Tag Archives: tax policy

Tariffs And Taxes

When I was still a Republican, and Republicans were still a political party and not a cult, there was broad agreement within the GOP that tariffs were rarely if ever useful policy tools. They raised the price of goods, invited retaliation, and interfered with productive trade. Today that position is, if anything, more correct: In our increasingly globalized economy, most tariffs are counterproductive.

There was less agreement back then about tax policy, and over the years–as the GOP has pursued tax cuts as an article of faith (and self-interest)–it has taken a real effort on the part of ostensibly thoughtful “policy wonks” to ignore the mounting evidence of the harm that low-tax philosophy was doing. (Kansas, anyone? How about the most recent tax cuts, which even the Congressional Budget office says did nothing for the economy, but did line the pockets of the already obscenely wealthy?)

Trump’s sudden decision (all of his decisions are sudden–comes with the “why examine this, I”ll just go with my gut” process) to impose tariffs on Mexico until they magically manage to seal the border is egregious for a number of reasons. Republican Senator Grassley has noted that trade policy and immigration policy are different, and require different tactics–and that this gambit is highly unlikely to work. Worse still, the U.S. does an enormous amount of business with Mexico, and a large number of American companies have operations in both countries. It gets complicated.

Ed Brayton summed it up succinctly at Dispatches from the Culture Wars:

Most of the goods crossing the border are parts of a larger supply chain, particularly for the auto industry that is already reeling from Trump’s huge tariffs on steel and aluminum. That means this is going to do enormous damage to our economy. Both economies, actually, and what happens when Mexico’s economy is in bad shape? More illegal immigration, obviously. The man is desperately ignorant, on virtually every subject but especially on this one.

I won’t belabor the thorny economic issues raised by this latest bit of Trumpian economic ineptitude. What I do want to point out–and as economists confirm–is that tariffs are taxes on the American public. Trump seems to think they are paid by the country against which he is leveling them, but anyone who has taken Econ 101 knows better. We the People pay the tariffs, because they raise the prices paid by consumers. And they are already hurting the poor.

So tariffs are effectively a tax we pay. Worse, however, they are a tax that fails to do what taxes ought to do: pay for necessary government services.

The Republican approach to tax policy is simply a fixation on cutting taxes. The reason that  is so misguided is that taxes pay for the country’s physical and social infrastructure. The roads we use, the police and firefighters we rely upon, the national defense, the costs of ensuring clean air and water, maintaining the justice system, social security and Medicare…on and on.

Think of the country as a club you belong to, with facilities and amenities that need to be maintained. Taxes are your dues. They keep the club furnace and roof repaired and the grass mowed.

It is entirely appropriate to argue about the specifics of tax policy: how should those dues be assessed? Who should pay the most? How do we ensure that the monies raised are properly spent? What are the tasks we need to fund collectively through government with our tax dollars? Reasonable people will have disagreements about these issues.

But onerous taxes levied through the imposition of disruptive and ineffective tariffs don’t fund our government. They just burden consumers–and especially the poor–without any offsetting benefit or return.

Leaving aside Trump’s multitude of offensive, childish and criminal acts, his ignorance of the economic consequences of his tariffs is a perfect example of his inadequacies for the office.

If Americans are capable of learning a lesson, that lesson is “don’t elect an ignoramus. It will cost you–and it sure won’t make America great.”

 

 

What We Don’t Know Is Hurting Us

There’s an old saying to the effect that it isn’t what we don’t know that hurts us, it’s what we know that isn’t so.

Misinformation, in other words, is more damaging than ignorance.

I agree–with a crucial caveat. The adage is only true when we are aware of our ignorance–when we recognize what information or skill we lack. As research continues to demonstrate, however, there’s a high correlation between ignorance of a particular subject-matter and ignorance of our own ignorance. (It’s called the Dunning-Kruger effect.)

That’s why lawmakers’ allergy to data and preference for evidence-free policy pronouncements are so maddening.

A while back, I read a column making the point that data is inevitably political. The government collects data in order to inform policy decisions, because in order to address issues, it is essential to understand the facts involved, to have a handle on what we academic types like to call “reality.”

