Holding the Center

November 26, 2024

Previous | Next

The latest issue of The Week has a cover depicting several of Trump’s cabinet appointees setting off explosives. The caption is “The Wrecking Crew: How Trump’s nominees could blow up the government.”

The conventional wisdom has been that in a two-party system, the winning party is the one that manages to straddle the center. It is the one that avoids the extremes and appeals more to the large middle of the electorate. Of course, that can be easier said than done. When society is more polarized, middle ground is harder to find. In addition, the center is a moving target. Policies that were once considered extreme, like Medicare or legalized abortion, have become more mainstream; and policies that were once considered normal, like segregation of the races, have become practically unmentionable. Nevertheless, election losses have often occurred when liberals got too far to the left of the voters—like George McGovern in 1972—or conservatives got too far to the right—like Barry Goldwater in 1964.

This year we have a more confusing situation. Many observers want to attribute the Democratic loss to the party’s excessive radicalism, putting them out of touch with “ordinary Americans.” And yet it is the winning party that seems more intent on blowing up the government. What’s going on here?

Radical-left Democrats?

Many of the post-mortems on the election fault the Democrats for endorsing too many unpopular ideas. A common accusation is that Democrats strayed too far from the bread-and-butter issues that interest most working-class voters (often defined as the non-college-educated). That left room for Republicans to claim more of the middle ground, perhaps becoming the new party of the working class.

On some issues, such as protections for transgendered persons, the Democratic position does appeal more to educated liberals than to the general public. However, let’s not forget that when Joe Biden got the Democratic nomination in 2020, he was considered a moderate Democrat, and one with a strong record of supporting working-class interests. As Vice President and eventual presidential candidate, Kamala Harris stuck close to the Biden agenda, so much so that she was criticized for not putting more distance between them. Notice also that other Democrats with moderate positions and solid pro-working-class credentials—Sherrod Brown in Ohio and Bob Casey in Pennsylvania—also lost this year. Democratic extremism seems hardly a good enough explanation.

Two developments early in the Biden presidency damaged his reelection prospects, a spike in inflation and a surge in illegal immigration. Covid played a role in both, creating supply shortages that raised prices and a backlog of migrants who came in only when Covid restrictions were lifted. Biden’s responses to these problems may have been less than fully successful, but they were hardly radical. He supported a bipartisan bill that would have increased border security and processed asylum applications faster, and he acted unilaterally to tighten security when the bill failed. He increased energy production to bring costs down, and supported the Federal Reserve’s use of monetary policy to reduce the rate of inflation.

Or radical-right Republicans?

I think that a fair comparison between the candidates shows Donald Trump and the MAGA Republicans taking the more radical positions. Trump was the one who asked Congressional Republicans to kill the bipartisan immigration bill, so he could keep the issue alive and gather support for his more radical solution of mass deportation. His major economic proposal, high tariffs on imports, has been out of the economic mainstream for the past century. Most economists believe that his policies would hurt the economy and raise costs for consumers. In foreign policy, Trump’s affinity for dictators places him at odds with our foreign policy establishment and pro-democracy forces within his own party.

As he ran for president this time, Trump was being prosecuted for one of the most radical actions in American history, trying to overturn the previous election by illegal means. He could only be reelected by convincing  most of his followers that (a) he had really won the 2020 election despite all evidence to the contrary, and (b) his indictments for this and other illegal behavior were nothing but politically motivated witch hunts.

How did a person so far outside the norms of political policy and behavior manage to capture the middle (almost), by getting just below 50% of the popular vote? One reason was the advantage of not being the incumbent this time. Incumbents have had a tough time winning lately, not only here but in other democratic countries. Voters are restless and dissatisfied, especially because the benefits of economic growth have been going mainly to the richest segments of society for the past half-century. Meanwhile, working-class families have been struggling to get ahead. Neither party has come up with a very good solution to this problem.

