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My Turn: Here’s what tax cuts will look like down the road

  • Rep. Jeb Hensarling, R-Texas, said, “If tax cuts don’t pay for themselves, the next step is spending cuts." AP



For the Monitor
Thursday, December 07, 2017

A discussion about taxes and tax policy is among the most boring, and important, that a nation like ours can have. Tax policy is a reflection of our national commitment to the health and general welfare of the society, and reflects the preferences a nation makes and the priorities it has for its citizenry.

The last major overhaul of the tax code was three decades ago. With the “tax reform” effort now passing the Senate and heading for a House-Senate committee process, the GOP-controlled Congress is establishing those preferences and priorities for decades to come.

In 30 years, I’ll be 87, and the consequences won’t much matter to me on a personal basis. My children will bear the burden of whatever outcomes there are from the anticipated bill in Congress.

If this passes in a form like the House and Senate versions, this is at best a grave gamble with our children’s futures, or the first huge step toward ruining our country.

There are too many aspects of the legislation to discuss here. But one basic feature of the bills passed by both houses of Congress is a reduction of the top line corporate tax rate from 35 percent to 20 percent. However, the effective tax rate (that is, the cash actually collected after deductions are taken, loopholes are used, etc.) paid nationwide by corporations today is already about 13 percent (even with the 35 percent rate in place). By reducing the top line from 35 percent to 20 percent, without closing out enough of the deductions and loopholes, there will absolutely be an extraordinary government revenue shortfall.

This is clear in every analysis of the proposed legislation.

So here is the layperson’s way of understanding the corporate tax reduction: The Congress is taking out a $1.4 trillion loan to give it to the exceptionally wealthy and corporations on the hope that reduced taxes will result in a rising tide of greater headcount at companies and higher wages for employees, which will then have some kind of – but impossible to foresee, calculate or prognosticate – beneficial impact on the overall economy.

The real problem is part two of this little game. In a few years, Paul Ryan says something like this: “Oh, gosh. For some reason, we are $1.4 trillion short in our treasury. We’re baffled. But what we know for sure is we are spending too much as a country, and we need to take drastic and difficult action to rein in our now ‘out of control’ deficit. So this means we have to cut away ‘luxuries we can’t afford.’ Sorry, we’re just as surprised by this shortfall as you are. And we can’t raise taxes to pay for things because we are the GOP and that makes us lose elections. So sorry.”

Candid Republicans are acknowledging the gamble and its potential consequences.

Rep. Jeb Hensarling (who, not incidentally, is retiring from Congress) said in an interview: “If tax cuts don’t pay for themselves, the next step is spending cuts, including ‘entitlement reform.’” This is simply another way of saying: One, the GOP will pass this deficit explosion on the unverifiable and impossible to prognosticate notion that it will end up causing a rising tide of ordinary taxpayer revenue due to more jobs (you know, in an age of increased automation) and better wages (you know, instead of higher dividends to shareholders); and two, then if/when it doesn’t, the GOP will not raise taxes and have only Medicare and Medicaid and the EPA and the National Park system and other things under the sun to cut away.

We will watch this gamble unfold. But voters need to understand that the GOP is tossing the dice down on a baccarat table that risks the whole country. And the GOP has done so not in the service of “the American People” or the middle class. Once the party of fiscal caution, the GOP has done this because it had to deliver to the corporations and wealthy donors who have them on their payrolls.

(Christopher Cole lives in Portsmouth.)