ECLECTIC RANT: Voodoo economics is back

Ralph E. Stone
Sunday November 26, 2017 - 04:16:00 PM

On November 16, 2017, the U.S. House of Representatives passed a tax overhaul bill.

The U.S. Senate has their own bill. The Senate Finance Committee approved a $1.5 trillion tax overhaul proposal after four days of markup. The vote was 14-12, along party lines. Earlier, Senate Republicans added a controversial provision to the bill, repealing the Affordable Care Act's individual mandate, to help raise revenues for tax cuts, which would result in 13 million fewer Americans being covered by health insurance.

With a straight face, House Speaker Paul Ryan said of the House tax overhaul: "And you can’t escape the fact that people own businesses, and if you’re lowering the tax on those businesses, you’re lowering the tax on those [individual] people. But that’s the whole point of all of this and that’s where I think this sort of left-wing rhetoric misses the point, which is: Do you want American businesses to grow and thrive and stay in America and to be competitive, or not? And that is really the simple question.”

The overhaul is nothing more than supply-side economics long favored by Republicans whereby tax cuts to top earners are said to result in more business investment. Lowering taxes for the wealthy and large corporations, the theory goes, fuels a benevolent cycle that ultimately leads to higher wages and a stronger economy. This was pejoratively called the "trickle down" theory under the Reagan administration or "voodoo economic economic policy" as former President George H.W. Bush called it.  

However, half of the proposed cuts would go to the top 1%. There’s little, if any, historical evidence to support the notion that tax cuts for high-income earners and large corporations will trickle down to average Americans. The government would lose revenue by passing these tax cuts without any clear offsetting economic benefits. To make budgets add up, Congress would have to accept larger deficits (estimated at $1.5 trillion) -- historical abhorrent to Republicans -- or force spending cuts on vital programs in health care, education, retirement and social services. 

The tax cuts means $1.5 million less revenue for the next decade. Remember when Paul Ryan warned of the dangers of deficits, “The facts are very, very clear: The United States is heading toward a debt crisis. We face a crushing burden of debt which will take down our economy — which will lower our living standards.” During his presidential campaign, Trump said he would pay off the national debt in eight years. 

And don’t forget the massive deregulation under Trump and the Republicans imposed on Wall Street banks could lead to a repeat of the devastating 2008 financial crisis. Clearly, self-regulation does not work as the Wall Street banks will push the boundaries to the limit knowing they will likely be bailed out by the federal government. 

Remember Adam Smith's Wealth of Nations considered the “bible of capitalism.” Smith argued that rational self-interest and competition led by an "invisible hand" can frequently lead to economic prosperity. But Smith warned that a business-dominated political system would allow a conspiracy of businesses and industry against consumers, with the former scheming to influence politics and legislation. Thus, he stated that any law or regulation of commerce should be looked at favorably. In other words, private vices may be turned into public benefits, but there is a place for regulation of the marketplace. 

Republican proponents of supply-side economics remember the former part of Smith’s argument, but not the latter. 

Under the overhaul, the income equality between the wealthy 1% and the rest of us will increase and the economy will suffer in the long run.