President Donald Trump is silhouetted in a car on his arrival at the Presidential Palace in Hanoi, Vietnam.
This article appears in the Summer 2018 issue of The American Prospect magazine. Subscribe here.
This is the first time in nearly 30 years of publication that The American Prospect has devoted an entire issue of the magazine to a single topic. We are doing so because the 2017 Tax Act so perfectly displays so much of what is rotten and false about this period of Republican rule, and sets up an epic debate about what the two parties stand for.
Tax cuts are invariably political winners, or so the Republicans thought. But this one is so grotesque that it is already backfiring. Whether it truly blows up on the right, and becomes a major political liability this fall, depends in large part on how skilled Democrats and commentators are at narrating all that is wrong with it.
The law makes clear that the deep corruption in this era emanates not just from Trump personally. He would have signed almost any tax cut bill that made it to his desk. This bill was mainly the creation of the Republican Congress, a wish list of provisions awaiting the right political moment. In that respect, it is emblematic of the deeper venality and cynicism of the Republican Party. If the consequences are properly understood by the voters, Republican legislators will pay for both the sins of Trump and their own.
We also chose to devote an entire issue to the Tax Act because of the need to provide an authoritative primer for use in public and political argument. Some of the details are highly technical, but not so technical that they can’t be explained or understood by the citizenry if well illustrated and explained. The top line could not be clearer. This is a law by and for the top few percent, with hidden costs for the rest.
How does the Tax Act epitomize Republican hypocrisy and opportunism? Let us count the ways. Begin with the process. The bill was jammed through Congress in violation of everything we learn about how American government is supposed to work. There were no hearings on its major provisions, which were cobbled together in backroom deals as House and Senate Republican leaders looked for a draft that might win a majority of votes. Tax preferences were revised helter-skelter, as Republicans first identified cuts and then sought to offset part of the revenue loss. Democrats were given no opportunity to participate in the legislative process.
The final cost was estimated via back-of-the-envelope calculations, using heroic assumptions about offsetting economic benefits that might increase revenues. The sponsors put out the figure of $1.5 trillion over a decade. When the Congressional Budget Office ran the actual numbers, the cost was $1.9 trillion. As part of the sheer budget gimmickry (and in a display of real loyalties), the corporate tax cuts were made permanent and the individual ones temporary.
The act reeks of hypocrisy. The bill was going to discourage offshoring of investment and jobs in line with the Make America Great Again theme. When the dust settled, it added new incentives that tax overseas investments at lower rates than domestic ones.
Republicans profess to be fiscal conservatives. In April, the Republican House even voted 233 to 184 to approve a constitutional amendment requiring the federal budget to be balanced. (It failed to get the necessary two-thirds.) They suspended their budget-balance mantra just long enough to pass the Tax Act—which would have been prohibited by their own amendment. Once the Tax Act increased the cumulative ten-year deficit and national debt by nearly $2 trillion, Republicans abruptly rediscovered fiscal virtue, and began demanding offsetting cuts in programs such as Social Security and Medicare.
Republicans supposedly are big backers of states’ rights. But that principle has eroded into code for weakening federal laws that promote social or racial justice. In the tax bill, states’ rights were repeatedly violated. Citizens of states were denied the long-established right to deduct all state and local taxes against federal taxes owed. A $10,000 cap was put on all such deductions, a deliberate poke in the eye at states with relatively progressive taxes and decently funded services. These, of course, just happen to be states with a habit of voting for Democrats. So in those states, many middle-class taxpayers, who went into debt to purchase homes, will face significant tax increases. This nasty provision also violates the longstanding Republican gripes against double taxation. It comes as close as legally possible to imposing differential tax rates on Republicans and Democrats.
The benefits are mostly corporate. In all, America’s corporations gain tax cuts that will total more than $1.7 trillion over a decade. This was billed as increasing investment and workers’ wages, but corporations have not in fact increased their investment, and most of the money has gone into stock buybacks. Taken as a whole, the bill delivers 83 percent of the cuts to the top 1 percent. It further shifts the tax load from capital to labor, and further cuts the tax on large estates to almost the vanishing point. Is there any better display of Republican loyalties?
Republicans also professed to support tax simplification and economic efficiency. This is the party whose leaders once spoke of creating a tax code so fair and simple that your tax return could fit on a postcard. Well, there has never been a tax bill more complex and convoluted than the misnamed Tax Cuts and Jobs Act. The law only increases the economic inequality that is already extreme. Precious little will trickle down, and the trickle-down is negative when offsetting cuts in social outlays and increases in state and local taxes are factored in. The act should serve as the final epitaph for the claims of supply-side economics.
The provisions creating additional breaks for affluent taxpayers who can reconstitute themselves as entities that qualify for “pass-through” treatment create jobs mainly for accountants. They do nothing for economic efficiency, except to thwart it—by steering activity to tax advantage rather than to entrepreneurship. The new rules on foreign- versus domestic-sourced income mainly invite other gimmicks for where income is booked.
