By Robert A. Vella
I remember when Reagan was elected president in 1980. The economic theory his administration supported (i.e. supply-side economics – a.k.a. trickle-down economics or simply Reaganomics) was ostensibly based on two broad policy proposals – systematic deregulation and tax reform. Back then, the theory was promoted as a way to reinvigorate the strong post-WWII American economy which had suffered the double-whammy of the 1970s oil shocks and subsequent inflationary spiral (a.k.a stagflation).
However, the actual domestic and foreign policies which did correct the American economy had little to do with government regulations and tax reform. Instead, it was Reagan’s tight monetary policy that reduced inflation, his massive increase in federal deficit spending (primarily on national defense) that reduced unemployment, OPEC’s decision to boost oil production (see: 1980s oil glut) that eased energy shortages, and an anti-communist geopolitical alignment between the U.S. and Saudi Arabia (see: Saudi Arabia and the Reagan Doctrine) that stabilized global energy markets.
Therefore, the actual policies which were effective at reinvigorating the American economy in the 1980s did not match with the Reagan administration’s philosophical rhetoric. Laissez-faire deregulation, regressive taxation, anti-unionism, government privatization, corporate consolidation, and consumer disempowerment, all were conducted disingenuously and produced profoundly negative results in the following decades. To illustrate why this was disingenuous, Republicans promoted the exact same policies under George W. Bush in the 2000s even though they inherited not a struggling economy like in 1981, but a vibrant one in 2001. As a long-term consequence of Reaganomics, as well as the neoliberalism of corporate Democrats like Bill Clinton, Bush’s agenda had no countervailing policies like those advantaged by The Gipper. The Great Recession struck in 2008 which the nation and the world have yet to fully recover from, and it echoed another GOP-caused economic disaster – the Great Depression of the 1930s.
Now that Republicans have control over the White House and both houses of Congress, their same old agenda is being pursued once again under the guise of tax reform.
Republicans promised a middle-class tax cut. So far, they have created mostly middle-class confusion.
Both the evolving House bill and the emerging Senate plan would slash taxes for businesses and many wealthy individuals. What they would mean for the middle class, however, is less clear. The plans feature a spider web of intersecting and offsetting changes to the tax code that many taxpayers — and even many tax accountants — are struggling to untangle.
This much is clear: Either version of the bill would be bad news for residents of high-tax, high-cost states, most of which tend to elect Democrats. Both bills would eliminate the deduction for state and local income and sales taxes — not a big deal in low-tax states such as Florida and Texas, but a potentially huge difference for many taxpayers in high-tax California and New York.
The Senate bill would go further by also eliminating the deduction for state and local property taxes. That would be especially hard on states such as New Jersey that have high housing costs and that rely heavily on property taxes to fund their governments. (States won by Hillary Clinton in 2016 accounted for two-thirds of state and local tax deductions in 2015. They accounted for half of total income.)
After the Senate plan’s release Thursday, Sen. Jeff Flake, R-Ariz., voiced fears about the effect of broad cuts on the national debt. The budget resolution approved by Congress allows it to pass a plan that adds as much as $1.5 trillion to federal budget deficits over a decade.
While the nonpartisan Congressional Budget Office has not scored the Senate plan, it estimated that an earlier version of the House bill would increase federal budget deficits by $1.7 trillion over 10 years.
The current plans appear to come nowhere close to canceling out tax cuts with new revenue.
Senate Republicans on Thursday unveiled a plan which would chop the corporate tax rate and make broad tweaks to the individual tax system. It contains key differences from a bill working its way through the House.
GOP senators contend the tax system overhaul will ease the burden on middle-income Americans while encouraging companies to boost hiring and wages.
Trimming the tax burden on businesses and individuals has long been a Republican goal. With unified control of the White House and both chambers of Congress, the GOP aims to pass a tax reform plan this year, despite lingering challenges.
Here are some of the key features of the Senate plan, much of which was outlined by the Senate Finance Committee:
The proposal chops the corporate tax rate from 35 percent to 20 percent. It would delay the change until 2019, a source told CNBC. In the House bill, that measure would take effect next year.
(Bloomberg) — The top Republicans in the House and Senate have now walked back false promises about their tax bills’ impact on the middle class.
Senate Majority Leader Mitch McConnell acknowledged to The New York Times Friday he erred when he said in an MSNBC appearance last week that “nobody in the middle class is going to get a tax increase.”
Now the Kentucky Republican says every income group would see a tax cut — on average.
“You can’t guarantee that absolutely no one sees a tax increase,” he told the newspaper.