Will Corporate Tax Cuts Really Reduce the U.S. Budget Deficit?

Mick Mulvaney
Mick Mulvaney (Wikipedia)

President Donald Trump and the Republican-led Congress are trying to pass federal tax reform legislation that could increase the U.S. government’s burgeoning debt by trillions of dollars. The federal government already owes more than $20 trillion, which is about $1 trillion more than the current annual U.S. gross domestic product (GDP). And the $666 billion budget deficit for the federal fiscal year that concluded in October was the sixth highest on record.

Most economists say the best way to reduce the budget deficit without hurting the economy is by gradually implementing a combination of carefully crafted spending cuts and tax increases. But Trump’s Director of the Office of Management and Budget (OMB), former Congressman Mick Mulvaney, says there’s no political will in Congress to make spending cuts, so the only way to reduce the deficit is to increase tax revenue by stimulating annual economic growth to at least 3% through tax cuts.

A reduction in corporate taxes is at the core of the Republican tax reform strategy. They claim that the U.S. economy is at an international competitive disadvantage because the 35% federal corporate tax rate that’s been in effect since 1933 is among the highest in the world. They say that lowering it would increase economic growth because corporations would repatriate some earnings from foreign countries and conduct more business in the U.S.

But there is little evidence that the proposed tax cuts will generate enough compensatory growth to pay for themselves. For example, if 25% of U.S. income goes to towards taxes, every $1 of tax cuts would have to generate more than $5 of increased economic activity. And history shows that previous Republican tax cuts failed to produce promised increases in tax revenue. During the Reagan administration in the 1980s the Republicans gave tax cuts to the wealthy that were supposed to generate growth and income that would “trickle down” to the middle and lower classes. Instead, their supply-side strategy significantly increased the national debt, shrank the middle class, increased unemployment, and accelerated income inequality. In other words, the wealthy people just kept most of the money. More recently, Arizona’s Republican Gov. Doug Ducey pushed state corporate tax cuts that have resulted in a $24 million shortfall in the state’s FY2018 budget which will likely grow to $80 million for FY2019, according to the state’s Joint Legislative Budget Committee.

Furthermore, while the statutory U.S. corporate tax rate is high, corporations can take expense deductions that make their effective tax rates lower. According to a 2017 Congressional Budget Office report, the U.S. effective corporate tax rate was only 18.6% in 2012. Also, corporations consider many factors when they make business decisions. A tax rate would be the deciding factor only if all other things were equal. And few corporations are willing to pass up the profitable privilege of doing business in the U.S., the world’s largest economy.

Some corporations, of course, would use the money they’d save from a reduction in corporate tax rates to invest in new production. But many would simply inflate their stock values by buying back stock, increasing dividend payments to their stockholders, or  they would pay of their executive officers to even more outrageous amounts. These things would contribute little to economic growth, as most stock dividends don’t go to middle or lower income class consumers, and wealthier CEOs would just accelerate growing income inequality.

The primary lesson from the failure of supply-side economics is that not all tax cuts are the same, and that real economic stimulus comes from reducing taxes for the U.S. economy’s primary consumers – the lower and middle income classes. Subsequently, supporters of the Republican tax reform effort, including President Trump, are selling it as a tax cut for the middle class. But the middle class tax cuts included among the various features in their reform proposals are very modest, and in the Senate’s version of the bill they would expire at the end of 2025.

The reason they are set expire is because Senate Republicans passed a budget resolution in October to protect their tax reform bill from a Democratic filibuster. As long as the bill doesn’t add more than $1.5 trillion to the deficit over the next ten years, Republicans will only need 51 votes to pass it in the Senate. In other words, they know that their proposed tax cuts will significantly increase the national debt, and they’d rather eliminate tax cuts to the middle class than corporate tax cuts to avoid exceeding their self-imposed arbitrary limit on the inevitable debt increase.

Another indicator that they don’t really believe their proposed tax cuts will pay for themselves is that Republican Sen. Bob Corker (R-Tenn.) has insisted that the final version of the bill contain a “trigger” that forces reconsideration of the tax cuts if it appears they are creating a big increase in the federal budget deficit.

The truth is that the Republican fixation on implementing tax cuts is a long-held political objective, not a proven economic tool. This if further revealed by House’s version of the bill which includes a provision to eliminate the estate tax, which would cost more than $172 billion in lost tax revenue over the next 10 years in order to benefit a relative handful of ultra rich families.

