With a heavy legislative agenda in tow, it is difficult to see how President Donald Trump along with the Republican-led Congress will achieve their stated priority of enacting tax reform.
In theory, the case for tax reform is to simplify an onerous system, with fewer loopholes and incentives that require higher marginal tax rates.
As the president stated recently in Bismarck, N.D.:
“So we’re here today to talk about a plan to create a new age of American prosperity by reducing the crushing tax burden on our companies and on our workers. The taxes are crazy — the highest taxed nation in the world.”
This is the type rhetoric one would expect to hear at Old South Church circa 1773, just prior to East India Company losing an entire shipment of tea into Boston Harbor. Hyperbole aside, the president’s statement simply is not true.
Associated Press recently reported the U.S. tax burden is among the lowest of the 32 developed and large emerging economies. According to 2015 data, taxes comprise 26.4 percent of the U.S. economy. The only countries with a lower percentage are South Korea, Ireland, Chile, and Mexico.
What does it say that the primary case for tax reform is a proven falsehood? The U.S. tax burden is nowhere near that of Denmark (46.6 percent), Germany (36.9 percent), or Britain (32.5 percent).
It’s one thing to propose legislation and be proven wrong about an outcome; all legislation comes with unintended consequences. It’s another matter to lead with a verifiable mendacious statement and continue to promote it.
Because we now live in a post-truth world where facts are subjective, I doubt the proven inaccuracy of the president’s remarks will discourage him for repeating them.
But the rhetoric of tax reform that conveniently includes “companies” and “workers” gives the impression that improvement is on the horizon for all, the unrelenting weight of burdensome taxation will be removed, and America will go skipping into an unabated prosperity.
This sounds great, but the track record with this Congress, coupled with the political realities, the rhetoric of tax reform will become another version Dr. Feelgood’s quick fix elixir.
If enacted, tax reform will most likely be flowered with rhetoric geared toward the American worker, but will prove to be nothing more than tax cuts designed primarily to economically stimulate the already economically stimulated.
As we have seen over the decades, tax cuts of any variety without the corresponding spending cuts are an irresponsible methodology for increasing the deficit. The canard in response is usually to place the blame at the feet of tax-and-spend Democrats.
The problem with this logic is all members of Congress, regardless of party, like the smell of pork, especially when delivered back to their districts. Show me a member of Congress who will not feed at the trough of pork-barrel spending, and I will show you member of Congress not running for re-election.
Given his recent deal with the Democrats, how willing is the Republican Congress to carry the water for a president many perceive as having stabbed them in back? If the president demonstrates leadership on tax reform similar to the failed repeal of the Affordable Care Act, it is unlikely anything will be passed that resembles reform.
But it is much easier to advocate for tax cuts and not address the larger structural problems of wages. With the exception of anemic growth, the American economy looks good on paper.
Beginning in the late 1940s, wages and benefits of typical workers rose in conjunction with productivity. As the economy expanded, American workers also benefitted correspondingly through better pay. But in the 1970s, this trajectory began to change.
According to the Economic Policy Institute, between 1973–2015 productivity rose by 73.4 percent, while hour pay has increased 11.1 percent.
There will always be a barrier on economic growth as long as wages remain stagnant.
The president has already proposed to limit the alternative minimum tax and cut taxes on income received through pass-through corporations. Without getting into the weeds, these are proposals that significantly aid the wealthiest Americans. It will further expand the income inequality gap, and does nothing for wages.
The rhetoric of tax reform or the reality of tax cuts won’t lift all boats, just the few already in front.
Byron Williams is a contributing columnist. Contact him at 510-208-6417 or email@example.com.