Episode 25 – The Cruelty of Tax Cuts

Dilapidated Farmhouse

Crumbling Infrastructure

Welcome Friends, Neighbors and people everywhere. This is your host, Michael Nunes.

Welcome to the Twenty-Fifth episode of my podcast, The Power of Three. I want to help show you how harnessing the Power of Three can lead to a more fulfilling life, a life that celebrates our differences and our similarities, and accepts that we are part of the great web of life.

In this episode, I will discuss why I think that tax cuts are a cruel policy. Conservatives in the U.S. and other parts of the world embrace the idea of small government. Along with this, they prefer corporations to run things, because they claim that business does it better. One of their favorite tools is the tax cut. The idea is that if we cut back on government services, business will pick up the slack and create better services.

The U.S. Congress is considering tax cuts now. This is a central plank of their platform, and has been for decades. The current bill passed by the House is based on the same philosophy. Cut taxes for big businesses and the wealthy and let the magic of Mr. Market do its work. Let’s have a look at that claim and see what they propose.

Firstly, the bill slashes credits that help people with disabilities. Employers that provided childcare for their staff will no longer be able to deduct those expenses. Credits for people who purchase electric vehicles will vanish. Testing for rare diseases is cut. This takes away assistance for people with diseases they cannot help, for parents who cannot afford daycare for their children, and punishes people who care for our environment.

The bill also abolishes personal exemptions like expensive medical procedures, deductions for student loan interest and imposes caps on mortgage interest. In essence, people are forced to increase the amount paid for medical, go further into debt to pay for an already expensive education and drive up costs for some homeowners.

Another consideration is the abolishing of the penalty for not buying medical insurance. Some younger people may benefit to some small extent. It will drive up costs for older people and people who have no choice but to purchase medical. It places the elderly and people approaching retirement at risk of bankruptcies, and ensures that people with intractable diseases will pay more. It takes away the single incentive that people have to purchase insurance. This is almost always the younger, healthier consumer. It leaves those most in need at far higher exposure to illness.

One of the more stupefying aspects of this bill is its treatment of graduate students. Many graduates continue their studies by performing duties as teaching assistants. For this, they are paid a nominal wage. The tuition costs for graduate degrees can be quite high. Congress wants to tax the waived tuition cost as income. For a person earning $11,000 per year as a teaching assistant, the tuition benefit adds $20,000 to their income. For some students this amounts to a 400% increase in tax. Yet, those students go on to become PhDs, professors, and form the foundation of our science and technology sector.

Many states rely on state and local taxes being deductible from federal tax. This allows the states to raise money for education, health care and infrastructure. Congress wants take that deduction away. This immediately raises taxes on workers in those states. It ensures a lower quality of education, more sick people without coverage and a deteriorating infrastructure.

Teachers will lose the $250 per year they can deduct for school supplies.

While the poor and middle classes will see no benefit from tax cuts, the wealthy are far better off. The estate tax disappears. Consider that only 0.2% of taxpayers pay this tax. This will hand billions to billionaires. Are the wealthy so badly off that they need even more wealth? The three wealthiest men in the U.S., Bill Gates, Warrant Buffett and Jeff Bezos collectively have more wealth than the lower 50% of the nation. A man like the president will see a $1bn benefit from the elimination of the Alternative Minimum Tax and the Estate Tax. Some of us would love a $1Bn benefit by just getting up in the morning.

Large corporations will see enormous benefits The largest cut in corporate tax rates in history, from 35% to 20%. Corporations repatriate money that they have hoarded overseas for decades without paying tax. They get this benefit at the bargain basement cost of 12% in tax, around what the very poorest pay in tax. The oil and gas industry will see large tax breaks. We are in essence paying corporations to be in business, repatriate money at a lower rate than most hard working families pay, and we reward them for destroying our environment.

The GOP claims that tax cuts pay for themselves. The evidence is a lot more skimpy. Let’s have a look at the experience from two of our states. In Kansas, Sam Brownback introduced massive tax cuts with a radical legislature. The results were astonishing. Kansas now has a budget crisis, its debt has been downgraded to junk status and the economy is in free fall.

Schools are starved for funding. As a result, they lay off teachers. This has caused a teacher shortage. To cope with the shortage, Kansas has reduced the number of classes per week, with many schools only operating a four-day week. This has a direct impact on the quality of education for children. Those children have no other choice. They cannot fight back, since they have no representation in the state legislature. The impact may only be felt a decade in the future, when children educated in Kansas cannot attain college or university degrees and are forced into lower skilled jobs.