As the non-incumbent, Trump could make dubious claims about his proposals without having to test them in the real world, at least not yet. He could exaggerate the revenue gains from his tariffs while pretending that the costs would be borne by foreigners, instead of by US importers and their consumers. As details of the Republican Project 2025 plan came out, and the public turned against it, Trump could say, “I never heard of it,” while knowing full well that his own political associates and allies were writing it. Now he has put its co-author, Russ Vought, in charge of the Office of Management and Budget.

Perhaps most important, Trump had the support of a well-funded right-wing propaganda machine that constantly portrayed his opponents as dangerous radicals and “the enemy within.” He distracted attention from his own radicalism by constantly referring to Biden and Harris as “radical-left Democrats.” One of the campaign’s most effective ads claimed that Harris cared more about “they/them”—a reference to transgender pronouns—than about “us.” A negative campaign does not have to be fair or true to be effective.

How will Trump govern?

No one who follows the news closely should be surprised at the radicalism now on display in the Trump cabinet selections and policy proposals. (Some less informed voters may be scratching their heads and asking, “Is this what I voted for?”) But the federal government is a huge and complicated institution, one that does not change quickly. Many of Trump’s “concepts of a plan” may be too radical to implement fully.

Critics are pointing out that actually rounding up and deporting millions of migrants—and their children, even if they were born here?—would be prohibitively expensive, as well as very disruptive to many communities and industries, such as agriculture and construction. High tariffs on imported goods could also be very costly, especially if they trigger trade wars that hurt our own exports. Trump is promising 25% tariffs on imports from Canada and Mexico, our biggest trading partners, which would violate the existing trade agreement that Trump himself signed. However, his appointed Treasury Secretary, Scott Bessent, is said to be approaching tariffs more cautiously.

MAGA Republicans are now claiming a popular mandate to “dismantle the administrative state.” Half the popular vote is a shaky basis for claiming a mandate for anything this controversial. Thousands of federal workers staff the agencies that make and implement the day-to-day decisions that make the government work. They decide who gets prosecuted (DOJ), how to get the lead out of our water supply (EPA), what qualifies as a charitable deduction (IRS), what drugs get approved (FDA), who qualifies for assistance after a hurricane (FEMA), and on and on. The federal government is a huge employer, and many of these positions are good middle-class jobs that are important to the economy.

Dismantling the administrative state could mean many things, all of which are now under discussion:

  • Placing people in charge of agencies who have neither experience in managing large organizations nor much knowledge of the organization they are supposed to head
  • Reclassifying merit-based civil service jobs to make them political appointments rewarding ideological or financial support for the party in power
  • Centralizing decision-making in the White House, so that the President decides who gets prosecuted, who gets audited by the IRS, which states get disaster relief, and so forth
  • Impounding and refusing to spend money authorized by Congress for government agencies (technically illegal, but appealing to a rogue administration anyway)
  • Eliminating entire departments or agencies (such as favorite Republican targets like the Department of Education, the EPA, and the Consumer Financial Protection Bureau)
  • Drastically cutting the nondefense discretionary parts of the federal budget

Elon Musk and Vivek Ramaswamy have been asked to head a “Department of Government Efficiency,” oddly named because it will not be a real government department. Musk has claimed that he can cut $2 trillion dollars from the government’s $6.75 trillion budget. Critics are quick to point out that without cutting defense spending, Social Security or Medicare, which Trump has promised to protect, and without defaulting on debt payments, the portion of the budget available to cut is less than $3 trillion. Musk’s proposal would require cutting about two-thirds from all the other government programs, from running federal prisons to inspecting meatpacking plants, funding veterans’ benefits, and everything else. Few informed people in their right minds think this can be done.

