Letter to the Editor

Get real on tax reform

Tuesday, November 28, 2017

I begin by stating I am totally fed up with the entire Washington, D.C. congressional scene, regardless of party affiliation. We continue to re-elect persons who have not addressed or accomplished anything over the last decade on major issues facing America and have been grossly irresponsible fiscally. In fact, if we had not had Federal Reserve Board monetary actions following the 2008 financial debacle, we might still be in a depression because Congress turned a blind eye to implementing any reasonable financial measures. Now, on to the new “financial fix” as addressed by our Senator Grassley in a recent Sunday Des Moines Register and and our local paper under the headline “The case for tax reform.” A more appropriate title would be “The great tax myth!”

Because there is no historical or economic evidence of any relationship between tax cuts and employment or wage growth, Senator Grassley cherry-picked what he considers accomplishments under a popular Democratic President Kennedy and a popular Republican President Reagan. While there was economic growth under these two administrations, one has to question the results of the severe tax cuts President Reagan got enacted. With no corresponding spending reductions and a military budget that exploded, our national debt doubled. Further, actual real wages declined! Now, it is interesting that the senator skipped over or deliberately ignored the Clinton years when taxes were increased to address out-of-control budget deficits and the economy took off with over 20 million new jobs created by a budget surplus that could have been used to reduce the national debt. However, it should be noted that real wages did not increase during this period either. Then President George W. Bush said the budget surplus should be given back to taxpayers along with another major tax cut that promised to increase employment and economic growth. Well, we know how that ended — with the worst financial crisis since the Depression, again a doubling of the national debt and millions of lost jobs and wages! During the Obama and current administrations, employment has rebounded and increased steadily, but again with no real wage growth.

Now, let’s review the corporation argument for tax reduction or “reform.” The current statutory 35 percent top corporate rate is to be reduced to 20 or 25 percent in the plan Senator Grassley supports, with few if any changes in corporate deductions. Also, there will be some sweetener to lure overseas parked corporate profits back home, which Republicans say will spur new corporate investment, create jobs and produce higher wages for working-class citizens. Again, repatriation of corporate overseas profits was enacted under the Regan administration resulting in stock buy-backs, stockholder dividend increases and inflated corporate officer salaries. Facility investments were not made, jobs not created and wage growth, except for corporate executives, not positively impacted. Why should we expect anything different today? It has been reported the current average corporation pays 14 to 18 percent in federal taxes, so why will a shift from 35 percent to 20 percent make a difference? Further, today’s corporate profits are at record highs and borrowing rates at historic lows leading one to wonder why corporates aren’t already making huge investments and increasing wages for their employees. In reality, this new tax plan keeps the focus on supply-side economic theory where conceptually-low, marginal taxation greatly expands economic growth, which trickles down the chain to workers and retirees. How much historical evidence do we need to show this is a myth? The real fact is that no business operates because of tax codes. Businesses operate based on demand for their products! Demand grows from citizens having more income to spend. This current “case for tax reform” in essence does little, if anything, to increase middle-class disposable income, thus demand will not substantially grow and there will be no new reason for corporations to invest here in plants, facilities or employees. And, if the repeal of the individual mandate insurance provision remains as part of this tax package, higher insurance rates for everyone will likely negate any disposable income gains that might have occurred.

Perhaps the most onerous issue with this tax reform package is the complete disavowal of national debt consequences by Republicans. We have been fortunate to see interest rates remain at historic lows for nearly 10 years so we could finance our national debt, covering past and continuing annual deficits and expanded war costs. But now, as world-wide economies are staring to see sustained growth, interest rates are sure to go up in the future, so our national debt coverage costs will rise. As it stands, the tax reform proposal shows a “long-term” deficit that its supporters claim will be more than covered by economic growth, cuts to social programs and time-limited individual tax reforms. Congress will be left to address any shortfalls to ordinary taxpayers in the future. This only works if our economy can grow at two, three or four times recent rates! Just due to the size of our economy, very few legitimate economists project this can happen and again we have the Reagan and Bush years to prove it won’t!

As citizens and voters, we need to get involved before it’s too late. Please join in contacting our congressional representatives to urge them to not support this irresponsible tax proposal. Encourage them to take the time (not just a month) to debate a bipartisan, long-term approach to truly evaluate reforms needed to address paying for war sots, social programs, badly-needed infrastructure issues and debt repayment before recklessly just reducing taxes that will only benefit the wealthy. Otherwise, the wealth gap and our national debt just continue to increase, placing a tremendous financial/tax burden on future generations.

Terry B. Yarns

Spirit Lake