Let's End the Pretense, the Republicans Are Not Cutting Taxes

Let's End the Pretense, the Republicans Are Not Cutting Taxes
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Apparently eager to not be associated with the kind of people who grow rich by virtue of removing unease from our lives, along with those who grow wealthier by virtue of investing in those striving to remove unease from our lives, the Republicans and their President in Donald Trump are doing cartwheels to ensure that their proposed tax cuts do not reduce taxes on the “rich.” In a fairly predictable move lifted from the political playbooks of the 20th century, the Republicans have essentially washed their hands of people like the late Steve Jobs, along with families with names like Rockefeller and Gates whose wealth made the initial Apple (Rockefeller) possible, along with the revival of the near-bankrupt Apple (Gates) that Jobs returned to in 1997.

As House Speaker Paul Ryan explained it about the GOP’s proposed tax plan to Roll Call last week, “We’ll introduce the bill, which will have that fourth bracket designed to make sure that we don’t have a big drop in income tax rates for high-income people — their bracket is 39.6 [percent] right now — and then we have a middle-class tax cut.” While the Republicans aren’t treating the well-to-do murderously as the Bolsheviks did their country’s productive class in the former Soviet Union nearly 100 years ago, they’ve fairly explicitly indicated that they’ll take whole classes (businesses and entrepreneurs) for granted; all in an attempt to trump their reliably class and color focused opponents in the Democratic Party who regularly walk all over certain voting blocs whose support they view as a sure thing.  Getting right to the point, the Republicans have told the innovators along with the investors in those innovators to drop dead.

What this means for the Republican tax plan is that there is no tax cut.  Readers shouldn’t be fooled, nor should Republican activists who made Republican control of Washington possible.  The Party that was put on this earth to reduce taxes is in the process of legislating what isn’t a tax cut.

How do we know this is true? We can simply Google the endless commentary from Republican columnists over the years that has revealed what’s both sad and true at the same time: the top earners in the U.S. account for the majority of federal tax receipts.  Ok, but since the rich pay nearly all the taxes, a tax plan that, per Ryan “won’t be as significant for high earners,” is surely not a signficant tax cut.  And so it goes.

About all this, readers can rest assured that GOP partisans will continue to promote the fiction that the Republicans are writing a major, pro-growth tax cut, but don’t be fooled.  The Republican tax bill is a whole lot of nothing, and it is simply because it does nothing per Speaker Ryan’s comment to Roll Call to reduce the penalties on those who grow rich for doing remarkable things, along with those who attain even more wealth as a reward for backing them.  The Republicans have once again asserted that neither group matters. 

To all this, some will reply that the Republicans are going to abolish the estate tax, and that the act of doing so will aid those most crucial to economic progress: the rich.  Ok, no doubt abolishing the estate tax would be great for progress simply because the superrich (whether earned or inherited) have enormous sums they’re willing to risk – and often lose - on the intrepid investments that power economic advance.  Never forget that ESPN nearly died in 1980 if not for John Paul Getty’s heirs, that Thomas Edison developed the light bulb thanks to risk-focused banking heir J.P. Morgan (his rich father thought J.P. was nuts), and that Silicon Valley’s early, 1970s genius (including Apple) was funded by the heirs of people like Cornelius Vanderbilt and John D. Rockefeller.  To be clear, abolishing the estate tax would free up some of the most crucial wealth of all (the kind the rich are willing to deploy in support of concepts that have high odds of failure) when it comes to growth, but judging by how quickly the GOP and Trump have turned on the 1 percent and their income, it’s only a matter of time before the estate tax’s abolishment falls victim to a Party that can’t get out of its own way, and to a President who is a policy illiterate. 

After that, what’s left? Republican team players will point to the reduction of the corporate tax from 35 to 20 percent, but there’s really no cut to speak of.  Few corporations pay 35 percent to the U.S. Treasury, and evidence supporting the previous claim comes care of Republicans who regularly point out that the “highest corporate tax in the industrialized world” raises very little revenue.  The alleged cut will be a wash once various loopholes are closed to get the rate down to 20 percent.  No doubt some corporations will suffer higher taxation based on the faux GOP cut.