The column that I read (and no longer remember where, or I’d link to it) considered the consequences of the Reagan Administration’s decision to stop collecting data on corporate market share. Without that information, policymakers have no idea how large the largest corporations have become. They lack evidence on the degree to which companies like Amazon, Walmart, et al can dominate a segment of the economy and effectively set the rules for that segment. It’s likely that this lack of data is a significant factor accounting for diminished anti-trust enforcement.

The problem goes well beyond economic data. For a considerable length of time, the United States has been mired in one of the nation’s periodic and damaging anti-intellectual periods, characterized by scorn for expertise and empirical evidence.  (Another troubling manifestation of that scorn is the reported evisceration of Congressional staff–the panels of employees with specialized knowledge that advise Congressional committees and individual Representatives on complicated and technical issues.)

Instead of evidence-based policy, we get faith-based lawmaking. Ideology trumps reality. (And yes, I meant that double entendre…)

Last year’s tax “reform” is a perfect example. It was patterned after Sam Brownback’s experiment in Kansas–an experiment that spectacularly crashed and burned. As NPR reported

In 2012, the Republican governor pushed reforms through the state Legislature that dramatically cut income taxes across the board. Brownback boasted the plan would deliver a “shot of adrenaline” to the Kansas economy.

But the opposite happened.

Revenues shrank, and the economy grew more slowly than in neighboring states and the country as a whole. Kansas’ bond rating plummeted, and the state cut funding to education and infrastructure.

You might think that Kansas’ experience would inform a similar effort at the federal level, that it would at least be taken into account even if it wasn’t considered dispositive, but clearly that didn’t happen.

It’s that same dismissive attitude about “facts” and “evidence” and “data”–not to mention science–that is the largest single impediment to serious efforts to slow the rate of climate change.

Some lawmakers who deny climate change ground their beliefs in religious literalism (making them ‘literally” faith-based), but most do so on the basis of the same free-market ideology that led them to dismiss results in Kansas, and oppose even the most reasonable regulations. (There’s a highly convenient aspect to that ideology, since it keeps campaign contributions flowing…but it would be a mistake to think everyone who subscribes to it does so only as a quid pro quo.)

If the country doesn’t emerge from this “Don’t bother me with the facts” era, we’re in for a world of hurt.

And speaking of literalism, the whole world will hurt.

 

 

Telling It Like It REALLY Is

Paul Krugman, who never shies away from telling it like it really is, has summed up the “conservatism” of today’s GOP in the first paragraphs of a recent column:

News item #1: The Trump administration is taking thousands of children away from their parents, and putting them in cages.

News item #2: House Republicans have released a budget plan that would follow up last year’s big tax cuts for corporations and the wealthy with huge funding cuts for Medicare and Medicaid.

If you think these items are unrelated, you’ve missed the whole story of modern American politics. Conservatism – the actually existing conservative movement, as opposed to the philosophical stance whose constituency is maybe five pundits on major op-ed pages — is all about a coalition between racists and plutocrats. It’s about people who want to do (2) empowering people who want to do (1), and vice versa.

For a long time–especially when I was still a Republican–I was sure that the two wings of the GOP were headed for a split. The genuine fiscal conservatives I knew–people who defined fiscal conservatism as economic prudence and “pay as you go,” not as favoring the wealthy at the expense of the poor–were as appalled as I was by the hypocritical piety of the self-identified “Christian” wing, which even then was willing to turn a blind eye to very unChristian behavior so long as it cemented their privileged status and their right to impose their beliefs on everyone else.

I utterly failed to realize what Krugman points out: once you separate genuine fiscal conservatives from apologists for the greedy, and once you rip off the false facade of “policy differences” from the racists, the two wings actually complement each other.  Genuine fiscal conservatives departed the GOP some time ago; Trumpism has removed the facade from racism.

Until Trump, the ugliness of this deal was cloaked in euphemisms. As Lee Atwater famously put it,

You start out in 1954 by saying, “Nigger, nigger, nigger.” By 1968 you can’t say “nigger”—that hurts you, backfires. So you say stuff like, uh, forced busing, states’ rights, and all that stuff, and you’re getting so abstract. Now, you’re talking about cutting taxes, and all these things you’re talking about are totally economic things and a byproduct of them is, blacks get hurt worse than whites.

