, as Paul Krugman predicted when it was passed; He shortly thereafter deemed it “Too Little of a Good Thing.” Because the private sector economy was weak, the government rightly stepped in, spending money to take up the slack.
By the end of the Obama presidency, the economic recovery was strong enough, and tax revenues coming in were robust enough, that the deficit as a percentage of Gross Domestic Product (GDP) dropped back down to where it was before the Great Recession. When the private sector is stronger, the amount of money the government is putting into the economy doesn’t need to be as strong in order to keep growth at a steady pace.
That’s not to say we shouldn’t have been spending more money on specific priorities—more on education, child care, infrastructure, the environment, IRS enforcement—which pays for itself many times over and reduces inequality—among other sectors, and less on certain outdated or unnecessary military programs, and that’s just a start. I’m only talking here about total spending and taxation as a macroeconomic tool to influence the broader economic situation, otherwise known as fiscal policy.
Then came Donald Trump. President Obama handed him an economy that was, in big picture terms, quite strong. As former Obama communications director Jen Psaki put it in late 2018, “A buffoon could have kept the recovery going, and in fact one has so far.” You can see why she was in charge of communications. Joking aside, economic inequality did remain a serious problem—although the data show that Obama did more on that front than any president since LBJ. Obama also did something that seemed impossible given decades-long trends—narrow the income gap.
Nevertheless, given its overall strength, few if any nonpartisan experts believed the economy in 2017 needed a 2009-style stimulus in order to pump up growth. The Economist referred to the tax plan Trump implemented in December 2017 as a “strangely timed fiscal stimulus.” But we’ve come to learn that if the experts say that things are up, Donald Trump will say that things are green Jell-O.
In late 2017, Trump, then-House Speaker Paul Ryan, and Senate Leader Mitch McConnell pushed through the GOP Tax Scam, also known as the Rich Man’s Tax Cut, the one major legislative achievement of the two years when their party had majorities in both houses of Congress. Daily Kos’ Mark Sumner accurately characterized it as “history's greatest daylight robbery,” one that ended up “gutting the nation to benefit the wealthy.” To compare the last two presidencies, the aforementioned deficit to GDP ratio has gotten worse each year of the Orange Julius Caesar’s time in office, despite the strong pre-COVID economy. Let us note that "deficit peacock" Republicans only pretend to care about deficits and debt while a Democrat is president. Funny how that works.
As fiscally irresponsible as Trump’s tax scheme was, and as immoral as it is for the transfer of wealth up the economic ladder to be the foundation of a president’s economic policy, the outbreak of COVID-19 exponentially increased its awfulness. He pissed away our rainy day fund and gave it to his fat cat friends, while the proverbial sun was still shining.
What’s really frustrating is that, under different leadership, say that of a highly competent woman, the U.S. could have pursued a radically different path. Let’s look at Germany under Angela Merkel (if another woman came to mind, I’m sure the chancellor would understand).
In making the comparison, Ruchir Sharma in the The New York Times encapsulated how Trump’s ideologically driven, standard-issue Republican agenda—centered of course on cutting taxes for millionaires and billionaires—put us in a far weaker position to react than Merkel’s policies did for her country. "Because Germany went into the pandemic with a government surplus,” Sharma writes, “it could support its locked-down economy with direct payments to families, tax cuts, business loans and other aid amounting to 55 percent of gross domestic product, or roughly four times more than the United States’s rescue package as a share of G.D.P." I don’t know about you, but reading that left me gobsmacked.
We have projections from Deutsche Bank on overall government debt as a percentage of GDP, and how that ratio is likely to change between the last quarter of 2020 and the first quarter of 2021. Presumably, COVID-related spending will be the primary driver of this change. In Germany, that debt percentage will rise from 75.6% to 82.2%—an increase of 6.6%. In Trump’s America, that debt percentage is expected to rise by almost twice as much in the same period. Ours will go from 105%—already 30 percentage points higher than Germany’s—up to 116%. That would be the highest level of debt we’ve reached since the Second World War.
As bad as that sounds, please recall that Germany is, at least thus far, spending four times more than we are on the pandemic as a percentage of the economy. Four. Fucking. Times. More. But because the Germans have Merkel and we have Trump, we’ll end up even more in debt than they are, even though we’ve spent less. Plus, paying back the bondholders to service that debt means more money going disproportionately to, wait for it, the wealthiest among us, since the bottom 50% of households hold less than 1% of all debt securities. That’s what I call Republican synergy.
