The Trump Administration is at it once again, with Treasury Secretary Mnuchin taking hypocrisy to new levels. Secretary Mnuchin recently announced that the White House is putting together another tax cut, this time aimed at the middle class.
This time? Where was the administration the last time? That 2017 Trump/Republican tax bill that should have been aimed at the middle class gave away the shop to large corporations and the nation’s wealthiest Americans while serving up a few crumbs, temporarily at that, to a few others. Trump had assured his wealthy donors that he was going to do them a favor, and indeed he did.
The 2017 Trump/Republican tax bill achieved what was important to Trump, rewarding the high rollers that back Trump and his Republican lackeys. So now, just before the 2020 election, Trump announces that we will “take care of you folks” of the middle class, the same middle class that was ignored the first time around.
The 2017 Trump/Republican tax bill sold the public a bill of goods. It was touted as incentivizing corporations to invest in capital equipment that would increase productivity and stimulate employment, thereby ultimately benefitting workers.
Economists warned that those tax cuts would increase annual federal deficits and the public debt at the wrong time, that is, during prosperity when deficits should be reduced. This is not Ph.D. level economics. It is common sense, and what any alert college sophomore economics student would recommend; reduce public debt during prosperity so that we have the economic capacity, and political cover for that matter, to bail ourselves out of the next recession.
Proponents of that tax bill assured us there was nothing to worry about; the tax bill would “pay for itself.”
No credible economist bought into that line of eye wash. Trump’s chief economic advisor, Larry Kudlow, is not a credible economist. He is a peddler of supply-side economic snake oil. Instead of “paying for itself,” the Trump/Republican tax bill has produced a trillion-dollar 2019 annual deficit and has raised the public debt to an excess of $23 trillion.
During his campaign Trump promised to reduce, and even eliminate, federal deficits. That was during the campaign, of course. His recent statement at a meeting with fat cat donors was “Who the hell cares about the budget?”
But what about the economy? Trump claims that he and his tax bill are responsible for prosperity. While that tax bill ostensibly created a temporary sugar high, at least for the stock market, it clearly has not lived up to its hype. Instead of increasing business investment, corporations used those tax savings for stock buybacks that helped to keep stock prices high — those same high stock prices that increase CEO salaries that are based partly on value of their stock options.
The surging stock market was also assisted by the Fed’s dovish monetary policy that reduced short term interest rates during prosperity, when they should have been kept stable, or even marginally raised. The Fed’s charge is to concentrate on employment and price levels, not nurse financial markets.
After-tax income inequality, exacerbated by Trump’s 2017 Tax bill, remains at dangerously high levels. But not to worry — the Trump-Mnuchin team is working on that new round of tax cuts that will be designed “for the middle class.”
We have heard that before, just as we have heard that the 2017 bill would “pay for itself.” Mnuchin states that he stands “behind my comments that the tax cuts will pay for themselves.”
Another thing we have heard before is that Trump would never cut two popular programs that actually help the middle class, Social Security and Medicare. Voters who value these programs should pay special attention to Mnuchin’s comments regarding federal spending.
When Mnuchin adds that the problem is public spending, it sounds nice in the abstract. That vapid sound bite strikes a chord with voters as we all can think of some federal expenditure we would like to see reduced. But when the Trump crowd talks of reduced spending, they are looking at the big items.
Aside from defense spending, Social Security and Medicare are major. Trump has told CNBC that he would at some point “take a look” at changes to entitlement programs such as Social Security and Medicare. Translation: that means cuts, not increases.
Mnuchin states that “There is no question we need to slow down the rate of growth of government spending, because we can’t sustain the deficits growing at these levels.”
The total irony of this is that the very deficits that Mnuchin is complaining about have increased because of that tax bill that was touted as, “it will pay for itself.”
So now, Mnuchin claims that the next tax bill will be “aimed at the middle class.” But if this new bill will not increase the deficits that Mnuchin claims can’t be sustained, what federal expenditures will be cut? The Administration has already clearly indicated that it will “take a look” at Social Security and Medicare.”
The Trump/Republican tax bill has already proven itself to be a gift to corporations and our nation’s wealthiest of the wealthy. That bill was paid for through increased public debt.
In contrast, the forthcoming Trump tax plan, even if it does reduce taxes for the middle class, looks to be paid for by cuts in the very programs that are crucial to the middle class, Medicare and Social Security. In other words, pay for middle class tax cuts through cutting middle class benefits.
Middle class working voters need to play close attention to what shapes up to be a classic example of political bait and switch.
— John Waelti of Monroe, a retired professor of economics, can be reached at jjwaelti1@tds.net. His column appears Saturdays in the Monroe Times.
