Oct 8th 2015

Challenging Republican Premises: On the cutting of taxes

by David Coates

David Coates holds the Worrell Chair in Anglo-American Studies


"Too often, the candidates present taxes as a burden while systematically failing to recognize (or systematically choosing to ignore) the burdens generated – for the least well off among us – by the pruning of the programs that those tax revenues sustain."

One of the great dangers of the seemingly never-ending media coverage of the Republican presidential circus is that it facilitates the steady drip into the popular consciousness of a set of problematic conservative assertions that any serious progressive politics needs to question and refute.

This media-induced steady slippage of Republican cliché into received truth was evident even before the current election season kicked into high gear: hence an earlier posting calling into question Republican explanations of the scale and persistence of poverty in this country.1 But the need for that questioning is even greater now, as day-after-day national and local news outlets endlessly report on the comings and goings of one Republican presidential candidate after another. For whatever set of reasons, the equivalent Democratic Party candidates receive far less media coverage. It is Republican arguments and Republican agendas that currently flood the airwaves. And nothing is more ubiquitous on those airwaves right now than the continually asserted Republican claim that the best route to greater prosperity for all of us lies through substantial reductions in federal spending and taxation.

If you have been watching the debates you will know that very little goes unchallenged when the Republican candidates clash with each other, but that one thing certainly does: the need in contemporary America for big cuts in personal taxation. Time and again, in this presidential round as in the last,2 Republican candidates for the highest office in the land seek to establish their superiority over others by documenting their record as tax cutters and as pruners of government programs. Some of them (Jeb Bush, for example) regularly draw on their past performance as state governors to demonstrate their capacity to balance budgets. Others (like John Kasich) also draw on their past record as legislators to demonstrate their capacity to bring down levels of public debt. And all of them struggle to outdo each other in their enthusiasm for ways to cut or abolish personal income tax: via a flat tax on income (Rand Paul3), by a standard tithe justified by biblical reference (Ben Carson4), or even through the total replacement of the IRS and income tax by what Mike Huckabee5 calls a “fair tax” on consumption.

Donald Trump apart, the current crop of would-be Republican presidential candidates stand entirely opposed to the notion that the rich should pay more taxes simply because they have more income to tax; and even with Trump the rhetoric goes in one direction6 while the policy goes in another.7 For these Republicans (Trump included) seem totally in agreement that progressive taxation is less effective than light taxation; that it is the scale of public spending and debt which is holding back economic growth; and that it is the burden of taxation to sustain that spending which currently is the key barrier to the generation of private sector-based enterprise and employment.

In the contemporary Republican litany, high taxation is bad, low or no taxation is good. Public spending and debt is excessive, private spending and debt is not.8 It is a litany that could very well gain more and more political traction if it continues to go unchallenged – so challenge it we must.

I

The question as always, of course, is how. Partly, the answer lies in checking the accuracy of the assertions made; and fortunately debates that are publicly broadcast do tend to be “fact-checked” after the event, at least by the quality press if not by the likes of Fox News.9 But the bulk of the fact-checking so far in this electoral cycle has been aimed merely at the different claims that individual candidates make, in the process strengthening the credibility of some candidates by deflating that of others. What, so far at least, such fact-checking has rarely done is to call into question the silences that lie behind the claims – the things that go unsaid and unexamined in the case for tax-cutting. Nor have fact-checkers yet gone beyond the specificities of the tax-cutting claims to examine the validity of the tax-cutting case as a whole. But they need to: because the checking of facts in electoral cycles as important as this one always requires supplementation by the checking of underlying philosophies. There are moralities at stake here, as well as presidential careers, and we need to check them both.

It is a checking that might generate counter-arguments of at least the following kind.

The enthusiasm of Republican presidential candidates for the cutting of federally-funded public programs systematically downplays the costs associated with that cutting. Too often, the candidates present taxes as a burden while systematically failing to recognize (or systematically choosing to ignore) the burdens generated – for the least well off among us – by the pruning of the programs that those tax revenues sustain. The data is clear on the importance of federally-funded welfare payments to the incomes of millions of Americans. Without Social Security, for example, a further 27 million Americans would drop back into poverty.10 Without the earned income and additional child tax credits currently in the US tax code, “the nation’s poverty rate would have been 2.9 percentage points higher in 2013.”11 “Without government programs such as food stamps and unemployment insurance, the poverty rate would grow from 16% to 28.7%, causing the ranks of the poor to swell from 50 million to 90 million people.”12 Without the Affordable Care Act that the House Republicans regularly vote to repeal, a further 15.8 million Americans would lack access to basic healthcare.13 If Republican tax policy ruled the day, the “burden” of taxation would be replaced, for these Americans at least, by the “burden” of poverty, food insecurity and untended health. Republican tax policy does not remove burdens: it simply shifts them off the shoulders of those best able to bear them and onto the shoulders of those least able to do so. If Republican lawmakers recognize that shift but decline to mention it, they are being at best disingenuous and at worst dishonest. If they don’t recognize it, then they are simply intellectually too ill-equipped to govern us well.