The administrative state will survive, I trust. But it could come to function less on merit, expertise and political neutrality, and more on partisanship, cronyism and favoritism. That’s how it worked in the bad old days of the “spoils system,” before the Pendleton Act of 1883 reformed it. To me, the attack on the administrative state belongs in the same category as attacks on other democratic institutions—the justice system, the free press, public schools and universities. We need to improve them, yes, but also defend them against destruction by autocrats and oligarchs. Here the Democrats have a responsibility to claim the center and defend it against the radical right. Assuming the more radical designs of the Trump campaign and Project 2025 prove unworkable, the administration may have to settle for smaller victories—a few deportations here, a few new tariffs there, and a few federal regulations eliminated. That may be enough to satisfy many Trump supporters, especially when they are spun as great victories.

The party of the working class?

Maybe the most we can hope for is that the most radical members of Trump’s administration are held at bay, prevented from doing too much damage to the federal government’s ability to carry out its democratically legislated missions.

But where does that leave the working class, who would like to see their government do things that actually improve their economic position? Since Trump won 56% of non-college-educated voters, many pundits have suggested that Republicans are now the party of the working class, possibly a crippling blow to Democrats going forward.

To that, I say that Republicans need to earn that designation by delivering solid economic gains to the working class, as Democrats did from the 1930s to the 1960s. While Trump at least talked about struggling working-class families, he did not do much to address their economic concerns with relevant policy proposals. What he did very effectively was scare them with stories of exaggerated social threats like immigrant crime waves. (Immigrants do not commit more crimes; their crimes just get more publicity.) He took advantage of the fact that so many of his supporters are “low-information” voters who have trouble figuring out who’s telling the truth. Researchers have found that the less people follow the news, the more likely they are to support Trump.

Once he is back in office, President Trump will need a positive program to expand working-class opportunity, or his administration may be no more popular than Biden’s. The working class may benefit slightly from a new round of tax cuts, although most of the gains are likely to go to corporate stockholders and other wealthy Americans. But Republicans may try again to offset those tax cuts with cuts to safety-net programs on which working-class and poor families depend, such as subsidized health insurance. Trump and his health-care appointees are no fans of Medicaid or the Affordable Care Act.

I would be very happy if Republicans, despite their track record, would come up with a formula for sustainable, broad-based economic growth. If not, working-class voters will have supported them in vain, and the political center will remain up for grabs.

Leave a Comment » | Uncategorized | Tagged: , , | Permalink
Posted by Ed Steffes

Trump’s Dilemma: Debate or Just Deceive?

September 12, 2024

Previous | Next

It matters who won or lost this week’s presidential debate, but it also matters how they won or lost. In their post-debate analysis, many commentators focused on issues of style or tactics. Kamala Harris looked more presidential, they say, and she managed to goad Donald Trump into making some silly assertions, like claiming that “people don’t go to her rallies; there’s no reason to go. And the people who do go she’s busing them in and paying them to be there.”

What about substance? Who was more effective in persuading voters to support their policy proposals? Here Trump has a big handicap, since he has trouble debating ideas on their merits. Doing so effectively requires some command of the facts. But Trump does not so much assimilate facts as try to ignore them. He can get away with this when he is ranting within his MAGA bubble in campaign rallies or on right-wing media. In a debate setting, he can only hope that his opponent—and the moderators—are either too timid or too unprepared to call out his distortions of reality. Vice President Harris was neither.

Here are a few examples of the deceptions Trump presented in lieu of reasoned, fact-based arguments. Here I draw on the excellent fact-checking provided by the Washington Post.

On the economy, both candidates expressed concern about high prices, but only Harris had specific policy proposals to control consumer costs, such as the high cost of housing. Trump preferred to devote his time to blowing the problem out of proportion and placing the blame for it entirely on his opponent. He claimed that the recent inflation is “probably the worst in our nation’s history,” that his administration had “the greatest economy” of all time, and that the Biden-Harris administration “destroyed the economy.” In fact, inflation was higher in 1946, 1979 and 1980; the Lyndon Johnson and Bill Clinton administrations had stronger economies than his; and the Biden-Harris economy is also doing well by most economic measures. The rate of growth and job creation has been high, unemployment has been low, and the rate of inflation has come back down.