But the reality was always there. The conservative economic agenda has never been popular, and it is objectively against the interests of working class voters, whatever their race. In fact, whites without a college degree are the biggest beneficiaries of the social safety net. Nonetheless, these voters supported the GOP because it spoke to their racial animosity.

For a while, what Krugman calls “this bait-and-switch” worked; racism was used to motivate the base, but once elections were over, it was mostly shoved back in the closet. As he notes, however, that tactic was ultimately unsustainable. “Sooner or later the people who voted for white dominance at their own economic expense were going to find a champion who would deliver on their side of the bargain.”

Now, many in the plutocrat wing of the GOP seem to be genuinely dismayed by where this is going. They aren’t themselves racists, or at least they aren’t crude racists. But so far they’ve been unwilling to go beyond hand-wringing. Remember, just two Republican senators could stop all of this by saying that they’ll refuse to support Trump judicial appointments and legislation until the cruelty stops; they could bring all the evil to a dead halt by threatening to caucus with Democrats. But not one has stepped forward – because taking such a step would endanger conservative economic policies, and those are evidently more important than human rights.

When members of the “plutocratic wing” decry child separation at the nation’s border, when they join the rest of us by protesting that “this isn’t who we are,” it’s hard to argue with Krugman’s response:

It is who you are: you made a deal with the devil, empowering racism and cruelty so you could get deregulation and tax cuts. Now the devil is having his due, and you must share the blame.

I was wrong to see the two wings of the Republican Party as incompatible. They’re locked into their very own Faustian bargain, and unless and until American voters demand payment, they will both continue getting the benefit of that bargain.

Give Them Credit For Consistency….

Apparently, GOP lawmakers don’t have grandchildren.

It’s hard to say it more succinctly and accurately than a recent article in the Guardian:

The parallels between the Republican Party positions on taxes and climate change are striking. Both are morally appalling and reject the available evidence and expert opinion.

According to the article, 96% of economic experts who were asked about the GOP tax plan opined that it would not generate nearly enough economic growth to cover the shortfall in revenue it will cause. This same economic consensus has been reported by a number of other outlets, and the economists surveyed have included conservatives, moderates and liberals. There is 100% consensus that the tax package will grow the national debt.

Those numbers are quite similar to the 97% consensus among climate scientists that humans are driving global warming and the 95% consensus among economists that the US should cut its carbon pollution.

Oh, but what do “experts” know? (I wonder whether our intrepid Congress-critters take their chest pains to faith healers; they certainly substitute faith for knowledge in the policy arena.)

The author of the Guardian article– in an effort to figure out why Republicans passed the tax bill, and why they are unwilling to move environmental legislation–comes to the same conclusion: faith over fact.

The tax cut plan, which by design will increase the US national debt by $1.5tn, is also incompatible with Republican opposition to increased deficits. Just last year the Republican National Committee was warning of “an unsustainable path toward crippling debt.”

Again, the consistency with climate change denial is striking.

These Republican economic contradictions make no sense, but they’re familiar to those of us who follow climate change news. The only consistency in climate denial is in its contradictions – deniers claim global warming isn’t happening, but it’s a natural ocean cycle, and caused by the sun, and galactic cosmic rays, and Jupiter’s orbital cycles, and it’s really just a Chinese hoax, and in any case it’s not bad.

The author attributes the GOP’s faith-based approach to “intellectual rot,” and references an August 2017 Gallup poll, in which just 33% of Republicans expressed confidence in higher education, and the fact that the tax bill penalizes American graduate students. (Of course, it also wages war on public education overall. How it does that is a subject for yet another blog rant…Obviously, this tax bill will provide fodder for blog posts for the foreseeable future…)

Explanations of the intellectual vacuum that characterizes today’s GOP inevitably include  the influence of right-wing media.

A 2012 survey found that Americans who only watch Fox News are less informed than Americans who watch no news at all. At the time, 55% of Americans including 75% of Republicans reported watching Fox News. The network is powerful – a recent study found that Fox News might have enough influence to tip American elections – and on the whole it prioritizes ideological messaging over factual accuracy.

Trump’s attacks on the so-called “fake news” media have further eroded Republicans’ trust of news sources that lack a conservative bias. As David Roberts wrote for Vox:

The US is experiencing a deep epistemic breach, a split not just in what we value or want, but in who we trust, how we come to know things, and what we believe we know — what we believe exists, is true, has happened and is happening … the right has created its own parallel set of institutions, most notably its own media ecosystem … “conservative media is more partisan and more insular than the left.”

