An Independent Thinker’s Guide to the Tax Debate

[Distributed via OtherWords.org]

Note to Readers: Chuck Collins is one of my colleagues in the Inequality and the Common Good group at IPS. Some of you may have met him when he was here on his book tour. His book, Born on Third Base, is a great read

There’s a heist coming. Arm yourself with the facts!

By Chuck Collins

For 40 years, tax cutters in Congress have told us, “we have a tax cut for you.” And each time, they count on us to suspend all judgment.

In exchange, we’ve gotten staggering inequality, collapsing public infrastructure, a fraying safety net, and exploding deficits. Meanwhile, a small segment of the richest one tenth of 1 percent have become fabulously wealthy at the expense of everyone else.

Ready for more?

Now, Trump and congressional Republicans have rolled out a tax plan that the independent Tax Policy Center estimates will give 80 percent of the benefits to the richest 1 percent of taxpayers.

The good news is the majority aren’t falling for it this time around. Recent polls indicatethat over 62 percent of the public oppose additional tax cuts for the wealthy and 65 percent are against additional tax cuts to large corporations.

Here’s the independent thinker’s guide to the tax debate for people who aspire to be guided by facts, not magical thinking. When you hear congressional leaders utter these claims, take a closer look.

“Corporate tax cuts create jobs.”

You’ll hear that the U.S. has the “highest corporate taxes in the world.” While the legal rate is 35 percent, the effective rate — the percentage of income actually paid — is closer to 15 percent, thanks to loopholes and other deductions.

The Wall Street corporations pulling out their big lobbying guns have a lot of experience with lowering their tax bills this way, but they don’t use the extra cash to create jobs.

The evidence, as my Institute for Policy Studies colleague Sarah Anderson found, is that they more often buy back their stock, give their CEOs a massive bonus, pay their shareholders a dividend, and lay off workers.

“Bringing back offshore profits will create jobs.”

Enormously profitable corporations like Apple, Pfizer, and General Electric have an estimated $2.64 trillion in taxable income stashed offshore. Republicans like to say that if we give them a tax amnesty, they’ll bring this money home and create jobs.

Any parent understands the folly of rewarding bad behavior. Yet that’s what we’re being asked to do.

When Congress passed a “repatriation tax holiday” in 2004, these same companies gave raises to their CEOs, raised dividends, bought back their stock, and — you guessed it — laid off workers. The biggest 15 corporations that got the amnesty brought back $150 billion while cutting their U.S. workforces by 21,000 between 2004 and 2007.

For decades now, those big corporations have made middle class taxpayers and small businesses pick up the slack for funding care for veterans, public infrastructure, cyber security, and hurricane mop-ups. Let’s not give them another tax break for their trouble.

“Tax cuts pay for themselves.”

Members of Congress who consider themselves hard-nosed deficit hawks when it comes to helping hurricane victims or increasing college aid for middle class families are quick to suspend basic principles of math when it comes to tax cuts for the rich.

The long discredited theory of “trickledown economics” — the idea that tax cuts for the 1 percent will create sufficient economic growth to pay for themselves — is rising up like zombies at Halloween. As the economist Ha Joon Chang observed, “Once you realize that trickle-down economics does not work, you will see the excessive tax cuts for the rich as what they are — a simple upward redistribution of income.”

“Abolishing the estate tax will help ordinary people.”

This is the biggest whopper of them all. The estate tax is only paid by families with wealth starting at $11 million and individuals with $5.5 million and up. There is no credible economic argument that this will have any positive impact on the economy, but it would be a huge boon for billionaire families like the Trumps.

This tax cut plan is an unprecedented money grab. Whether the heist happens, is entirely up to the rest of us.

Chuck Collins directs the Program on Inequality at the Institute for Policy Studies and co-edits Inequality.org.

11 Responses to An Independent Thinker’s Guide to the Tax Debate

  1. Anybody care to take a shot at inaccuracy and intellectual dishonesty in ole Thuckenheimer’s first paragraph? One guest post for a perfect answer!

    • A reliance on nominal figures instead of inflation-adjusted ones. By using the same nominal figure cutoff across a nearly forty-year time horizon, one distorts both the number of taxpayers being considered (both proportionately, and as a percentage of the tax base), as well as the amount of income being considered. Not only is $80,000 less of a threshold than it was in 1980, but there are also considerably more people making 7, 8, and 9 figure incomes, which contribute a substantial amount toward an absolute dollar amount.

      There is also the concern about proxying U.S. Federal Personal Income taxes as a metric for all taxes being paid. It does not take into consideration the fact that state income taxes, state and local sales taxes, property taxes, use & licensing fees, sin taxes, a payroll taxes are all considerably less regressive than federal income taxes, and so paints a distorted image of where tax burdens actually lie.

      • No, he claims to have adjusted for inflation.

        • The other thing I see is that there’s nothing accounting for how the share of income to high-income taxpayers has changed since 1980; if people making more than $80,000 are making 4x the share of national income than they were in 1980 (and I don’t have that number off the top of my head), then their paying 2.5x the share of income taxes means that their relative burden has fallen since 1980.

          • You’re getting there

          • Looks like nobody else decided to play.

            You were on the right track, but there is more to it. Consider what would happen if all of the income flowed to just one guy. Not only would 100% of the tax be paid by that one guy, but the effective tax rate will go way up. Why? Because all taxpayers get the benefit of the lower brackets. So, the more income you have, the higher your effective rate. That’s why it’s called progressive taxation. If you jam all the income on to one return, however, the lower bracket effect becomes irrelevant. Virtually every taxable dollar gets taxed at the top rate.