Infrastructure in Kansas is deteriorating even as the wealthy in that state increase their wealth. At the expense of schoolchildren, and teachers. Even things like the Department of Corrections, which manages prisons sees cuts in budgets. This results in deteriorating conditions for prisoners.

Oklahoma has a similar situation. Their governor pushed through tax cuts and found the same problem. The vaunted economic growth in both states failed to materialize. Both states rely on income from oil and gas revenue. Gas prices fell, which cut into their revenues. Revenues declined dramatically from consumption taxes like sales tax because people had less money. The result is cuts to services and government programs that actually help people.

Consider the impact on the states. The public becomes hostile because they see services being cut to hand money to the wealthy; to people who already have everything. The trickle down never happens, of course. Of course, to some, this confirms what they always believed; that government is dysfunctional. It appears that government officials are unwilling or unable to cope with crises and solve the very real problems that people experience in their daily lives. This turns them against government, which conservatives can then point to as the failure of government.

Republicans in these states and across the country argue against government spending, but when it is cut, the states fail at their task. The result is that in both states, more moderate Republicans and Democrats are seeing victory at the ballot box. The problem is that the moderates will be blamed if the situation does not improve. When you hate government as much as many conservatives do, it is in your interests to ensure that government does not work. It becomes a self-fulfilling prophecy when conservatives are in charge, because they are incompetent at running government. When you have spent a lifetime campaigning against something, you cannot make it work when you are in charge.

The idea pushed by conservatives is that lower taxes give a jolt to the economy. This supposedly results in more jobs and higher wages. Yet, the benefits accrue to the wealthy, not to the poor. The wealthy hoard their income, send it overseas, hide it in offshore islands. The one thing they do not do is create more jobs. There is no incentive to do so . You only hire more people if you need more people to do the job. If you have sent jobs overseas, or automated your assembly lines, you don’t need more people. If consumers do not have more money to spend, you won’t need more employees to do the job.

Over the last decade of so, the economy has increased in size by $18tn. 90% of that increase has gone to the wealthiest 10% of the nation. A majority of that has gone to the very wealthiest people in the nation. The poor have seen almost no change, and often deterioration in their financial condition.

Will the tax cuts pay for themselves? Not likely. Will small businesses, those who employ ten people or less, benefit? No, the cuts go to large corporations. Cuts to government budgets mean government employees will be laid off and essential services will vanish. This leaves ordinary people to carry the load.

What conservatives have never quite grasped is that the wealthy are not going to use their income to help the poor. They will grasp as much as they can, and keep taking more, regardless of the consequences. Trickle down does not work. Worse, it is insulting. The people who provide the hard work, who provide the purchasing power are not seen as contributing at all. Therefore they are not deserving of a break. Only wealth is worth anything, only the wealthy deserve incentives. The poor clearly have no need for incentives to do better, or a hand up to help them on their way.

This one act is something conservatives need to learn. You cannot cut your way to prosperity, in business or government. Prosperity comes from sharing the rewards of an economy equitably. Businesses must create value not for shareholders, but for consumers, customers and employees. That is where the wealth comes from. It is only when consumers have money to spend that they will purchase. If a company’s products are not up to standard, consumers will go elsewhere. An economy is built with demand and equality.

What then do I propose? A vastly more progressive tax than we already have. More tax brackets and higher taxes the more one earns. The poor should receive the tax cuts, or services, whichever is more efficient. The wealthy do not deserve it more. Then the poor can choose what to do with their money, and not have it done by corporations. We need higher minimum wages, a fair payment for people’s time, and decent health care. Time, after all is more valuable to anyone than anything else in life. Without time, money is worthless. Estate taxes should be much higher and the upper limit, currently $5m per person should be lowered. Government either needs to provide services from taxes, or hand the money to the people and let them choose what to do with it.

The current tax bill, as are all tax bills from conservatives, is just another Robin Hood scheme in reverse. Take from the poor and give to the wealthy. King John and his lackey the Sheriff of Nottingham would be proud. It is time that we stopped this conversion from a fair democratic state to an hereditary aristocracy. It is time that we stopped this payback to wealthy donors. It is time that we stopped this racketeering and corruption.

I encourage you to continue to enhance your life with the Power of Three and search for the best possible life to live.

Until next time, go well my friends.

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