Trump also refused to acknowledge that his own tariff proposal would increase costs for consumers. He claimed, contrary to what economics teaches, that his tariff will be paid for by the countries that export goods to the United States. In fact, tariffs are taxes on importers, who usually pass them on to consumers. Cost estimates vary, but generally indicate that the tariffs will cost the average family several thousand dollars a year. A tariff is also a regressive tax, hitting low-income households the hardest.

On immigration, Trump claimed that 21 million immigrants have entered the country in the past four years, while the true number is closer to 5 million. He said that “they’re at the highest level of criminality,” when immigrants actually have a lower rate of crime than the U.S.-born population. Undocumented immigrants have an especially low rate, because they know that if they are arrested they can be deported. Trump described “millions of people pouring into our country from prisons and jails, from mental institutions and insane asylums,” so many that “crime is down all over the world except here.” These are total fabrications, even before we get to the immigrant cat eaters of Springfield. He also asserted, without evidence, that Democrats are deliberately letting undocumented immigrants into the country and then trying to get them to vote illegally. That’s one of the assertions he makes to support the Big Lie that the 2020 election was stolen. He repeated such claims over and over instead of debating the bipartisan immigration bill that Biden and Harris supported but he effectively killed.

On abortion, Trump tried to defend his successful effort to get the Supreme Court to overturn Roe v. Wade. Here he conveniently manufactured a consensus that doesnot exist: “Every legal scholar, every Democrat, every Republican, liberal, conservative, they all wanted this issue to be brought back to the states where the people could vote.” He also falsely accused Democrats of supporting late-term abortion and even execution of newborns. Harris supports the Roe standard, which calls for unrestricted abortion rights only during the first trimester, when about 90% of abortions occur. Trump refused to say whether he would sign or veto a federal ban on abortion.

In response to a question on climate change, Trump had no proposals to do anything about it. Instead, he went on the attack, saying, “If she won the election, the day after that election, they’ll go back to destroying our country, and oil will be dead, fossil fuel will be dead.” In fact, Biden and Harris promote both fossil fuels and cleaner energy in the short term, and production of both have increased under their administration.

On the war in Ukraine, Trump claimed that he could end it quickly, but refused to say whether he wanted Ukraine to win. He implied that the U.S. is already spending too much on the war, by stating that we have provided more aid to Ukraine than European countries have. That’s not true either.

Some may dismiss these falsehoods by claiming that all politicians lie, and that both sides are equally guilty. However, factchecking has turned up only a few problems with Harris’s debate positions. She did try to downplay her former opposition to fracking. She did take a couple of Trump’s quotations out of context, as when she said, “It is well known that he said of Putin that he can do whatever the hell he wants and go into Ukraine.” Trump was not talking specifically about Ukraine, but about a warning to a NATO country that we would not defend them if they did not increase their financial contribution to NATO.

Harris’s own positions and policy proposals deserve scrutiny and debate. But fruitful debate becomes impossible when the other candidate would rather rage against imaginary demons than engage with the real issues. Trump’s failure to propose an alternative to Obamacare after vilifying it for nine years shows that he prefers outrage to constructive governing.

Stretching the truth a little within a debate is one thing. Substituting outlandish claims for fact-based debate is something else. That defeats the whole purpose of debate, which is to inform the public of the candidates’ proposals and their arguments for them. Donald Trump displays such a flagrant disregard for truth that one must wonder if he really believes what he is saying. If he does, he is deluded. If he does not, then he is habitually dishonest. Neither trait is easy to change, so an improved performance by Trump in some future debate seems unlikely. Either should be disqualifying for the presidency.

Leave a Comment » | Uncategorized | Tagged: , , , , , | Permalink
Posted by Ed Steffes

Trump’s Criminal Conviction

May 30, 2024

Previous | Next

Now that Donald Trump has been convicted on all counts by a Manhattan jury in the hush-money case, let’s be clear on the crimes he committed.