The increased complexity, combined with the demonization and underfunding of the IRS, means more outright tax evasion and fewer audits of the wealthy, and a still larger share of taxes paid by everyone else. The policy and symbolism have a final rendezvous when it comes to the Evader in Chief. The Tax Act generalizes for a larger group of the very rich the same accounting games long played by this president, Donald Trump, who will save millions in his own taxes. All of this and more will be detailed in the pages that follow.
Since the current era of tax-cutting began with Ronald Reagan in the 1980s, Republicans have usually taken care to make sure that some non-trivial share of the benefits actually trickled down to working people, and to find at least some Democratic allies to join them in supporting the legislation. This time the greed was so palpable that they neglected even this gambit.
The gains are overwhelmingly directed to corporations and the rich, to the point where a majority of employed voters tell pollsters that they haven’t seen any benefits in their take-home pay. Not a single Democrat voted for this bill. In past tax cuts, Republicans could count on a quarter to a third of Democrats to go along for the ride, in part because their big donors wanted their support, and in part to curry favor with large corporations. Also, many Democrats figured that if Republicans were enacting a politically popular tax bill that was going to pass anyway, they might as well share in the credit.
The fact that no Democrat in either the House or Senate voted for this bill reflects how Democrats were frozen out of the legislative process, and the fact that benefits for regular people were trivial. It also suggests improved party discipline and unity on the Democratic side.
Both the substance of this legislation and the way it was enacted were so reckless on the part of Republicans that it suggests a kind of Après moi, le déluge mentality. Republicans seemed to sense that their days as governing party were numbered, that Democrats were likely to take the House in 2018 and perhaps keep it for a while. This was their last chance for many years to grab as much as they possibly could for their corporate and individual predator allies of great wealth such as the Koch brothers, and many members of their own caucus who personally gained. So damn the torpedoes and take it all, regardless of the partisan fallout.
The Tax Act thus sets up a defining argument between Republicans and Democrats, one that Democrats had better get right. Republicans are already sensing that their prize achievement is a political loser. Early in 2018, the White House and leading Republican strategists were urging GOP candidates to put their tax cut front and center in their messaging. But the candidates’ political ears and their on-the-ground polling told them something else. The act was not rallying voters, base or swing, to the Republican side. In the March special election for Pennsylvania’s 18th Congressional District, which was narrowly won by the Democrat Conor Lamb, the Republican Rick Saccone in the campaign’s two final weeks pulled TV ads touting the tax cut, as did other Republican-affiliated, nominally independent groups. Since then, Republicans have been uncharacteristically quiet about their prime legislative achievement.
Polling and focus group interviews have found that support for the Tax Act has dwindled over time, and declines even more when voters learn additional details. Just 28 percent of voters now tell pollsters that they would be more likely to support a candidate who had voted for the Tax Act, while 37 percent say they would be more likely to vote against them. By an immense margin of 58 percent to 12 percent, people believe that benefits under the act are more likely to go to executives and shareholders than to employees. So even before they hear political debate, voters are primed, based on their own knowledge and intuition, that the act benefits the elite and not people like them.
One of the most persuasive arguments against the act, according to pollster Guy Molyneux (see page 18), is that it will increase the national debt and risk offsetting cuts in valued programs like Social Security and Medicare. The polling finds that connecting the debt to cuts in social programs is a far more powerful argument than messages about either the program cuts or increased debt alone. This also comports with core progressive values, since embracing budget balance as an end in itself is not good politics for Democrats. That ideology and rhetoric blurs partisan differences and leads Democrats into traps like the budget sequester, in which Republicans call the tune and the result is bipartisan responsibility for cuts in valued programs.
A second potent argument that scores well in focus groups is a reminder of the sheer special interest corruption in the Tax Act. Republican legislators not only voted to give themselves a tax cut, but gave special breaks to allies like the Koch brothers, who are spending $400 million to elect Republicans this fall and were rewarded with more than a billion dollars in tax breaks. They gave the health insurance and drug industries billions in new tax cuts, none of which result in lower retail drug costs or insurance premiums, which are likely to rise as a result of the law. And they created new loopholes that serve developers like Trump but for which working people don’t qualify. Arguments like these gain the support of around 60 percent of people who hear them.
A final winning argument is to remind voters of all the other things America might have done with $1.9 trillion. This includes investment in better schools, college debt relief, rebuilding decaying infrastructure, and the related creation of good jobs.
Earlier in this election year, many Democrats bought into the erroneous premise that the tax cut would be a strong plus for Republicans, and tried to avoid talking about it. That turned out to be profoundly wrong. Not only is the tax cut potentially a winning issue, it is a defining issue—in terms of whose side Republicans are on; in terms of their contempt for cherished public services that Democrats advocate and defend; and in terms of blatant Republican opportunism.
The Tax Act has turned out to be an issue on which to challenge the entire litany of Republican policies, beliefs, and practices. It was intended as a gift to grateful taxpayers. Handled properly in the coming campaign, it is more of a gift to Democrats.