It’s a good thing that interest rates are low, and yes, we absolutely need to borrow money to spend on helping Americans get through the pandemic—particularly those who survive the virus itself. But once we get beyond the crisis, our country is going to have to take steps to undo the long-term fiscal hole into which our failed businessman of a boy king has dropped us.
Given that we have under-invested in the American people for more than a generation—in particular since Republicans took the House in 2010 and imposed drastic austerity measures—cutting spending on social programs is the last thing we should do going forward. Even after we have a COVID-19 vaccine and the pandemic is in our rearview mirror, the U.S. is going to need to spend money in a whole host of areas, to fix and/or prevent a plethora of systemic problems. Once the economy has returned to a degree of normalcy post-COVID, the primary element of any sound U.S. economic policy must be this: Tax the rich. Hell, even a whole bunch of millionaires just publicly asked that their taxes be raised “Immediately. Substantially. Permanently.” Thankfully, it’s clear from his policy proposals that Joe Biden is well aware of what must be done.
Biden has proposed a wide array of taxing and spending policies. On the Democratic nominee’s plan to tax the wealthiest specifically, Jordan Weissmann at Slate explained in late June that it would be the most progressive plan in recent memory, calling it a “shock” as to just how “extremely ambitious” it is.
[The plan raises] some $4 trillion over a decade, and reduc[es] the after-tax incomes of the top 0.1 percent by 23 percent in its first year, according to the Tax Policy Center. (Hillary Clinton’s 2016 plan, by comparison, only raised $1.4 trillion.) The plan undid much of the Trump tax cuts for the wealthy, and pushed the corporate rate back up to 28 percent from its current 21 percent. It took direct aim at the investor class by taxing capital gains as normal income for high earners and ending stepped-up basis at death, which allows rich heirs to avoid paying taxes on assets they inherit. It even slapped Social Security taxes on wages over $400,000. As Paul Waldman wrote for the Washington Post: “In fact, it’s so liberal — in very good ways — that when he was vice president it would have been considered radical, certainly too much for Barack Obama to have signed into law, or in some cases even suggested.” The ideological center of the Democratic party had moved, and Biden was shifting with it.
And so too, it seems, has his language with donors. During a digital fundraiser Monday that raised $2 million, Biden avoided his old obsequiousness and said flatly that, no malarkey, he planned to jack up his backers’ taxes. “I’m going to get rid of the bulk of Trump’s $2 trillion tax cut,” Biden said, “and a lot of you may not like that but I’m going to close loopholes like capital gains and stepped-up basis.”
Overall, 75% of Biden’s tax hikes would affect the top 1%. Most importantly, as mentioned previously, his plan specifically targets those who Nick Buffie, writing for CBS MarketWatch called the “indolent rich.” As Buffie pointed out, the federal income tax rate one pays, shockingly (or not), goes down when you get high enough on the income ladder, largely because capital gains and dividends are taxed at a lower rate than money earned by actually working for a living. Just look at the graphic below:
To paraphrase Will Ferrell from Blades of Glory, that’s just mind-bottling. One of the things Biden will do is repeal something Buffie brilliantly dubbed the “Donald Trump Jr. Tax.”
Along with being taxed at extra-low rates, capital gains are given a second carve-out known as stepped-up basis at death.
Here’s how that works. Let’s say that a wealthy individual buys $40 million of stock in 2012. In 2020, when those stock(s) are valued at $99 million, she passes away. Later that year, her son sells those stock(s) for $100 million.
Ordinarily, we would count this as a capital gain of $60 million. But under stepped-up basis, the gain is counted as just $1 million — the appreciation in value between when the heir received the shares and when he sold them. The extra $59 million is passed on tax-free.
Almost all of the money from this tax provision goes to the folks at the tippity-top of the wealth scale. This is a huge capital gain that goes completely untaxed.