All true. All interesting to consider and discuss from a sociological perspective.

But I do have grandchildren, so my question is more urgent: what can rational people do? Voting these Neanderthals out is obvious, but we’ll still have to deal with that “epistemic breach,” if my grandchildren are going to inherit breathable air and a viable economy.

 

Listen To Nick Hanauer

Recently, I posted about the difference between tax cuts and tax reform, and why we need the latter but not the former. That argument was made–far more persuasively than I made it–by billionaire Nick Hanauer, in a recent post to Politico.

The Republican tax plan is a scam—a massive and destructive financial giveaway masquerading as pro-growth tax reform. Which is why our first response must be to demand not one penny of tax cuts for big corporations and rich guys like me. In fact, if I were Benevolent Dictator, I would substantially raise taxes on myself and my wealthy friends. Why? It is the only way to sustainably grow the economy, boost productivity, increase business opportunities, and create more and better jobs.

Hanauer takes aim at the central premise of GOP tax policy, what I have referred to as an “article of faith,” because when you take something on faith, it’s because you have no empirical evidence for its validity. In this case, as Hanauer points out, we have substantial evidence that the premise is fatally flawed.

There is is simply no empirical evidence nor plausible economic mechanism to support the claim that cutting top tax rates spurs economic growth. When President Bill Clinton hiked taxes, the economy boomed. When President George W. Bush slashed taxes, the economy ultimately collapsed. It wasn’t until after most of the Bush tax cuts expired during the Obama administration that the post-Great Recession recovery started to pick up steam—an ongoing recovery that, as uneven as it has been, has grown into one of the longest economic expansions in U.S. history.

And then, of course, there’s Kansas.

As we all know, and as Hanauer reminds us, Kansas dramatically “underperformed ” the rest of the country in economic growth and job creation after Sam Brownback, its “true believer” Governor, slashed taxes on individuals and corporations. And as he also reminds us, California, which horrified those true believers when it imposed the nation’s top income tax rate, has thrived.  By 2015, California had the fastest-growing economy in the nation. Kansas? Dead last.

For several years, Hanauer has been arguing that Republicans have the economic argument exactly backwards–that inequality, not high tax rates, retards economic growth and job creation.

But the Republicans’ problem is that they have economic cause and effect reversed: Low wages and rising inequality are not symptoms of slow growth, low wages and rising inequality are the disease that causes slow growth—and inequality cannot be cured by creating even more inequality. In reality, our modern technological economy is best understood as an evolutionary feedback loop between innovation and demand. Innovation is the process through which we evolve new solutions to human problems, while consumer demand is the mechanism through which the market selects and propagates successful innovations. And it is economic inclusion—the full participation of as many people as possible in as many ways as possible, as innovators, entrepreneurs, workers and robust consumers—that drives both innovation and demand. The more we invest in the American people—in our wages, our education, our health care and our infrastructure—the more dynamic that feedback loop, and thus the faster and more prosperous our economy grows.

As I tell my students, if you own a widget factory, and no one is buying your widgets, you are unlikely to hire more workers to increase widget production. When consumers lack disposable income with which to buy your widgets, you cut back–or stop making widgets entirely.

As Hanauer explains:

The real problem with our economy is that we are concentrating wealth in the hands of people who aren’t spending or investing it, while starving working- and middle-class Americans of the ability to invest in themselves—not to mention sapping the consumer spending power that accounts for 70 percent of GDP. We rich Americans may not all be idle, but these days, much of our money is—and you will not get it flowing back through the economy again by cutting our taxes even further. I already earn about 1,000 times more per hour than the average American, but I couldn’t possibly buy 1,000 times more stuff. I only own so many pairs of pants. My family and I can only eat three meals a day. We enjoy a luxurious lifestyle, but we already own several houses, a private jet and one too many yachts (turns out, the optimal number is two). Cutting our taxes will make us richer, but it won’t incentivize me or my venture capital partners to spend or invest more than we already do. What’s holding us back isn’t a shortage of cash, but rather a shortage of demand—from you.

Exactly.

Thank you to everyone who wished me a happy birthday yesterday. It was much appreciated!