The enthusiasm of many contemporary Republican presidential candidates for flat taxes, tithes, and taxes on consumption systematically downplays the regressive nature of the tax codes they would put in place. Flat taxes, standardized tithes and taxes on consumption work equitably when the incomes they tax are broadly equal. But when they are not equal, flat-taxing shifts the burden of tax away from those who can afford to pay towards those who can’t. Exploiting the poor to benefit the rich is hardly the American way, though it would appear to be the contemporary Republican one. Even Fox News found the Huckabee notion of a 30% fair tax on consumption just too ludicrous to take seriously. As Chris Wallace put it to his former Fox colleague: “Doesn’t it just stand to reason that if I make $5,000, I’m going to spend a higher percentage of my income just for necessities, and if I make $1 million, I’m not going to spend as much of a percentage of my income?” Apparently it didn’t stand to reason, not to Mike Huckabee at least.14 Likewise, Donald Trump might like occasionally to play the populist card – declaring his own willingness to forego Social Security, for example, during the second Republican presidential candidates’ debate. But any balanced assessment of his recent tax proposals must show that they would cut the taxes of the richest Americans by far more than they would cut the taxes on middle-class Americans; and even that one of the major beneficiaries of his call for the abolition of the estate tax would be the Trump family itself!15 No: the rhetoric may be populist, but the consequences will not be. So if you want more inequality in this country, you should definitely vote for one of these Republicans. But if you want less inequality, it would seem that you should definitely not.

The regressive nature of current Republican tax proposals might matter less if, by easing the tax burdens on the rich, the resulting increase in prosperity and wealth at the top of America’s income pile would quickly trickle down to raise the incomes of all those below. But sadly, of course, “trickle-down economics” does not actually work.16Wealth and income, if untaxed, will not trickle down. It never has, and it won’t now. Certainly, tax cuts on the rich did not trickle down when George W. Bush tried them in 2001 and 2003. Indeed, precisely because they did not, our most recent Republican president was obliged eventually to cut taxes at the bottom of the income ladder, not the top, in a belated search for economic growth.17 For it was when the top rate of income tax was formally 91% and the actual take probably 70% 18(in the 1950s, under an earlier Republican president) that income inequality in the United States was at its lowest and yet the growth rate of the economy was at its most sustained. We have come a long way since then – away from the 1950s’ equality and away from its sustained growth; and in consequence we are now burdened by a level of income and wealth inequality not seen in the United States since the 1920s.19 Yet it is a level of inequality that coincides with only a sluggish rate of economic recovery from the financial crisis of 200820– a crisis that was itself caused by the retreat of public agencies from the tight regulation of financial speculation by the very richest amongst us.21 So if there was ever a time for “trickle-up” economics rather than for “trickle-down,” it is surely now: which is why Republican tax policy must be called out for what it is – a set of economically inappropriate and morally bankrupt proposals – proposals advocating a further privileging of the rich in the name of a common good that the further enrichment of the privileged will never deliver.

Pruning federal spending would indeed free-up economic growth in the private sector if the scale of that spending was actually the main barrier to renewed private-sector investment and job creation. But it is not. The US corporate sector is heavy with profits right now, and interest rates are effectively zero. There was never a cheaper time to borrow than now, which might help to explain why the Republican Party’s 2013 hysteria about the federal debt ceiling seems to have abated, and why the current crop of Republican presidential hopefuls can regularly propose tax changes that can only add to the size of the public deficit. For private US firms are currently slow to invest and employ not because the government is over-spending. They are currently sitting on their profits because they fear their inability to sell the extra products and services that any extra investment and employment would generate. Lack of demand, stagnant wages, and extensive poverty are what are actually holding back US private sector-based economic growth. Which is why the Keynesian case for more public spending, not less, remains intact and credible – more intact and more credible indeed than its Republican austerity alternative – particularly if that spending was directed into areas of greatest economic and social need: into better-funded education systems, and into the modernization of America’s increasingly depleted transport and communication infrastructure. If we borrow now to build a bridge, and repay that borrowing from the tax revenue released by the extra economic activity associated with the construction and use of that bridge, what we leave future generations with is not an additional level of public debt. What we leave them with is a bridge.

