‘Trickle-down’ tax plan would fail Texas
President Donald Trump’s tax plan is a rehash of a failed version of supply-side economics known as “trickle down,” which claims that by sharply reducing taxes on the wealthy, who thereby get an immediate surge in net income, the overall economy will ultimately grow, thus providing the nonwealthy with more income later on and federal tax revenue to offset the lost taxes.
It did not work at the federal level when President Ronald Reagan tried it in the 1980s. Eventually, Reagan came to his senses and adopted a series of tax increases that helped reduce the federal deficit without doing any harm to the economy.
In the 2010s, Kansas gave supply-side economics a try at the state level. The result is a wrecked state economy, a destroyed safety net and a broke treasury. The Texas Legislature used to know better.
The Legislature has proposed cutting expenditures, reallocating revenues and accounting sleights that would make an Enron accountant proud in the face of lower oil revenues. But when given the opportunity to institute tax reform, the Texas Legislature instead opened the door to even higher property taxes that benefit the rich at the expense of the middle class and working poor, and will not lead to more economic growth locally. That ridiculous fiscal policy is not a path to re-election in this state.
A better attempt at a supply-side plan would be one that provides tax breaks to the middle class. Call it “trickle up” economics, if you like. What Trump and the billionaires’ club he heads don’t want to acknowledge is that for billionaires to succeed in the long term they must have a middle class to buy their products. Henry Ford understood this perfectly more than 100 years ago. He made sure that he paid his workers enough money so they could afford the cars they were making.
Economists of all stripes agree the national unemployment rate is now about as low as it can go while wage growth is stagnant and GDP growth languishes.
The world has changed in significant ways that contribute to the current state of affairs. Underemployment (largely due to the Great Recession of 2008), not unemployment, is now the most significant drag on wage growth. A lack of price increases mutes demands for higher paychecks and results in employers being unable to provide such increases. For this we can thank in large part the price transparency provided by the internet, which has made comparison shopping as easy as using one’s smartphone. The elephant in that room is Amazon, whose mission is to keep prices at a bare minimum, making only a minimal profit while it swallows up the entire consumer economy — and jobs — one industry at a time.
Texas, where a higher than average percentage of goods are imported, would be hit even harder than other states. President Trump proposes a tariff on all import transactions and the elimination of taxes on exports. This, too, would benefit billionaires, at the expense of the middle class and the poor who shop at Wal-Mart, where most of the goods are inexpensive and imported. American exporters (think multi-national corporations) would get a windfall that would benefit principally their executives and stockholders, not their workers.
Trump’s tax plan is an ill-disguised attempt for the billionaire class to steal from the rest of the country. It is not surprising that those on the left and many centrists oppose the plan. They are even joined by arch-conservatives such as the Koch brothers, who are funding numerous organizations to oppose the plan.
Thankfully for the country, a coalition this broad will make it extremely difficult for Trump’s plan to make it into law. If it does, the U.S. will join the ranks of such countries as Argentina, Brazil, Mexico and Russia, where ruling elites live like kings while the rest suffer for their sins.