Another Look

 

Those proposing tax reform out of touch with reality

 

By Roger Terry

Nov. 9, 2017

 

 

Editor’s Note: The Sanpete Messenger historically has been concerned about fiscal integrity at the municipal, county, state and federal levels. Following is an op-editorial piece published in the Deseret News Sept. 14. We are reprinting it with permission from the author.  

 

The economic theory behind the tax reform, including cuts, now being proposed in Congress is out of touch with reality. While being correctly concerned about the rising federal debt, Donald Trump and the Republicans want to solve this thorny problem by cutting taxes and shrinking government. There are two problems here.

Republicans have been selling the idea for almost 40 years now that tax cuts pay for themselves. Unfortunately, there is no evidence that this is true (and plenty of evidence that it is nonsense).

They claim repeatedly that their tax cuts will primarily benefit the middle class and the poor. But simple math shows this is also a fib. Their tax cuts always pay off primarily for the wealthy.

Second, it is difficult to cut government spending significantly. Social Security and unemployment account for about 33 percent of spending. Medicare and other health spending add up to about 27 percent. Military spending amounts to about 16 percent. Interest on the debt is about 6 percent. Veterans benefits contribute 4 percent more. These five categories add up to about 86 percent of government spending.

Some conservatives clamor for cuts to “entitlements,” but this is rather unrealistic. With the baby boomers retiring in droves, many of them with little or no retirement savings because they either weren’t paid enough or their employers eliminated their pensions, demands on Social Security and Medicare will increase, not decrease, over the next several years.

And with pay for the bottom 80 percent of the workforce flatlining, more and more young people will require government assistance in one form or another just to make ends meet. So “entitlements” are difficult to cut significantly.

We could easily cut military spending, since we spend more on military than the next eight countries combined, but that idea is anathema to the GOP. So that leaves us with 14 percent of the budget to play with, and most of those expenditures are for programs we need to keep or increase (such as infrastructure).

The Republicans attempted to take health insurance from over 20 million Americans. Fortunately, that ill-fated effort failed, but it did reveal their priorities: Take needed benefits from the poor and sick and elderly to pay for tax cuts for the superwealthy.

The GOP’s attempt at tax reform will likely look similar. Why? Because that is what Republican economics is all about: tax cuts for the wealthy and reduced aid for the needy.

This is not a recipe for a sound society. They’ve sold it for decades now with catchy slogans, but, as we’re finding out, governing is much different from sloganeering.

One of the slogans is “Americans are overtaxed.” But this is about as true as “Tax cuts pay for themselves.” According to statistics from the Organization for Economic Cooperation and Development, the United States brings in less revenue through federal and state taxes as a percentage of GDP than all but three developed countries: Mexico, Chile and South Korea. The average for all OECD countries is 34.3 percent. The United States rings in at 26.4 percent. Overtaxed? Not by world standards.

Our problem is that we’ve been misled for years. We’ve been told to believe that we can have all the things government provides but we don’t have to pay for them. Remember George W. Bush: He paid for two wars and Medicare Part D with tax cuts. This is typical Republican economics. Trump is promising both a $1 trillion infrastructure upgrade and massive tax cuts.

Someone on the right needs to be honest and admit that what we need is a tax increase, especially on those who have made off like bandits from low taxes and lax regulation.

The rapidly growing inequality in this country is unsustainable. At some point soon, we need to come to grips with the reality that we need to increase tax revenues if we want to dig out of the debt hole we’ve dug with shovels of dishonesty.

 

Roger Terry is a freelance author, writer and editor, and a former professor of management, who lives in Orem. He is a frequent contributor of op-editorial pieces to the Deseret News.