Republican willingness to regularly contemplate shutting down the federal government shows more than an indifference to the importance of federal spending, although it definitely shows that. Shutting down Washington DC is also often defended by stressing a Republican Party preference for state spending – opposition to federal spending reframed, that as, as a states’ rights issue that is also in need of challenge. Far too often, the case for replacing federal programs with block grants to states – to leave them free to allocate welfare payments as they see fit – is simply cover for a general Republican unwillingness to support the poor in any form. And even if it is not, do Republican voters not realize that the major beneficiaries of the flow of federal funds to the states are currently those living in red states rather than in blue ones?22 Even Jeb Bush gets lots of “free stuff,”23 regardless of whether or not he is willing to admit it. Cutting federal spending will actually hurt Republican-voting states more than left-leaning ones! And to what end? Do Republicans really want to create an America in which states share a common currency and a common central bank but are left free to develop their own fiscal policies without central control? That Balkanized condition is exactly what the Eurozone has recently declined into: one combining a common currency (the euro) and a single central bank with the complete absence of uniform fiscal policies at the level of the states. We all know how well that works. Puerto Rico and Greece already have way too much in common for the general good.24 Do the Republican presidential candidates really want the southern-European experience replicated here in parts of America? Do they even know that that is what their proposals would inevitably and ultimately bring? I doubt they do, and I doubt that they know. They need to be told.

The Republican Party’s enthusiasm for the replacement of public programs by private initiative actually reverses the true pattern of economic causality in modern American life. Ronald Reagan began his presidency by insisting that “in this present crisis, government is not the solution to our problems. Government is the problem.”25 But on this, as on so much else, time has proved Ronald Reagan to be wrong. It is unregulated market competition, by its systematic creation of losers as well as winners, rather than competition regulated by the democratic state, that is the great motor of income and wealth inequality; and it is the persistence of those inequalities over time that increasingly deny more and more American children the capacity to compete with each other on a level playing field. To keep the American Dream alive for all Americans, a degree of state regulation of markets, and a willingness to use the tax code to redress the greatest of these accumulated inequalities, is not only necessary. It is vital. Republicans like people to pull themselves up by their own actions; and so indeed they should. But people are not equally free to do that self-improvement if their “pulling” is blocked by lack of income and schooling, or is made more difficult by socially-embedded systems of class, gender or racial discrimination. There is a vital role to be played by the democratically-elected federal government in the creation of the economic and social conditions vital to America’s long-term economic and social health; and Republicans reject that role for the federal government at their peril, and indeed ultimately also at ours.

II

Instead of a public conversation dominated by the need to reduce the role of the federal government, and to cut the tax revenues flowing to it, progressive voices should be insisting on a public conversation about the priorities of spending (and hence of roles) now prevailing in Washington DC, and should be turning the public spotlight firmly onto the question of who is best able to pay essential taxes, and who is currently most heavily engaged in avoiding that responsibility. The strength of Bernie Sanders campaign lies precisely in his emphasis on this last question. But what is under-stated in the Sanders’ campaign – and which now needs to join the criticism of the super-rich as his main theme – is a call for the federal government to act as what John McDonnell this week called “the entrepreneurial state” – “a strategic state working in partnership with businesses, entrepreneurs and workers to stimulate growth, prosperity and social justice.”26

The best way to counter the negativity of the Republican attitude to federal spending and programs is to re-emphasize the positive role that a progressive federal government can and must play if America is to enjoy again a prolonged period of economic growth and general prosperity. For what America currently needs is not less federal spending on education and welfare, and more federal spending on soldiers and arms. What America currently needs is a federal government that spends its money in a wiser manner: spending less on the military presence of America abroad, and spending more on the development of human and social capital at home. What progressive politicians should now be campaigning for, as the very highest of their political priorities, is the creation of a Pentagon-style federal department charged with the delivery of domestic economic growth and social justice, and with the development of pro-active policies to that end.

As the Democratic presidential candidates prepare for their first televised debate, the opportunity is opening up again to re-frame the prevailing public conversation, not just between candidates within any one party, but also between the parties themselves. Let us hope it is an opportunity that is fully recognized, and used, by each and every one of the Democratic Party candidates in turn. We have been bombarded by an unchallenged Republican Party litany for far too long. There is a better litany waiting in the wings. It is time to bring that better litany center-stage.

