Trickle-down effect failure

Published 11:31 am Tuesday, December 12, 2017


Normally Peter Kapuscinski and I are on opposite sides of an issue. However, in his letter of Nov. 21, 2017, “On the New Tax Proposal,” I agree with him that the benefits of the new tax bills are not what the Republicans are advertising and definitely not what the country needs.

In fact, it is worse than what Mr. Kapuscinski states. In addition to raising the lowest tax rate 20 percent (from 10 percent to 12 percent), most of the benefits go to the richest Americans and big corporations who are doing quite well. The top 1 percent own 38 percent of all the wealth in the U.S. The top 10 percent own 76 percent of America’s wealth.

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On Nov. 29 President Donald Trump said in a speech regarding the tax bill, “This is going to cost me a fortune. This thing, believe me, believe me — this is not good for me.” Of course, since Trump refuses to disclose his tax returns, how do we know if he’s telling the truth? I recommend the following rule of thumb: if Trump opens his mouth, he’s probably lying; if he ends the statement with “believe me,” then he’s lying. According to several provisions of the tax bills would benefit wealthy individuals like Trump, including changes to pass-through business taxes, the estate tax and the alternative minimum tax.

Trump also said, “Under our plan, middle class families will not only see their tax bill go down, they will see their income go up by an average of $4,000. And that’s because we’re going to cut taxes on American businesses, so they will compete for workers, they’ll raise salaries.” Unfortunately, the White House Council of Economic Advisors says average households (those that earned $83,143 in 2016) would see income increase by $4,000 only after eight years if the Gross Domestic Product grows between 3 and 5 percent annually. The Congressional Budget Office projects annual growth at 1.9 percent annually during that period.

The problem is that wherever and whenever it’s been tried, trickle-down economics has been a total failure. The rich take their new mad money and either spend it on luxury items, huge mansions or they speculate in the stock or commodities market. Big corporations raise CEO salaries and buy back stock instead of investing in new businesses or raising wages. Look at Kansas. Governor Brownback cut taxes on the wealthy, expecting an economic boom. Instead he got ballooning deficits, a falling credit rating and economic stagnation.

Of course, the tax bills were not written to give tax relief to the middle class but to reward the Republican big money donors who have threatened to cut off campaign contributions if they don’t get a tax cut. As a result, the vote on the Senate tax bill was in the middle of the night on something no one had read. Even more serious is what is likely to happen if, as a result of tax cuts, the deficit shoots up to $1.5 trillion. Does that mean that Republicans will admit they made a mistake and raise taxes on the rich? Guess again. They will use the deficit as an excuse to cut Social Security and Medicare.

James Peca