Falsification of business records

Trump was found guilty of falsifying business records—specifically invoices, ledger entries and checks relating to the reimbursement of Michael Cohen for paying hush money to Stormy Daniels. The law does not require that Trump falsified the paper work personally. He can have caused someone else to do it.

The underlying conspiracy

What makes the falsifications felonies rather than misdemeanors is that they were done to cover up another crime. According to the jury instructions:

Under our law, a person is guilty of falsifying business records in the first degree when, with intent to defraud that includes an intent to commit another crime or to aid or conceal the commission thereof, that person: makes or causes a false entry in the business records of an enterprise.

The underlying crime Trump was found to be covering up was conspiring to promote his 2016 election by illegal means.

The People allege that the other crime the defendant intended to commit, aid, or conceal is a violation of New York Election Law section 17-152.

Section 17-152 of the New York Election Law provides that any two or more persons who conspire to promote or prevent the election of any person to a public office by unlawful means and which conspiracy is acted upon by one or more of the parties thereto, shall be guilty of conspiracy to promote or prevent an election.

Trump entered into a conspiracy with Michael Cohen and David Pecker of The National Enquirer to suppress stories that might damage his candidacy, especially after the Access Hollywood recording revealed his demeaning attitudes and sexually aggressive behavior toward women. Cohen advanced that conspiracy by paying hush money to Stormy Daniels. Then the Trump Organization reimbursed him for that payment, but falsified the business records to disguise the nature of the payment.

Unlawful means

Promoting Trump’s election, even by paying someone to buy their silence, would not have been illegal in itself. The jury had to agree that the conspirators used some unlawful means to carry out their objectives. They did not have to agree on the specific means used. The jury instructions gave them several possibilities:

In determining whether the defendant conspired to promote or prevent the election of any person to a public office by unlawful means, you may consider the following: (1) violations of the Federal Election Campaign Act otherwise known as FECA; (2) the falsification of other business records; or (3) violation of tax laws.

Here are specific acts that fall into those categories: (1) The payment to Stormy Daniels was allegedly an illegal campaign contribution both by Michael Cohen and the Trump Organization. (2) Michael Cohen allegedly falsified bank records when he applied for a bank loan and wired funds to Stormy Daniels’ lawyer. The Trump Organization allegedly falsified another business record when it issued a phony 1099 to pass off Cohen’s reimbursement as taxable compensation for legal services. (3) Cohen allegedly filed fraudulent tax returns when he over-reported his taxable income for the same reason.

This part is a little confusing, but the smoking gun that revealed the falsification of records was that the organization did not just write Cohen a check to reimburse him for the $130,000 he paid Stormy Daniels. That would be too obvious. They doubled the amount to cover the taxes he would have to pay when he reported it as taxable compensation instead of a reimbursement. Then they generated phony invoices to make it appear that he was earning the higher amount as legal fees.

With all these alleged “unlawful means” to choose from, the jury probably had little difficulty agreeing that some unlawful means had been used to carry out the conspiracy. That’s all the law requires.

Does it matter?

Like most observers, I regard the hush-money conspiracy as less important than the other crimes for which Donald Trump has been indicted:

  • trying to overthrow the results of the 2020 election by recruiting fake electors to cast uncertified state votes
  • encouraging the assault on the Capitol
  • stealing classified documents from the White House

I do think it matters though, since the 2016 election was settled by a small number of votes in a few states. In the wake of the Access Hollywood scandal, when many voters were reconsidering their support for Trump, the successful conspiracy to silence Stormy Daniels could have provided the margin of victory. If the 2024 election is just as close, clearly identifying Trump as a convicted felon may matter to at least a few voters. For most public offices and many other positions of responsibility, it would be automatically disqualifying.

Leave a Comment » | Uncategorized | Tagged: , | Permalink
Posted by Ed Steffes

The Power to Destroy (part 4)

May 29, 2024

Previous | Next

Since the late 1970s, a powerful antitax movement has advocated a reduction in the portion of national income that goes to fund government. What has it accomplished?

