GOP and Democrats Push Trump on Tax Reform

Yves here. In this Real News Network interview, Bill Black describes how the tax reform plans, such as they are, for both parties are lousy, although the Republicans’ by design is much lousier for the non-rich. And a point not often included in these discussions is that spending in the US is regressive while it is progressive in other advanced economies.

The rush transcript had typos, mainly the absence of apostrophes. I cleaned some but not all of that up.

Sharmin Peries: It’’s The Real News Network. I’’m Sharmin Peries, coming to you from Baltimore. Following the disastrous defeat in attempting to repeal and replace the Affordable Care Act, the Trump administration has turned its attention to tax reform. Conservatives and business-allied advocacy groups such as the American Action Network and the Business Roundtable plan to spend millions of dollars this month alone in order to push forward business-friendly changes to the tax code. This comes just as the Democratic senators signed an open letter to Donald Trump and the Republican leadership calling for bipartisan approach to tax reform.

Joining us today to discuss the Republican and Democratic plans for the tax code and the overall federal budget is Bill Black. Bill is a white-collar criminologist, associate professor of economics and law at the University of Missouri, Kansas City. He’’s the author of “The Best Way to Rob a Bank Is to Own One.” Bill, welcome back.

Bill Black: Thank you.

Sharmin Peries: Bill, the Democrats have plan on tax reform, and their plan actually stated three objectives. One, that it should not increase taxes for the middle class or cut taxes for the top 1% of the owners, which sounds good. It should, they said, should also follow regular order on the senate floor, and three, it should not add to the budget deficit. How do you respond to these demands?

Bill Black: First, of course, it’’s not a plan. It’’s preconditions for any bipartisan effort that might become a plan, and it’’s interesting that, of course, that this is one where the Democrats sensibly could have an actual plan and present it, and it’’s a failure, a real lost opportunity to avoid doing so. Now, the second thing is two of the provisions in the demands make perfect sense, but the third makes no sense at all, and that is that there being nothing that would ever, as part of a physical plan, increase the deficit, and that’s going to turn right around and bite Democrats very badly and more to the point, bite the nation very hard in future years as it has done in the past.

The federal deficit is not the same thing remotely as if you or I ran a deficit or have a debt. It’’s not the same thing as if a state government or a municipality. The United States of America is a sovereign government with a sovereign currency. These things about deficits and debt ceilings come out of a different era. There was a gold standard that, by the way, produced in numerable recessions and was a horrible standard, and we have evolved beyond it 50-plus years ago basically, but we still have these old rules as if we were under a gold standard, and we don’’t, and they really get in the way in particular of social programs, which the Democrats say that they favor and the safety net, which they say that they favor. This is bad economics and bad politics on the part of the Democrats.

Sharmin Peries: Now, Bill, here’s a clip from the Treasury Secretary, Steven Mnuchin, explaining part of the government’s tax agenda. I understand that you … Let’s take a listen to it first. Here we go.

Steven Mnuchin: We will pass tax reform. Hear, hear. This is about creating jobs. This is about creating wage growth. This is about a simpler and fairer tax system. We’’re going to simplify personal taxes where 95% of Americans will be able to fill out their tax return on a large postcard.

Sharmin Peries: Now, I imagine you might have some concerns about that, particularly the financial literacy of those pushing certain tax proposals. Can you explain?

Bill Black: There are large number of issues anytime you change taxes, and the most abused word at Washington, DC is the word “reform” because they apply it to changes, for example, in health insurance that harm people, and that would seem to be the opposite of a reform. Here, the first premise that the Treasury has is that taxes explain why United States’ growth is low, has fallen, and that is simply … There’’s no economic basis for that claim at all.

United States does not have the highest corporate taxes, and in practice, the corporate tax rate is much lower, but there are problems with the corporate income tax. It’’s extremely hard to collect that tax because it is so easy to evade and because corporations, large corporations and small governments find it in each other’s interest to create tax havens and do special deals to massively reduce taxation.

Of course, if you’re Luxembourg or Cayman Islands and such, even if you just get a tiny, tiny, tiny percentage tax and claim falsely that the income of a major incorporation was largely earned in your country, you’ll get incredible windfall in terms of tax revenues, but of course, much, much larger taxes will be lost to the nations where those corporations are really based like United States and such. This is a pernicious standard, and it creates Gresham’s dynamic. In a Gresham’s dynamic, it’’s what happens when bad ethics drives good ethics out of the marketplace.

If I’’m an honest corporation and I’’m trying to compete with folks to have this special tax deal that allows them to escape most of their corporate income tax liability, I’’m at an enormous competitive disadvantage and may will be driven out of business unless I’’m willing to play the same sad and abusive game. Lots of economists would be happy to see moving away from the corporate income tax to other forms of taxation, but they probably won’t do that.

