Taxes: They're Not a Moral Issue
Taxing: it’s how your government pays for stuff, and how you can best describe reading the family newsletter you receive each Christmas from your Aunt Kelsey and Uncle Jeffery (really, Aunt Kelsey, all I wanted was a ‘happy holidays’ and perhaps a card with a snowman on it. Did I really need to hear about how Cousin Tiffany made the cheerleading squad, or see pictures from your latest trip to Bora Bora, or hear details about Uncle Jeffery’s most recent vasectomy?). In America, taxes have almost assumed status as a moral issue: fourteen of the seventeen GOP candidates have signed a pledge not to raise taxes under any circumstances. Now I know that taxes have about all the sexiness of the Keebler Cookie mascot, but this is an important issue: if virtually all the candidates from a political party refuse to raise taxes under any circumstances it’s important to understand what that may lead to. The GOP economic policy is based on trickle down economics. They argue that if the rich are taxed less, they’ll have more money, so then they’ll invest this money, increasing consumer spending, increasing wages, and increasing the taxable base, which (in the long run) will increase tax revenue. Art Laffer argued that taxes in the 1970s, with high end rates being above 70 percent, were above the point of maximized revenue-the point where taxes were high enough to collect revenue but low enough for growth. Since the Reagan era, tax cuts, specifically cuts disproportionately lowering rates for the rich, have been the economic platform for virtually every GOP presidential candidate.
This is problematic. First, just because tax rates were (possibly) above the point of maximized revenue while in 1980 (at 70 percent) does not mean they are still above the point of maximized revenue in all of the years since, including today, where they’re much lower (35 percent). Taxes for the wealthiest Americans are half of what they were in Reagan’s day, yet GOP candidates from Bush to Trump want to slash rates even further. Supporting tax cuts as a reflex, or a moral imperative, regardless of the current rates, is arbitrary at best and dangerous at worst. It would be like eating all day long just because at one point you were once hungry: sure, it might feel good in the short term, and yes, you could park yourself in a Golden Corral all day and go to town, but you’d waddle away with regret, some debt, and nightmares involving rib tips. Trickle Down economics is just the same way, except swap ‘rib tips’ for ‘economic inequality.’ I’ll leave you to figure out which one of those things are actually worse for America.
Cutting corporate taxes, capital gains, or for the middle class, may lead to growth and more revenue. It doesn’t appear that cutting income taxes for the rich will do the same. Currently, our high end marginal rates are well below the revenue maximizing point, estimated by The Economic Policy Institute at 66 percent. This means that, even if reducing taxes on the rich does increase growth (which there are many reasons to say why they don’t, but that’s another article), it can’t increase it at a rate high enough to meet revenue demands, leading to a budget deficit.
Reagan’s tax cuts led to the largest debt increase for a non-wartime President. George W. Bush’s tax cuts turned Clinton’s years of budget surpluses into record deficits. Historically, income tax cuts that favor the rich are just irresponsible. Nevertheless, this hasn’t stopped Jeb, Trump, and the GOP field from proposing tax cuts estimated to increase the debt by trillions. You don’t earn more by bringing in less: it’s basic arithmetic.
And yes, the kids from math camp were right: arithmetic matters. A larger debt can mean increasing the taxes paid on interest rather than on programs. The government’s credit score becomes at risk, banks become less willing to lend, and politicians urge spending cuts. The potential dangers make all this math seem a lot more real. If your child’s Title I school in Queens loses its funding, if your relatives in Duluth lose their Medicaid benefits that help their child with special needs, and if a single mom in Oakland loses the food stamps she needs to feed her kids, a tax break for a billionaire doesn’t do her much good. For them, hope fails to trickle down.
The GOP field has a lot of bright candidates, and some have proposed more inventive tax plans, such as Marco Rubio’s proposal to help low income children and middle class families, while keeping the top rate at 35%. However, for the GOP to continue to propose tax plans that have historically failed to create growth, raise the standard of living, or reduce the debt, is just poor politics. Democrats modernized from their ridiculously high tax New Deal days, and now propose more moderate rates, and have been able to make electorally persuasive arguments because of it: other candidates should take note and adapt their beliefs. This is not a moral issue, where there is a clear choice God says is wrong: we’re talking about taxes, not whether or not you should ever go to Golden Corral and order a plate of rib tips.