Tax cuts, then and now

To answer that question, I found that I had to distinguish between two very different periods of tax-cutting. The first began with the Reagan tax cuts of 1981, and the second with the Bush tax cuts of 2001.

Most tax-cutters wanted to both reduce tax rates and shrink the size of government by cutting spending. (A few argued that reducing the federal budget would not be necessary, because the tax cuts would pay for themselves.) What is interesting about the period from 1981 to 2000 is that the antitax forces succeeded a little more in cutting spending than in lowering taxes. Government outlays went down from 20.7 percent of GDP in 1980 to 17.5 percent in 2000, while government revenue went up from 18.1 percent to 19.8 percent. As a result, the budget went from a deficit of 2.6 percent of GDP to a surplus of 2.3 percent. Why? Because when faced with the high deficits resulting from the Reagan tax cuts, political leaders got serious about balancing the budget. They accomplished this both by raising taxes and cutting spending.

The fiscal trends in the second period, 2001 to 2023, were the opposite: The Bush and Trump tax cuts really did bring federal revenue down, while federal spending went up. That’s because the country cut taxes in both good times and bad, while also spending to address the national emergencies of the War on Terror, the Global Financial Crisis, and the Covid pandemic. The budget went from a 2.3 percent surplus in 2000 to a 6.2 percent deficit in 2023.

For much of the nation’s history, taxes were increased to fund wars and new entitlement spending, such as for Social Security and Medicare. In the twenty-first century, however, commitments not to raise taxes meant that massive spending to fund the wars following the terrorist attacks on September 11, 2001, to add prescription drug coverage to Medicare, to keep the economy afloat during the global financial crisis, and to respond to the Covid pandemic all went unfunded.

Low taxes and the economy

The effect of low taxes and federal deficits on the economy is a difficult and controversial topic. A tax cut is not a controlled experiment, since the economy is changing in other ways all the time. Some ideas do stand the test of time. The old Keynesian idea that tax cuts and deficit spending can stimulate the economy during recessions remains alive and well, thanks to the experience of the Great Recession of 2007-2009 and the Covid recession of 2020. The idea that low taxes accelerate growth any time finds less support, since the economy grew faster in the high-tax postwar era and in the 1990s than in the recent period of lower taxes. Graetz says that “the most robust economic growth since 1978 occurred during years following Bill Clinton’s 1993 tax increases. Tax reductions at the top have spurred neither great increases in domestic investment nor bursts of increased productivity.”

Lower taxes have been a contributing factor to economic inequality. The main beneficiaries of tax cuts have been the wealthy, who are disproportionately impacted by cuts in income taxes, estate taxes, capital gains taxes, and corporate taxes (as shareholders). They also have ways of living off their existing wealth while paying hardly any taxes at all.

Rich Americans borrow cheaply against their stock and bond portfolios to fund their lifestyles without paying any income taxes. Increases in the values of assets are not taxed as income until the assets are sold, and the tax law forgives any income tax on a lifetime of gains if assets are held until death.

Low taxes and government

Low taxes and high deficits may hamper the government’s ability to respond to new crises, such as climate change, global political threats like Russian or Chinese expansionism, demographic changes increasing the costs of Social Security and Medicare, economic dislocations caused by new technologies, and new demands for human capital development. The national debt is now so large that the country spends about as much on interest payments as it does on national defense.

This year’s presidential election is, among other things, a choice between two different fiscal approaches. President Biden wants to raise taxes on individuals with incomes over $400,000, raise the corporate rate from 21 percent to 28 percent, and create a wealth tax on people with over $100 million in assets. Former President Trump wants to make permanent his 2017 tax cuts favoring the wealthy.

I began with John Marshall’s observation, “The power to tax involves the power to destroy” and Graetz’s addendum, “So, it turns out, does the power not to tax.” I agree with Graetz’s suggestion that low taxes may now be a bigger threat to national greatness than high taxes.

