Voodoo economics are back with a vengeance.
It was George Bush the elder who coined the term as a slander against Ronald Reagan’s economic policies, but his son George W. Bush embraced the mysticism of tax cuts that magically increase economic growth and increase government revenue – and got burned by the result. Now Jeb Bush, aiming to be the third member of the Bush clan to take residence in the White House, has grabbed the voodoo doll and hugged it tight.
“Jeb!” has made faint nods toward the populist anger over increasing income inequality, but the tax plan he has released this week shows he is as wedded to failed conservative economic orthodoxy as his relatives and the rest of the Republican political leadership. It’s trickle-down economics, plain and simple, with no assurance that the “trickle” is anything more than the musings of a psychic reader.
Even though the rational response from voters should be “we’ve seen this movie, and the sequels never get better,” it’s still worth taking seriously because, as The Washington Post reports, the plan “tracks with the way the GOP-controlled Congress generally talks about tax reform.”
According to an analysis in praise of the plan by conservative economists John Cogan, Martin Feldstein, Glenn Hubbard and Kevin Warsh, the Jeb Bush tax plan would cut the individual top statutory rate from 39.6 percent to 28 percent, and middle-income filers would generally see a tax rate of 25 percent. The top corporate statutory tax rate would be 20 percent, down from 35 percent. But while Bush advertises the elimination of some deductions in the name of simplification, there are still ways that top earners can reduce their taxes to a real rate of 21 percent for earners making more than $10 million a year, according to an analysis by The New York Times reported by Josh Barro. “By The Times’s calculation, taxpayers earning over $10 million would experience a 6.8 percent rise in their after-tax incomes on average under the Bush plan,” Barro wrote.
Tax cuts like these will mean thousands in tax savings for people in the top 1 percent but would be negligible for many working families. In fact, a particularly pernicious feature of the proposal would end the deductibility of state and local taxes – effectively penalizing people who live in states where higher taxes are used for higher levels of investment in education, infrastructure and other public programs.
Also tucked into the proposal: Elimination of the employer portion of the Social Security payroll tax for workers who have reached retirement age but choose to remain in the workforce. Steps like this to slow the revenue going into the Social Security trust fund are a sure sign that Bush is bent on joining the conservative push to reduce Social Security benefits.
But the big number to remember is $3.4 trillion. That is the revenue that the federal government would lose if the Bush tax plan is implemented over 10 years. Add a dash of voodoo – promises that the foregone taxes collected will be invested in businesses and job-creation, thus accelerating economic growth – and the federal government will still see an increase in federal debt over 10 years of $1.2 trillion, according to Bush’s economic team.
Even using the magic accounting of the Bush team, federal spending will grow at less than a third of the rate of economic growth generally. That is, of course, by design. The consequences are that the national investments we need to improve public schools, make higher education more accessible, rebuild our infrastructure, bolster research and development to transition to a green economy and to help struggling families and individuals will continue to be grossly inadequate.
The Bush witch doctors would say that the job-creation and private-sector investment unleashed by his tax cuts would lead to higher employment and increased wages take would care of many of these problems. They conveniently ignore current reality: The largest U.S. companies spent more than $550 billion buying their own stock in 2014 and are on pace to come close to $1 trillion this year, Bloomberg reported in July. The reason is simple: Shareholders make more money when corporations use profits to inflate their stock price than they do if the profits are invested in better pay for workers and better products for consumers. Nothing in the “Jeb!” tax plan would change that.
If anything, by adopting what is called a territorial tax system for corporate profits, Bush would give corporations a permanent incentive to continue shunting profits through overseas tax havens, where they would be officially out of reach of the Internal Revenue Service. When those profits are brought back into the United States, corporations would pay an 8.75 percent tax rate – 75 percent less than what they should be required to pay. No wonder Citizens for Tax Justice executive director Bob McIntyre says that Bush “derides special interest giveaways and crony capitalism but then outlines a plan riddled with special interest giveaways and crony capitalism ideals.”
Meanwhile, new polls this morning on the Democratic presidential race have Bernie Sanders now slightly ahead of Hillary Clinton in Iowa, on the strength of an unapologetic platform of raising taxes on corporations and the wealthy and using that revenue to rebuild the country. Even on the Republican side, Donald Trump has said that it’s “ridiculous” that hedge fund investors pay less tax than middle-class families and that he’s be OK with paying higher taxes himself – statements that earned him the enmity of the Club for Growth, the defenders of the glided class.
This left-right populist rebellion against policies that enrich the already rich at the expense of the rest of us should make it clear to Jeb Bush that, like his brother, he is on the wrong side of economic history. But conservative economic voodoo is like an illicit drug – the user gets a wonderful hallucination but families are devastated when the high wears off.