As 2020 approaches, Republicans are working on a novel idea: an election-year tax cut.
Or at least an election-year tax cut proposal. As The Washington Post reported, the White House and key Republican congressional members are developing a new tax-cutting plan.
The last one didn’t work as advertised — but hope springs eternal in the quest to make supply-side economic theory comport with reality. Never mind that a wealth of evidence now indicates that policy has done little to boost economic growth — and when it comes to corporate investment, it may have even been counterproductive.
GOP leaders and corporate executives promised their big 2017 tax cut would bring forth economic and fiscal wonders. Larry Kudlow, the president’s chief economic adviser, envisioned GDP growth of 3 percent as far as the eye can see. President Trump predicted growth of “4, 5, and maybe even 6 percent, ultimately.”
As for those gloom-and-doomers predicting the tax cut would lead to huge deficits? “The plan will pay for itself with growth,” promised Treasury Secretary Steven Mnuchin.
Alas, none of that came to pass. Growth had a little sugar high, reaching 2.9 percent for 2018. But it has now settled back into the basic range of a mature economy, growing in 2019 at an annualized rate of about 2.4 percent so far.
This is hardly super-charged growth. By way of comparison, GDP grew at 2.5 percent in 2014 and 2.9 percent in 2015, dipped to 1.6 percent in 2016, and then, in 2017, the year before the tax cut took effect, clocked in at 2.2 percent.
Although 2018 was close, we haven’t seen even one calendar year of the 3 percent growth Kudlow predicted, let alone a succession of them. As for 4, 5, or even 6 percent? They shimmer like an oasis in the distance but prove to be naught but a mirage.
And as for the promises made by leading corporate CEOs and Republicans on the Hill that slashing corporate tax rates would increase American companies’ investment in innovation, higher wages, and new jobs, the outcome has been nothing short of abysmal. Since the 2017 tax cut took full effect, The New York Times reports, American companies have spent three times as much on buying back shares of their stock and issuing extra dividends to shareholders — moves designed to boost near-term share value — as they have on investing. The head of the Securities and Exchange Commission, Robert Jackson Jr., recently pointed out that this is similar to what ensued after George W. Bush’s tax cut. In 2018, corporate stock buybacks hit a record annual high, with companies like Boeing — which has faced lawsuits and federal investigations for sacrificing safety for the sake of profit after the deadly crashes of two of its 737 Max jets — creating new buyback programs.
Nor have the tax cuts paid for themselves. Quite the contrary: They have come at a high price to the American people, now and in the future. The federal budget deficit topped $980 billion in fiscal 2019 and will hit $1 trillion next year.
Republicans, outraged by budget deficits of that magnitude during recessionary Obama years, seem not to have noticed the wave of red ink cresting the American shore in economic good times. The Democrats are looking away as well. Having twice been handed large deficits by Republicans and having twice turned over a federal ledger in much better shape, they have obviously grown tired of cleaning up fiscal messes mostly made by others.
Yet even in prosperous times, large budget deficits are problematic. They limit the federal government’s ability to respond with additional stimulus if and when another economic slowdown comes. They also restrict the government’s ability to address pressing needs such as housing and infrastructure.
It’s time for us to recognize the fiction that masquerades as economic fact in Republican tax proposals. And that rules out another round of tax cuts. Voters need to recognize such proposals for the electioneering nonsense they are.