Editor’s Note: For an alternative viewpoint, please see: Point: Americans Want a Tax Code That Works for Them
In the coming months, we’ll hear a lot about how Congress has turned its attention to “tax reform.” This is inaccurate. Every Republican plan floated in recent years has simply been a straightforward tax cut for the rich. This is great for the rich, obviously, but solves no problems at all for the vast majority of Americans.
We face three clear fiscal challenges in coming years. In the near term, the challenge is to support our still-incomplete effort to get to a healthy labor market, where anyone who wants a job can find one. Once the economy hits and sticks at full employment, the most pressing long-term fiscal challenge is simply paying for federal health care spending (Medicare, Medicaid and the Affordable Care Act). And finally, we must look for ways to halt the stunning rise in inequality that’s held down wages and hurt opportunity for 40 years.
As a tool for finally pushing the economy to full employment, the tax cuts proposed so far in Republican plans are literally the weakest forms of fiscal stimulus that exist. Tax cuts aimed at poor or working-class families would be far more effective at boosting growth and creating jobs. Even better would be infrastructure spending. What’s worse, the combination of Republican plans to cut both taxes for the rich and spending on poor and middle-class households will actually hold back the economy, as lower-income households are more likely to spend that money.
Once the economy hits full employment, the next fiscal challenge is dealing with rising health care costs. The rising cost of federal health care programs explain all of the increase in projected deficits in coming decades. The wrong way to address this challenge is to simply cut federal spending on health care (like the Medicaid cuts the Republican Congress keeps proposing).
If the government spends less health care, people won’t stop getting sick. Instead, health spending would just be shifted onto the budgets of American households.
Further, the federal health programs do a better job of containing overall costs than private insurers. In fact, if private insurance had done as well as Medicare in controlling costs in recent decades, a family health insurance policy that today costs about $15,000 would cost just $10,000.
In short, federal health programs are an excellent investment, and we should raise revenue to continue financing them.
The final fiscal challenge we face is combatting rising inequality and creating a fairer economy, where hard work pays off and anyone who plays by the rules can get ahead. Raising more revenue would let us expand Social Security, increase the coverage provided by our health programs, rebuild our tattered unemployment insurance system, make public investments to improve economic opportunity, and build on what works in fighting poverty.
At the same time, raising taxes at the top can slow the rise of income inequality by changing incentives. For example, the extra millions a CEO can skim off the top at workers’ and shareholders’ expense might not be worth tolerating the resulting outrage if most of it goes to the IRS. Most concretely, a financial transactions tax would stop socially inefficient trading that simply boosts Wall Street incomes at the expense of ordinary savers.
Progressive revenue increases thread the needle of financing federal health spending and expanding the fight against inequality without threatening near-term recovery. Needless to say, progressive revenue increases aren’t what we’re going to get from President Trump and the current Republican Congress. Instead of raising revenue from those at the top, the plans they’ve floated give huge unpaid-for tax breaks to the rich and big corporations, like a new, streamlined loophole that would allow the richest Americans to pay as little as 15 percent — cynically using small-business rhetoric to cover their tracks.
These cuts will be accompanied by big claims about how they’ll spur economic growth. These claims are wrong. We’ve tried to tax cut our way to prosperity before and it didn’t work. The recovery and expansion after the 2001 Bush tax cuts was the slowest on record, and the benefits rained upward rather than trickling down.
And if these tax cuts boost deficits, self-styled fiscal hawks will then tell us we can’t afford to keep paying for Social Security, Medicare, Medicaid and vital public investments.
Given that all we’ve seen from Republicans in Congress is plans to cut taxes for corporations and the rich, the best we can all hope for from the coming “tax reform” debate is simply nothing.