Sharmin Peries: All right. Bill, so draw on some examples out there that we can learn from.

Bill Black: If the corporate income tax was paid by every corporation in the same amount, economists don’’t actually know who as a practical matter ends up bearing that tax, but most economists think it would probably act like a sales tax. Of course, that would be … and it would get passed on to the consumers, and a sales tax tends to be a pretty regressive tax. The words, “Poor people pay a higher percentage of their income.” Sometimes, much higher percentage of income.

What tends to work instead is progressive income, personal income taxes and then some forms of wealth taxes. Of course, the leading form of wealth tax we have in United States is the property tax and such, so there really isn’t a crisis in public finance at the national level. At the state-local level, there often is. Although, those crisis are again created by these perverse competition between the states.

We just saw an example of this with this massive giveaway of public funds by the state of Wisconsin to bring a Taiwanese company in, which supposedly is going to create that 10,000 jobs, but a large number of them will be robots and such, and the $3 billion giveaway of taxes will exceed any benefits from this company coming in, so you could stop those kinds of perverse competitions. You could ban them. You could provide more federal taxation to raise the money, and then have it distributed to the states and localities.

There are lots of things we could do if people really wanted to fix things. Basically, you could do whatever Kansas did, you do put a negative sign in front of, and you do the opposite. You’ll make places much better off, but neither the Republicans nor the Democrats, as I said, there is no real Democratic plan, are offering these better alternatives.

Sharmin Peries: Great. Bill, what are the main difficulties this government faces when it comes to both the federal budget, and the debt ceiling, and of course, the tax reform that goes along with all of that?

Bill Black: The debt ceiling is a classic example of something that doesn’’t make any sense. Okay? It’’s a product of a bygone era when you owed debts in gold, and if you didn’t have gold, it would be a really big problem, but we have a sovereign currency. Not only can we borrow money in our own currency at any time and pretty much without limit, but on top of that, that’s not how you actually make money most of the time. Make money at the Federal Reserve by, literally by making key strokes on a computer.

All the debt limit does is to provide a device for extortion by whichever group is willing to make me the most extreme, and for the last 15 years, this has been the Freedom Caucus, which is one of the worst most inaccurate aims in history, and its predecessor, ideological groups, particularly in the house of representatives. They basically hold the debt ceiling hostage and say, “We’’re going to bring down the whole financial system by gratuitously causing the federal government to default on its debt unless you give us the following things.”

What they, in particular, want to do now, particularly given their failure to gut healthcare, is that bill that was going to gut healthcare was also going to defund planned parenthood, so it is expected that Freedom Caucus members are going to say that they will try to prevent assuage of increasing the debt ceiling unless there’’s a writer to the bill that would defund planned parenthood. You want to get rid entirely of this device of extortion. We should get rid of the debt ceilings and simply use normal budgetary processes to figure out what you want to spend and what you want to tax.

Sharmin Peries: Does this situation offer us any opportunities one could cease?

Bill Black: The left can do the same thing, of course. It can say that, “We will not provide votes to raise the debt limit unless you give X.” Again, for the same type of reason that we shouldn’t lie, we shouldn’t create this false narrative that the federal deficit is just like a household going into debt, and we shouldn’t emulate these highly destructive tactics used by the Koch Brothers through their creatures, the Freedom Caucus, and have the left compete for irresponsibly threatening the financial health of not only the nation. If you actually cause the default in US debt, which these morons could actually do by refusing to raise the debt limits, then you would cause not only an economic crisis in the United States, but globally.

Sharmin Peries: Bill, when Donald Trump and Mike Pence ‘ running for office last September, they released their economic vision, promising a growth tax plan that would create 25 million new jobs in the next decade. Now, the link to that fact sheet and the plan now leads to an error message, but how would you compare the current proposals to the economic vision they outlined during the election campaign?

Bill Black: Their vision is the type of thing that comes from ingesting too much POD. It doesn’’t make any economic sense. They’ve been claiming similar variants of this for 50 years that if only we were to dramatically reduce the marginal income tax for the wealthy, we would suddenly get this incredible burst of growth. We substantially reduced the highest marginal tax rate. It’’s down dramatically from what it was under Eisenhower, for example, and growth has slowed instead of increased.

The premise that people don’’t work because there’’s an income tax or that corporations don’’t work because there’’s a corporate income tax is simply false at all kinds of levels, all the kinds of levels of taxation that we’’re talking about. Yeah. Certainly, you could impose 100% tax and people would in fact cut down their working very substantially at that point, but no one in the United States wants to do that.

Sharmin Peries: All right, Bill. I’’m a great advocate of the best way to understand economics is to listen to Bill Black. I thank you so much for joining me today.

Bill Black: Thank you.

Sharmin Peries: Thank you for joining me on The Real News Network.