Leave a Comment » | Uncategorized | Tagged: , , | Permalink
Posted by Ed Steffes

The Power to Destroy (part 3)

May 28, 2024

Previous | Next

In 2000, George W. Bush won the presidency by the narrowest of margins in the Electoral College. Graetz calls this “a fateful turning point for antitax advocates.” They would not achieve their most radical goals of abolishing income taxes or replacing the progressive income tax with a “flat tax” where all incomes were taxed at the same rate. But they would succeed in lowering tax rates again, especially for the wealthy.

Bush—from surplus to deficit

“Bush and his team designed his tax plan to include an across-the-board reduction in income tax rates that provided the greatest benefits to the top but also cut income taxes for everyone.” Two tax bills accomplished Republican aims, the Economic Growth and Tax Relief Reconciliation Act of 2001, and the Jobs and Growth Tax Relief Reconciliation Act of 2003. Together they lowered the top bracket rate from 39.6 percent to 35 percent, reduced the lowest rate from 15 percent to 10 percent, further reduced estate taxes, increased the child tax credit and extended it to higher-income families, reduced capital gains taxes, and taxed dividends at the low capital gains rates instead of ordinary income rates. The projected cost of the tax cuts was reduced by scheduling some of them to expire at the end of 2010.

The Bush administration was not deterred in its tax cutting by having to spend money on homeland security and Middle East wars following the September 11, 2001 terrorist attacks. The administration also added an unfunded prescription drug benefit to Medicare. By 2004, federal revenue had fallen to 15.6 percent of GDP, the lowest since the 1950s. The surplus that existed when Bush took office had turned into a deficit of 3.4 percent. This time, deficits would turn out to be a normal feature of federal budgets.

Near the end of Bush’s two terms, the Global Financial Crisis and ensuing Great Recession led Congress to enact economic stimulus legislation, which helped the economy but made the deficit worse. The measures included tax rebates of $300 per individual taxpayer and $300 for children, which phased out for higher-income taxpayers. The Keynesian idea of boosting the economy from the bottom up was coming back in style, but Republicans still preferred tax breaks to new domestic spending programs.

Obama—economic stimulus and resistance

Barack Obama became president in 2009 during the worst economic recession since the Great Depression. His American Recovery and Reinvestment Act tried to stimulate the economy with tax cuts, aid to the states, and infrastructure projects. It included the “Making Work Pay” credit that temporarily reduced taxes for working families by up to $800 in 2009 and 2010. In those two years, the deficit soared to about 9 percent of GDP.

Obama also wanted to fulfill his campaign promise of making health insurance more affordable. In 2010, Democrats narrowly passed the Patient Protection and Affordable Care Act (popularly known as Obamacare). It required taxpayers to carry health insurance, expanded Medicaid coverage, and subsidized insurance for other low-income taxpayers. It relied for funding on a combination of taxes on high-income individuals, health insurers, pharmaceutical companies, and medical device manufacturers.

Republicans steadfastly opposed Obama’s fiscal agenda. Their priority was extending the Bush tax cuts.

The antitax movement entered a new phase with the emergence of the Tea Party. The triggering event was Obama’s proposal to assist homeowners facing foreclosure. The collapse of the housing market had left many homeowners owing more than the market value of their home. Critics revived the old claim that Democrats were spending the money of hard-working taxpayers to assist undeserving deadbeats.

In the 2010 midterms, Republicans gained 63 seats in the House, the largest increase in over sixty years. They had a lot of bargaining power too, because Obama needed their cooperation to raise the debt ceiling to accommodate the growing national debt. In return, Obama had to agree to cut spending.