3 Editorial Board, “Rand Paul’s Fake Flat Tax,” The New York Times, July 10, 2015:available athttp://www.nytimes.com/2015/07/11/opinion/rand-pauls-fake-flat-tax.html?_r=0

4 Max Ehrenfreund, “A simple guide to what Ben Carson actually believes,” The Washington Post,September 15, 2015: available at http://www.washingtonpost.com/news/wonkblog/wp/2015/09/15/a-simple-guide-to-what-ben-carson-actually-believes/

6 Barney Jopson, “Trump turns fire on hedge fund managers,” The Financial Times, August 23, 2015: available at http://www.ft.com/intl/cms/s/0/cc67209e-49d2-11e5-9b5d-89a026fda5c9.html#axzz3nFGjHqbr

7 Catherine Rampell, “Donald Trump, the Santa Claus of tax reform,” The Washington Post,September 28, 2015: available at https://www.washingtonpost.com/opinions/the-tax-reform-proposal-bearing-gifts/2015/09/28/3e6cd34a-660d-11e5-9223-70cb36460919_story.html?wprss=rss_opinions

8 Paul Krugman, “Voodoo Never Dies,” The New York Times, October 2, 2015: available athttp://www.nytimes.com/2015/10/02/opinion/voodoo-never-dies.html

So completely discounting any notion of a ‘social wage,’ any notion that adequately provided public services could possibly add to the quality of personal life! All the main Republican candidates for President currently imply that life for everyone will automatically improve just as soon as taxation levels begin to fall. A compulsory two-week trip to Sweden is immediately called for!

9 Fact Checking The Early Republican Debate, posted on The Huffington Post, August 6, 2015: available at http://www.washingtonpost.com/blogs/fact-checker/wp/2015/08/07/fact-checking-the-first-gop-presidential-debates/

10 Elise Gould, “Social Security Kept 27 Million Americans Out of Poverty in 2013,” Economic Snapshot, EPI, October 30, 2014: available at http://www.epi.org/publication/social-security-kept-27-million-americans-out-of-poverty-in-2013/

11 Elizabeth Kneebone and Natalie Holmes, “Fighting Poverty at Tax Time Though the EITC,”Brookings, December 16, 2014: available at http://www.brookings.edu/blogs/the-avenue/posts/2014/12/16-poverty-tax-eitc-kneebone-holmes

12 Zachary Goldfarb, “The best case that the war on poverty has failed,” The Washington Post,February 19, 2014: available athttp://www.washingtonpost.com/news/wonkblog/wp/2014/02/19/the-best-case-that-the-war-on-poverty-has-failed/

13 Robert Pear, “Number of Uninsured Has Declined by 15 Million Since 2013, Administration Says,” The New York Times, August 12, 2015: available athttp://www.nytimes.com/2015/08/12/us/number-of-uninsured-has-declined-by-15-million-since-2013-administration-says.html

16 Paul Krugman, “Fantasies and Fictions at G.O.P. Debate,” The New York Times, September 18, 2015: available at http://www.nytimes.com/2015/09/18/opinion/paul-krugman-fantasies-and-fictions-at-gop-debate.html

17 On this, see David Coates, Answering Back: Liberal Responses to Conservative Arguments, New York: Continuum Books, 2010, 34-56: available at http://www.amazon.com/Answering-Back-Responses-Conservative-Arguments/dp/1441126937

19 Lawrence Mishel and Alyssa Davis, “CEO Pay Has Grown 90 Times Faster than Typical Worker Pay Since 1978,” Economic Snapshot, EPI, July 1, 2015: available athttp://www.epi.org/publication/ceo-pay-has-grown-90-times-faster-than-typical-worker-pay-since-1978/

20 Josh Bivens, “Summing up Today’s GDP Data Release,” Economic Snapshot, EPI, July 30, 2015: available at www.epi.org/blog/summing-up-todays-gdp-data-release/

21 On this, see Answering Back, op. cit, pp. 230-72; and David Coates, Making the Progressive Case: Towards a Stronger U.S. Economy, New York: Continuum Books, 2011, pp. 160-188: available athttp://www.amazon.com/Making-Progressive-Case-Towards-Stronger/dp/1441186506

24 Paul Krugman, “America’s Un-Greek Tragedies in Puerto Rico and Appalachia,” The New York Times, August 3, 2015: available at http://www.nytimes.com/2015/08/03/opinion/paul-krugman-americas-un-greek-tragedies-in-puerto-rico-and-appalachia.html

26 Speech to the Labour Party conference in the UK, September 28, 2015: available athttp://www.mirror.co.uk/news/uk-news/john-mcdonnells-full-speech-labour-6532282

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David Coates holds the Worrell Chair in Anglo-American Studies at Wake Forest University. He is the author of Answering Back: Liberal Responses to Conservative Arguments, New York: Continuum Books, 2010. 

Coates writes here in a personal capacity.

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