            Now, consider the impact of an economy growing at greater than the combined effect of inflation and population growth. Per capita income would increase at more than the inflation rate, which would cause tax payments across the board to increase. But where would the increase be greatest? At the top of course, because their additional income all would be at the top rate. So, if we had only a proportional increase, such that the share of income flowing to the top stayed the same, even in that scenario there could be an increase in the percentage of total tax paid by those at the top.

            Of course, our friend doesn’t want to explore the matter at this level. That entails thinking, as opposed to spouting statistics.

          • “consider what would happen if all the income flowed to one guy”

            Intellectual dishonesty indeed. That’s not the way economics work, unless many people become trapped on welfare.

            [Note to readers: This is what makes Thucky a troll. The hypothetical was not intended to be realistic. Rather, it was to show what happen to tax revenue when income concentrates at the top. That was obvious to anyone.]

            That’s why the 1% paradigm is so intellectually dishonest. It is designed to create a false illusion that the gains to the 1% are at the expense of the 99%. That’s just not true, there is an overwhelming positive interdependence between entrepreneurs as they create jobs and everyone else, not the negative relationship you try to retail.

            You can see that in the comparison of real per capita personal income in the U.S. as compared to Europe. From 1974, and perhaps earlier to 1980, real median per capita personal income, RMPCPI fell almost every single year as inflation drove people into higher tax brackets. Since 1980, RMPCPI has risen 41% to $36,000 while RPCPI in Europe languishes below $20,000 per year.

            Europe didn’t follow the U.S. to lower tax burdens and we have just smoked them in the stats. For example, Trump’s stock market is at $28.6 trillion, up $5.0 trillion since election day while Europe is less than $8 trillion total.

            Using a constant tier, i.e. $80,000 per year in $1980, allows you to compare two different strategies, Europe’s and the U.S.

            What is the correlation between tax rates above that level and growth in tax payments above that level? Who is right, Laffer in saying that taxpayers will pay more at a lower rate? Or Europe, which stuck with the higher rates above that level?

            Laffer was not only correct, he hugely underestimated the effect.

            And, what is happening with the rest of the spectrum? That is why real median per capita personal income is so important. Does it go up (positive interdependence) as the top echelon goes up? Or, does it go down as you keep falsely saying?

            Of course, it went up in the U.S. while horribly stagnating in Europe.

      • You are getting there Ed, to the key issues in understanding the power Reagan’s tax reform. It unleashed a storm of U.S. entrepreneurship completely lacking in Europe.

        Edward Prescott, Nobel Prize winner, found that the higher taxes of Europe caused people to start work later in life, retire earlier, take more sick leave, take more vacation, work less intensely, work less ambitiously, grow less intelligent as adults and produce corporations with lower market values.

        That’s why Europe’s stock market is at $8 trillion and ours is at $28.6 trillion. up 5.0 trillion since Trump surprised us with his election.

        That’s why what we consider our middle class have to pay all the taxes in Europe, they have no entrepreneurial class to pay them.

        This also goes to the issues of the Corporate Tax reduction. Large corporations pay an average of less than 10% when completely considered although their nominal average is 19% and the sticker rate is 35 or 39%. They invest billions in tax evasion and get a great yield on that investment.

        After TEFRA in 1986, taxpayers quit hiring tax lawyers and the use of deductions plunged.

        A true corporate tax rate of 20% could yield a huge increase in tax revenues the same way that Reagan’s tax rate reduction did.

      • $80,000 adjusted for inflation is $239,000 today. So, I could say that taxpayers making more than $239,00o AGI in 1980.

        $47 billion in personal income taxes in 1980 is $138 billion in $2017.

        Who is intellectually dishonest, someone playing shell games with percentages “the top 1%” or someone who uses the same threshold for their analysis? Using the same threshold allows you to understand policy outcomes. Particularly, if you compare yourself with other industrial countries that started from a comparable economic status, i.e. gdp per capita, hours of work per year, median personal income, etc.

        Why have we never heard that all of Europe has a stock market value of $8 trillion while ours is $28.6 trillion for a population 160 million smaller. That’s an amazing comparison. But, if you did stories on the number, people would right away ask, Why!!!????
        But, we know why. Ed Prescott has detailed the whole picture.

        Why don’t we hear more often that since 1980, the U.S. has added 60% more jobs while all of Europe has only added 26% more jobs, and Europe’s jobs are much lower quality ($/hr, hrs/wk).

  2. We’ve heard it all before but is it truth, is it facts? In 1980, taxpayers with an AGI of $80,000 paid $150 billion in taxes, 19% of all personal income taxes. This year, that same group of taxpayers, adjusted for inflation, will pay over $1 trillion in personal income taxes, over 50% of all personal income taxes.

    This isn’t a trickle, this isn’t a tsunami, this is almost the whole damn ocean.

    Jealousy and envy are not disabling diseases, income inequality is not a disabling outcome. It is irrelevant unless you traffic in hatred.

    Europe experienced nothing like this. This same group of taxpayers in Europe pays less than $400 billion despite being drawn from a population 160 million, 60% larger. What has income equality done for Europe? They all live couped up like chickens, without dryers and air conditioning.

    Laffer actually missed by a chunk. The revenue-maximizing tax rate has turned out to be 20%, not 50%.

    Yes, arm yourselves with the facts, the truth, and evidence.

    • john huppenthal

      We now have two quarters of 3% growth. Your claim that this is the Obama economy is getting thinner and thinner. Obama never had a 2.5% growth year, much less 3%.