Today, I am playing host to the following guest column from an old friend of mine, Doug Marsh. He sent me the following thoughts on the Republican tax plans now in progress, and I thought them worth passing on.
Lunacy. Trump’s tax proposal is lunacy. You don’t cut taxes in good times — you pay current bills, amortize debt, and pad reserves to soften the impact of future downturns. You don’t knowingly add $1.5 trillion to the deficit. Tax cuts now will reduce the ability of the government to moderate the next recession, which will eventually arrive, with fiscal policy.
Contrary to White House claims, the proposed tax cuts will not increase wages much if at all—see economist Paul Krugman’s proof in the NY Times October 21, 2017. Wonkish, but spot on.
Nor will tax cuts stimulate capital investment — the US is awash in excess capacity and cash waiting for greater demand to appear. (The St. Louis Fed cites a 76% utilization rate as of September; Factset reports S&P 500 companies had more than $1.5 trillion in cash on hand at the end of 2016.) Lending requirements are looser than at any time since the Great Recession, co enterprises wanting to make new investment in capacity already have access to money.
Given their free market mantra, Republicans should know that demand drives an economy. When all this money sloshing around goes to people whose consumption habits are stagnant (the 1%) and to corporations that can’t even deploy the capital they have, no positive economic benefits result.
As for repatriating the overseas profits of American companies, we need only look at W’s tax amnesty for corporate profits held overseas. The return of those funds went into the pockets of the 1% via special dividends, outsized executive bonuses, accelerated M&A activity (thereby displacing workers), and paid for stock buybacks that beefed up shareholders’ stock value.
They did nothing to augment national spending or domestic investment. Furthermore, investors seek out an opportunity to profit, so a tax windfall is as likely to be invested in Indonesia as in Indiana. There is no evidence to suggest history won’t be repeated if the currently proposed tax cuts are enacted.
Where are the deficit-hawk Republicans who, fearing increased deficits even in the face of soaring unemployment during the Great Recession, slashed Obama-proposed jobs-generating infrastructure spending in 2009? Today the nation’s economy has largely recovered; the national unemployment rate is under 5%. A tax cut now will have no measurable effect on persistent pockets of employment.
This same Republican Party allowed America’s first preemptive war (Iraq) to be conducted off the books, so they wouldn’t have to raise taxes to pay for it. Lest we forget, W’s huge tax cuts ran parallel to that war. The Republicans used the nation’s credit card to saddle the next generations with trillions of unpaid obligations. And now they propose another unpaid tax cut to be paid for by our children and grandchildren.
The president and congressional tax cut advocates need to explain how the US can fight two wars off the books, support forces deployed in 172 countries, including places like Niger, undertake Trump’s massive public works vision, and legislate a trillion-and-a-half-dollar tax cut when the bills for the earliest part of the Iraq war are still mounting?
Inevitably, by offering the voters no wage hikes, no new jobs, but instead exploding deficits and a hamstrung government with few tools to soften the next recession. To cite an old advertising line, “Where’s the beef?”
Doug Marsh, of Denver CO, serves on corporate boards and is managing member in a consulting firm advising leaders of nonprofits.