Members of Congress have been busy as little beavers, trying to bring the House and Senate versions of the ‘tax reform bills’ together into a single bill for Trump to sign. They seem to be in such a rush that they do not have time for such things as facts and credible analyses. They remind me of the rabbit in Alice in Wonderland who is looking at his pocket watch, repeatedly saying, “I’m late, I’m late …”
What’s the rush? Well, first of all, they are under pressure from Trump and from their rich donors to “get ‘er done”. More to the point, while the budget was extended for two weeks, that is a very short time to prepare a spending bill, get the necessary votes, reconcile the House and Senate versions, and get it signed. Look how long the tax bill is taking, after all! Thus, a government shutdown still looms. So, I understand the rush, but … both of these bills are so terrible that neither deserve consideration, and to completely disregard the facts, to ignore every likely outcome, is destined to do far more harm to the people of this nation than it will benefit them. Let us take a look …
Today, the Department of Treasury, under the ‘leadership’ of Trump’s handpicked Steven Mnuchin, issued its “Analysis of Growth and Revenue Estimates Based on the U.S. Senate Committee on Finance Tax Reform Plan”. The tax bills are filled with fallacies and fantasies that are far more appropriate for children’s storybooks than for government policies. Let us begin with the claim by Congress that the gigantic tax cuts for the wealthy will pay for themselves. The Treasury Department report itself debunks this myth, as have a number of independent and non-partisan groups before this. The plan will cost an estimated $1.5 trillion in lost revenue from major corporation and wealthy taxpayers, and is only projected to generate an additional $408 billion in additional revenue from growth. Thus, the deficit would be more than a trillion dollars to add to our already astronomical national debt.
But, that isn’ even the worst of it, for that $408 billion in additional revenue is fallacy #2. It is based on the assumption that all those large corporations that are saving all that money will reinvest it into solvent enterprises that will a) generate corporate tax dollars, and b) employ people who will pay taxes. In short, it is based on the fantasy of ‘trickle down’ economics, which I have written about previously, and which has been de-bunked and proven wrong so many times that it should not even enter into the equation. The Treasury report makes an assumption, based on this marvelous falsehood about trickle down economics of a sustained 2.9% growth rate per year over the next ten years. Ain’t gonna happen, folks.
There are certain rules for the reconciliation process, one of which is called the Byrd Rule. The Byrd Rule requires all provisions in the bill to be funded by revenues, and they cannot increase the deficit beyond the 10-year budget window. Obviously, neither version of the current bills being considered could pass either stipulation in the Byrd Bill, nor even come close. That, in itself, should send them scurrying back to the drawing board for something more reasonable.
Thus far, most of the republicans in Congress still support basically whatever outcome the committee reconciling the bills comes up with, but there are some who are beginning to look at the deficit numbers and have concerns. One such Senator is Susan Collins of Maine, who says she is as yet undecided, and has laid out certain conditions that would determine her vote, including assurances that federal Medicare payments will not be cut and that Republicans will support two separate health care bills aimed at reducing premium costs. Far too little, and she does not even mention the deficit, but if it keeps her from voting in favour of the bill, then it’s a start.
While the increase to the national debt is the most important fallacy of these abominable bills, the impact on the average citizen must also play a role. I did some quick and dirty math earlier today and determined that my own household would be left with a deficit of some $2,500 dollars at the end of next year. Not a huge sum, perhaps, but still … I cannot call this a tax ‘cut’ by any stretch of the imagination. It means that we will be tightening our belts and spending less money next year, contributing less to the economy.
Now, putting this all together, if the Senate finds a way around the Byrd Rule, and if Susan Collins and the rest are somehow convinced to vote ‘aye’, here is what I see happening.
- Median earners will have less disposable income, for they will be able to claim fewer deductions, thus effectively raising their tax rate. With less disposable income, they will spend less money on non-essential goods and services. There goes that 2.9% growth rate, folks.
- As consumers spend less and less, and fewer people have healthcare because the individual mandate will be gone, the economy will actually begin to lose ground, rather than grow. The national debt, therefore, will increase even faster than the Treasury Department predicts.
- As the national debt increases, as the economy takes a hit, quarter after quarter, consumer confidence will wane and people who are already struggling will slow their contributions to their 401(k) plans, further reducing economic growth and further increasing the national debt. It is at this point that I look for a hug dip in the stock market.
- The stock market increase in the past year has been unnatural and largely without a solid foundation. It was built on consumer confidence that stemmed from the lies coming from the administration. When/if it dips very much, look for a recession. And then, POP goes the republican bubble.
Now, my analysis is an over-simplification, and there are far too many variables to consider in this short post. Plus, I am not an economist. But common sense should tell us all that one cannot build a castle on a foundation of hot air, and that is precisely what Congress is trying to do. There is no long-range view that has been taken, the immediate goal simply being to pass a bill that benefits all the ‘right’ people, for mid-terms are coming up in less than a year and members of Congress need to get those campaign donations coming in. Besides that, the pest in the White House keeps calling and asking where the bill is, for he is sitting at his desk, pen in hand.
Thus concludes this bedtime story that is worthy of being included in the Grimm’s Book of Fairy Tales, for it is, indeed, a grim tale.