What in the name of Sasha Obama could be the logic behind such a loophole? It certainly doesn’t “incentivize work”—a phrase used by White House spokesperson Judd Deere as well as other Republicans to criticize the temporarily expanded, COVID-related unemployment benefits that are about to expire, not to mention plenty of other similar progressive programs aimed at helping people not starve or lose their homes just because their job disappeared. Neither Donald Trump, Jr. nor a single one of the people inheriting huge sums of untaxed money thanks to this loophole worked for it. Wouldn’t you just love to see Biden rip it out of the federal tax code?
Just a few days ago, the former vice president announced a plan to significantly expand child care and elder care by spending $775 billion over 10 years, and which he projects will put five million more people to work—three million in education and health care, and an additional two million who would no longer have to stay home to provide care. First, Biden’s plan would provide emergency support for child care centers and home health providers whose situations have been severely damaged by the pandemic. In addition to that immediate help, he would make three long-term changes to the way we care for our kids and our seniors.
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Expanding child care for kids up to five years old, including universal preschool
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Expanding care options for elderly and disabled people, particularly community- and home-based care
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Improving pay and prospects for people who work in the caregiving industry
Biden spoke eloquently about why we need to enact these policies. “If we truly want to reward work in this country, we have to ease the financial burden of care that families are carrying. We have to elevate the compensation of those providing the care, the benefits and dignity of caregiving workers and early childhood educators.”
Then Biden got personal, explaining how his own lived experience shaped his approach to policy. As he has done often, he touched on the tragedy of losing his wife and daughter in a car crash, and how his relatives helped him care for his sons—also badly hurt in the accident—just as he was starting his career in the U.S. Senate. The former VP also spoke about his parents having both spent time in hospice, and about the long illness his son Beau suffered before ultimately passing away.
We know what it’s like, months upon months. We know so many of you are going through the same thing without the kind of help I had. But now everything, everything feels different. There’s just that feeling, that sense where you just don’t know if everything’s going to turn out okay, but I’m here to tell you that it can be, and it will be. My dad was an honorable decent man. His great regret, he never got to go to college. My dad, like many of your parents, got knocked down a few times, but he always got back up. He worked hard to build a great middle class life for our family in Mayfield. But he used to have a saying, he’d say, “Joey, I don’t expect the government to solve my problems, but I sure in hell expect them to understand my problem.”
This is a man who understands the problems faced by struggling families in a way Trump never will—and not just because the Orange Menace hasn’t experienced struggle directly, but also because he lacks the human quality of empathy that would allow him to put himself in the shoes of a fellow American, or any fellow human being. To return to the matter of tax policy, Biden stated that he pays for this child and elder care plan by “rolling back unproductive tax cuts, some of the $2 trillion tax cut the president put through. Closing loopholes, unproductive tax cuts for high income real estate investors while ensuring high income earners pay their tax bills.” Some of the specific measures Biden is targeting are the very ones that the would-be Tyrant from Trump Tower has used extensively to save himself many millions, while regular people just pay taxes they have no way to avoid. With that in mind, maybe it’s time for a new nickname: Trollin’ Joe.
As we look to November, beyond the impeached president’s madness around masks and bleach and his general rejection of science, Joe Biden must hammer away at the economic policy choices his opponent has made over the past three and a half years. By passing trillions in tax cuts overwhelmingly aimed at the rich, Trump cranked up deficits instead of investing in our people or salting away money for a future storm—one that has been drenching us for months. Biden must put at the center of his campaign message his plans to undo the Trump Rich Man’s Tax Cut, reform tax policy more broadly so that the wealthiest pay their fair share, reward work rather than unearned income, as well as get rid of other absurd giveaways to the real estate industry and other special interests.
When it comes to taxes, the current occupant of the White House has actually governed exactly as any ostensibly sane Republican would have. Their party’s highest priority is to always take care of the rich—George W. Bush’s tax scheme, in terms of whom it benefited, was basically a twin of Trump’s. It’s what Republicans do, and it leads to disaster every time, until a Democrat has to come in and clean up the mess. Democrats have to make sure American voters remember that fact, not just this fall, but in every election going forward. It's going to take more than one term to wash, scrub, and disinfect our tax code—and the rest of our government—after four years of Donald Trump.
Ian Reifowitz is the author of The Tribalization of Politics: How Rush Limbaugh's Race-Baiting Rhetoric on the Obama Presidency Paved the Way for Trump (Foreword by Markos Moulitsas).