You can’t teach an old dog new lies. Two years ago, while stumping to give huge tax breaks to multinational corporations and stock market mavens, Trump administration officials made some bold claims. Team Trump foretold a soaring economy and Treasury Secretary Steven Mnuchin predicted it would reduce the deficit by more than $1 trillion.
Turns out, it was all wind. Instead of benefits trickling down, Trump’s tax cuts allowed wealthy corporations and people to vacuum up even more riches while sticking the rest of us with the bill.
The deficit has soared since then, from $665 billion before the Trump tax cuts to surpassing $1 trillion in the current fiscal year. The economy never took off like Mnuchin, his boss, or their allies in Congress predicted, and instead their tax cuts left a gaping hole in our shared federal government wallet.
Peacetime economic expansions usually reduce deficits, and, from the end of the Great Recession to the beginning of the Trump administration, that’s what had been happening. As the economy gained strength, the federal deficit dropped by more than half, from $1.3 trillion in 2011 to under $600 billion in 2016. The deficit was still there, but far smaller than in the years right after the recession when federal spending was desperately needed to prop up the U.S. economy.
Instead of continuing that trend, Trump decided to fling wide the federal coffers and shovel public funds into the bank accounts of private companies, ultra-rich elites, and the financial advisors who serve them. Trump’s tax cuts dramatically reduced the corporate income tax rate and created newfound loopholes for investors and financial managers to shield their riches from taxation. Most working families saw little or no change in their taxes, but elites sitting on top of our economic system made off like bandits.
As the Washington Post reported this week, a new book by economists Emmanuel Saez and Gabriel Zucman of the University of California at Berkeley finds that “In 2018, for the first time in history, America’s richest billionaires paid a lower effective tax rate than the working class.”
To make matters even worse, the promised explosion of job creation never materialized. After a modest and short-lived uptick in employment growth, 2019 has seen the economy grind to its slowest rate of job growth in years.
Meanwhile. companies and their shareholders found all kinds of creative ways to use their newfound tax windfall that don’t entail hiring more people.
Some of that cash simply went into bank accounts and corporate balance sheets. Many companies were sitting on large reserves before the Trump tax cuts because they lacked sufficiently attractive investment opportunities, so having more cash on hand did little to change their plans.
Some companies went on a binge of buying back stock, enriching affluent shareholders while doing nothing for most workers. Stock buybacks also tend to make companies’ outstanding stock worth more, which is great if you happen to be a corporate executive who is largely paid in stock options.
One of the most perverse realities is we are now renting back some of the money that was handed out because of the tax cut. With a ballooning deficit, the federal government is selling more bonds, and many of those are being purchased by the same people who benefited from the tax cuts.
Think about that for a second: We’re effectively paying rich investors interest to use funds they previously had been paying in taxes.
Sadly, we’ve seen this play before. Conservatives ideologues and politicians have long touted the “trickledown” benefits of tax cuts for rich shareholders and big corporations, only to leave the rest of us holding the bill.
We’re going to be paying for these tax cuts for a long time. We’re going to pay in reduced government services, from food for children to shuttered bathrooms at National Parks. We’re going to pay in a weakened footing on the global stage as foreign banks and countries use our debts to gain leverage over us. Lastly, the taxes we all pay will be partially used to finance Trump’s give-away to his rich pals instead of funding services that we all rely upon.
At least this time the American people largely haven’t fallen for the fable. The Trump tax cuts have been broadly unpopular since they were enacted and, as it becomes increasingly obvious that the benefits mostly went to the top, Trump’s failed experiment will serve as a reminder the next time rich people try come around arguing they should get pass on paying their share.
Dr. Patrick McHugh is a Senior Policy Analyst at the N.C. Budget & Tax Center.