Lower taxes are almost always a very good thing for a nation’s economy and that is what Americans just got in their Christmas stockings.
As this entry was finished, Congress gave final approval and President Trump’s signed into law a big tax cut combined with an extensive change in the tax code.
I see both good and bad in what Congress and the president have done. So let’s go over what’s right and wrong with the big new tax package.
The Good: Letting People Take More Home
Whether it is corporations, partnerships, small businesses or individuals rich or poor, cutting taxes, as a general principle, is a good thing. It takes money out of the hands of the government and puts it into the hands of individuals. They presumably know their interests much better than people in the government. The latter are often a kind of world saving elites. Some of them arrogantly insist in private that they know better than the average citizen about his or her earnings and how they should be spent. These political elites are often very good at wasting other peoples’ money. (Aren’t we all? It is always easy to spend someone else’s money when there are no consequences for you. Have you ever noticed how the average person spends when his or her company provides an expense account? A former co-worker once asked me, “how do I get them to pay for this lap dancing expense?”).
It’s Our Property, not the Government’s
It isn’t that we as individuals don’t sometimes spend on idiotic things—such as tickets in rigged lottery games in which almost everyone loses, or fails to ever win a substantial prize—it is more a matter of we earned this money and it should be ours to do with as we please, even when we’re fools. We put in the sustained effort and we are entitled to waste it or spend our money wisely as we choose without the intervention of well-meaning busybodies, some of whom are not so well meaning. The principle of tax cuts is simple: It’s our wealth, not any government’s left or right. And besides, it is the private sector, not the public sector, that creates wealth. The government merely redistributes it and often based on which political pressure group has been most effective.
The Kind of Tax Cut—-Good and Bad
A good tax cut is permanent so businesses and individuals can do long term planning. It is not targeted to expire in a few years. Most of the business cuts in this package are permanent, but unfortunately some of the individual tax cuts are due to expire in a few years. That’s bad because some future money-hungry Congress might let those cuts lapse.
Still, even if some cuts are temporary, lower taxes can lead to something that benefits everyone directly or indirectly: Higher rates of economic growth. That is something that Americans in general and Europeans in particular have been lacking recently.
Weak economic growth can have myriad bad consequences. For instance, when my wife, the ever-comely Suzanne Hall, and I were in Espana a few years ago we witnessed examples of this. We saw many street demonstrations in Madrid that related to various economic causes—such as unemployment and people losing their houses because of the bad economy.
So stronger economic growth—and in much of Europe, unlike the United States with recently low rates of growth, there was no growth in some places—-is critical for the health of the society, especially advanced welfare states that have lots of promises to keep. How does it happen?
The Rising Economic Tide
“A rising tide lifts all boats,” said President Kennedy, who began the process of cutting taxes in the early 1960s.
It comes from a strong private sector. Government spending can only help on the margins. It is never the primary cause of a strong economy. The public sector’s main reason for existence should be to provide basic services, such as security, and ensure that taxes are reasonable; as low as possible is my standard.
By this standard, many of the Trump cuts make sense, especially the reduction in the U.S. corporate rate from 35 percent—-which was one of the highest and most self-destructive in the world—to 21 percent. This, along with other business tax cut reductions, puts American business in a more competitive position. These are good moves and could persuade employers to do more hiring.
The New Normal?
Lower taxes can be critically important to America. The United States, under the prior Obama administration, came out of recession at a growth rate of about one percent to two percent a year. This could be viewed as good or bad, depending on one’s view. It was good, actually quite good, compared to most of Europe. There, until recently, growth rates were generally microscopic or, in some cases, there was no growth; many economies were contracting with consequences that were on display when we recently visited Spain.
One percent or so growth then looked good to many European nations. However, in historic American terms, our growth rates coming out of a recession were feeble. The American economy coming out of a recession historically had been some four percent or better annual growth.
So one to two percent wasn’t so good. But many economists, noting that graying of America and slowing of population, said this was the best we could do from now on. This, they said, was the new normal. Personally, I think the economy should do much better than that; especially for many of the young people behind me who were now trying to establish themselves as I was forty years and forty pounds ago when I was seeking my first significant employment.
“Junior? He Lives in the Basement”
And worse than that under the “new normal,” under the Obama administration, millions of young people looking for their first job, and millions of older people who wanted to continue to work but suddenly couldn’t find jobs, quit on the economy. These numbers weren’t counted in the official unemployment numbers, which generally went down under the eight years of President Obama.
Now, according to some of the economists who advise President Trump, the new normal can be reversed. They say three percent or four percent annual growth can be achieved. Many of these economists once worked for President Reagan.
Millions of new jobs, they now say, will be created by businesses whose tax and regulatory burdens have been lessened. Lots of the people who have “quit” on the economy—-the young people in their 20s living in their parents’ basements—will have new opportunities to get jobs. Stronger rates of growth, as promised by Trump and his backers, will be achieved.
Will these things happen? Yes or no?
We will start having figures in 2018 and will know soon. This, to me, is one non-partisan way to find out if the big tax cut package worked. However, I acknowledge my bias: I like lower taxes for businesses, for me and for everyone. By the way, one of my criticisms was that the tax cut didn’t include payroll tax cuts, which would have helped people with modest incomes. One of Trump’s supporters and advisers, Arthur Laffer, conceded this point to me in a story I was recently doing for the New York Post Business section. (I’ll have more on this in a subsequent column for GregoryBresiger.com).
O.K., while we’re on the subject, what is wrong with this tax cut?
Tax Cuts—the Bad
Tax cuts should have been financed through spending cuts. There’s plenty to cut in our bloated federal government, where entitlement and defense spending have run amuck. There are government departments that could be consolidated or, in some cases, eliminated.
Unfortunately, almost every government department has special interests protecting it. They argue that even to cut, or even to cut the annual rate of increase in these departments, would be a national tragedy, well-nigh the first step on the road to the end of the world. And, unfortunately each one of these departments has its own public relations machinery. And each one seems to do a very good job of persuading the mainstream media to plead its case.
The danger of cutting taxes but not cutting spending is that deficits, in the short term, and possibly in the long term, will go up. The nation will take on still more debt that will be piled on the backs of young people and generations yet unborn through higher taxes and inflation. And remember inflation is a kind of stealth tax imposed on us their central banks and easy money creation policies.
One of the problems of irresponsible governments is that, when its comes to fiscal responsibility, they keep kicking the can down the road. One of the basic problems of the modern democracy is that few of our careers pols care about anything beyond the next election since fetuses don’t vote.
Nevertheless, cutting taxes makes sense. And I hope that, if growth rates start to jump and the government starts taking in a lot of additional tax revenue, that, finally, some Congress and president, will start to take deficit and debt reduction seriously.
The Dreams of a Central Queens Babbitt
Well—like my hopes of a date with Cindy Crawford, a World Series championship in my old neighborhood in the Bronx and a Stanley Cup for the Boston Bruins—I can dream.