Immediate expensing of plant and equipment purchases?  A crony subsidy trotted out by a Party increasingly prone to lifting class rhetoric from the 20th century, this faux cut will amount to a grand giveaway to the U.S. corporations of the past (GM, Ford, U.S. Steel) that are reliant on heavy equipment and factories, but at the expense of the U.S. corporate giants of the 21st century (Apple, Facebook, Uber, Microsoft, etc. – you know, the most valuable ones) wholly reliant on people over tractors, assembly lines, and massive plants.  Basically the Stupid Party will force the best and brightest corporations of today to subsidize what mattered 100 years ago.

Repatriation of profits “stranded overseas”? Not really.  This is a global economy we’re talking about.  The falsehood being promoted by Republicans about trillions “stranded overseas” presumes that U.S. corporations are literally stuffing their foreign earnings into vaults, and under mattresses.  Back to reality, they’re immediately banking their earnings, at which point they’re fully available at a market price for individuals and businesses seeking growth capital.  Apple has routinely “repatriated” billions through the debt markets, and has enjoyed a tax break (deduction of interest payments) for doing just that.

So no, there’s no tax cut.  And there would have only been a real tax cut if the Republicans had properly written a tax proposal meant to reduce penalties on the innovators, along with investors in same.  But they haven’t.  Their plan is to continue to penalize them. 

Are there lessons from all this, or things all concerned should take? Yes.

For one, Republicans need to grow up.  If so, they’ll summon the courage to say what’s true: people attain great wealth in the U.S. by virtue of their remarkable achievements that massively enhance living standards for all.  These superstars can only achieve insofar as there is abundant investment to back them.  There are no companies, no jobs and no misery-erasing innovations absent the remarkable, and those willing to back them.  In short, true, economy-boosting tax cuts are those that reduce penalties on the rich and those eager to grow wealthy through entrepreneurial acts that transform how we live.

Second, Ronald Reagan was not a “great communicator.” Republicans should cease insulting him as though his legislative success was an effect of his ability to essentially trick voters.  Reagan could communicate tax cuts because he believed in them, and in believing in them, he was able to make a great case for what is elementary: reducing the penalties placed on work and investment.  Hopefully in ending their routine insults of a man not alive to defend himself the Republicans will cease further insulting him by pretending that the current White House occupant is similar to him.  What a joke.  Trump can’t communicate tax cuts simply because he neither believes in them nor understands them.

Third, the Republicans will hopefully learn from all this that they are no longer capable of doing what they were allegedly put on this earth to do: reduce taxes.  How can the Republicans legislate what they plainly don’t understand and that they don’t believe in? If they truly understood and believed in the power of leaving more wealth in the private sector, then it’s certainly true that their tax proposals would be all about most reducing the burden on those with the most wealth to leave in the private sector: the rich. 

So while Republican voters would be wise to wake up to the tax-cutting ineptitude of their Party, all is not lost.  Indeed, gridlock is – after good policy meant to actually reduce the burden of government - the next best friend of economic growth.  The silver lining to a Republican Party incapable of reducing government burdens is that's it's also one incapable of doing all sorts of other damage legislatively.  The trick now is for Republicans to change their brand.  As opposed to being the tax cutting Party, let’s say they were put on this earth to ensure that nothing of legislative importance happens in Washington. 

If so, the economic growth they desire – but don’t have much of an understanding of how to achieve – will be theirs.  The much-vaunted Republican tax cut is dead.  Hail to Trumpian gridlock that will look, act and feel like growth, but that could have been so much more.   

John Tamny is a speechwriter and writer of opinion pieces for clients, he's editor of RealClearMarkets, Director of the Center for Economic Freedom at FreedomWorks, and a senior economic adviser to Toreador Research and Trading (www.trtadvisors.com). His new book is The End of Work, about the exciting explosion of remunerative jobs that don't feel at all like work.  He's also the author of Who Needs the Fed? and Popular Economics. He can be reached at jtamny@realclearmarkets.com.  

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