The Bush tax cuts were scheduled to expire at the end of 2010, but allowing taxes to rise was politically very difficult in the face of Republican opposition and a struggling economy. The Bush cuts were extended for two more years. Then in 2012, the American Taxpayer Relief Act made most of the cuts permanent, except those affecting the top 1% of taxpayers. The top tax rate was raised from 35 percent back to what it was under President Clinton, 39.6 percent. The government gave up most of the revenue it could have had by letting the tax cuts expire. Instead, it relied on austerity on the spending side to bring down the deficit to around 3% by the end of the Obama administration. Graetz concludes, “Despite Republicans’ moaning, they had won the war over taxes. Republicans remained steadfast against tax increases at any time.”

Trump—another round of tax cuts

Donald Trump was an unconventional Republican who appealed more to “America first” nationalism than to traditional free-market economics. His most well-known goals were restricting immigration, reducing foreign imports and bringing back American manufacturing jobs. Nevertheless, he followed the new Republican orthodoxy that called for tax cuts regardless of fiscal and economic circumstances.

Donald Trump’s calls for tax cuts were common for a Republican president but were exceptionally large for a growing economy facing large deficits. Singing from the classic antitax songbook, Trump insisted his tax cuts would not add to federal deficits or debt.

Trump claimed publicly that his tax plan would raise the taxes of wealthy people such as himself, while privately assuring his rich friends that he would lower their taxes. When he revealed his actual tax plan after taking office, neither economists nor the general public were enthusiastic. Since the Republicans now held majorities in both houses of Congress, he could pass it entirely without Democratic votes, and he did. The Tax Cuts and Jobs Act of 2017 cut both personal and corporate taxes. It also doubled the amounts exempt from estate taxes. The bill held down the projected cost by making the personal tax cuts “temporary” (from 2018 to 2025), but Republicans were confident that a future administration would be compelled to continue them. Wealthy taxpayers got the largest cuts, both in absolute dollars and as a percentage of income. The top bracket rate was cut from 39.6% to 37%.

President Trump tried to create American jobs by putting tariffs on certain imported goods, especially from China. These had two downsides that made them unpopular with economists: Importers passed along their increased costs to consumers; and China retaliated with tariffs on our agricultural exports. “Trade experts estimated the steel and aluminum tariffs cost American consumers and businesses about $900,000 for every job they saved or created.”

Under Trump, the deficit increased from 3.1 percent of GDP in 2016 to 4.6 percent in 2019. That was before a new national economic crisis induced a new spurt in federal spending. This time it was the Covid epidemic, which brought much of the country’s economic activity to a halt.

Biden—tax benefits for the non-rich

Like Obama before him, Biden inherited a distressed economy, which he tried to stimulate with both tax rebates and new spending.

With narrow control of both houses of Congress, Democrats managed to pass the American Rescue Plan Act of 2021. It contained new spending to fight Covid, especially to fund vaccinations. It also included tax credits, 70% of which went to families with less than $91,000 of income. It raised the child tax credit from $2,000 to $3,600 for each child under six, and to $3,000 for older children. Congressional Republicans, who for forty years had rarely met a tax cut they didn’t like, unanimously opposed this bill.

The Inflation Reduction Act of 2022 also passed without any Republican support. Its main goals were to promote clean energy production and hold down the costs of health care and health insurance. It was funded mainly with a 15 percent minimum tax on corporations (aimed at corporations that had been paying little or no taxes at all), and additional revenue expected from an increase in IRS funding. (Better enforcement of the tax code with more agents and auditing normally brings in more money than it costs.) Republicans especially hated the IRS funding, and tried unsuccessfully to repeal it.

Biden wanted to raise taxes on the wealthy, but never succeeded in doing so. The deficit spiked to 12.1% of GDP in 2021, but went down to 5.3 percent after the American Rescue Plan’s temporary spending and tax credits ended. As of now, expenditures have exceeded revenue every year since 2001.

In my last post on this book, I will offer some reflections on what the antitax movement of the last half century has accomplished, and what it has meant for the country.

Continued

Leave a Comment » | Uncategorized | Tagged: , , , | Permalink
Posted by Ed Steffes

« Previous Entries
Next Entries »