The proven Keynesian strategies of creating economic stimulus by lowering interest rates and increasing government spending aren’t available because they’re already exhausted. Interest rates have been at historically low levels for years in response to the Great Recession, and the federal debt has already reached historical highs.  So, instead of doing the hard work of compromising with Democrats to make sound budget deals, Republicans are trying to sell this tax reform bill as a magical panacea. They know that if it doesn’t work, their wealthy dark money campaign donors will still be happy with their lower taxes. Also, it will make it easier for them to cut funding for popular programs they don’t like, such as Social Security and Medicare.

In the meantime, the U.S. economy is doing quite well, and an argument can be made that there’s no immediate need for any tax cuts. The minimum economic growth rate that the Trump administration claims is necessary to shrink the budget deficit has already been achieved. The economy grew by 3.1% in the second quarter, and by 3% in the third quarter of this year. At the same time, unemployment was down to 4.1% in October, the lowest its been in more than 10 years. There are still some stubborn pockets of unemployment, but they are mostly the result of technological advances that have rendered some jobs obsolete, and the laid off workers don’t have the necessary skills to succeed in the new economy. And, by the way, recent corporate profits are at all-time historical highs.

The bottom line is that the Republican tax reform proposals look an awful lot like the failed supply-side “voodoo economics” of the Reagan administration. If Republicans really want to improve the economy, they should find a way to focus tax cuts on the middle and lower income classes, while investing in education, healthcare, public transportation, and affordable daycare. This strategy could increase the federal budge deficit too, if it isn’t accompanied by fair spending cuts combined with the elimination of tax loopholes and unnecessary subsidies. But it would have a much better chance of success. It would help Americans work themselves up from the bottom, instead of giving them false hope that some crumbs might trickle down from above.

Updates

On November 30, 2017, the Senate’s parliamentarian declared that the inclusion of the “trigger” provision demanded by Republican Sen. Bob Corker (R-Tenn.) would violate the special budget resolution rules the Republicans want to use to pass the tax bill without any Democratic support.

Late in the evening of December 1, 2017, Senate Republicans finally succeeded in passing their version of a tax reform bill. A conference committee must reconcile it with the version that was previously passed by the House before a final version can be sent to President Trump for his signature.

On December 22, 2017, President Donald Trump signed the $1.5 trillion tax cut bill, named the Tax Cuts and Jobs Act of 2017. It became effective January 1, 2018.

In July, 2018, the U.S. Treasury Department reported that the federal government recorded a $74.9 billion deficit in June, a month when the government often runs a surplus, as corporate taxes dropped sharply compared to a year ago. The government had a budget surplus in June in 52 of the past 64 years.

On September 13, 2018, the U.S. Treasury Department  announced the U.S. budget deficit had widened to $898 billion in the 11 months of the current federal fiscal year, which concludes at the end of September, and revenue from corporate taxes had fallen by $71 billion from a year ago.

On November 12, 2018, The New York Times newspaper reported that the biggest effect of Trump’s tax cut was to increase the federal budget deficit.

Zinke’s Outcome-Based Grazing Initiative Raises Questions

Ryan Zinke
Ryan Zinke (Wikipedia)

President Donald Trump’s pick to manage the U.S. Department of the Interior, Ryan Zinke, is promoting a new “outcome-based” livestock management initiative on the public lands managed by the department’s Bureau of Land Management (BLM). The agency has solicited its grazing permittees to submit their ranching operations for nomination to be among the 6 to 12 projects nationwide that will be part of this “demonstration program.” The stated purpose of the initiative is, “to show that livestock grazing on the public lands can operate under a more flexible framework than is commonly used in order to better reach agreed upon habitat or vegetation goals.” It might sound good, but, as always, the devil is in the details.

The BLM’s announcement of the initiative raised an immediate red flag because it included a statement from Zinke wherein he claimed that, “Farmers and ranchers know the wildlife and the land they work better than anyone.” Really? They know it better than the department’s professional wildlife biologists? And if ranchers know so much, then how come livestock grazing has done more damage to wildlife habitat on public lands than all other commodity uses combined? (Grazing is far more ubiquitous on public lands than mining, drilling, and tree cutting.)

The obvious message behind Zinke’s initiative is that the BLM’s current management of public lands grazing is unfair to ranchers. How? They don’t specifically say, other than to imply that it’s too rigid. The BLM explained that, “Grazing authorizations typically emphasize process and prescription. The new authorizations will instead emphasize ecological outcomes, allowing livestock operators more flexibility to make adjustments in response to changing conditions such as drought or wildland fire.” So it seems they believe that a proven prescription to achieve a desired ecological outcome is bad because it’s too strict, while more flexibility will magically provide an alternative to removing livestock from public land that has burned or is experiencing drought.

The BLM’s announcement also said that Zinke’s initiative will give local “stakeholders” a say in these demonstration projects, but it didn’t explain what that meant. Under existing federal law, the agency is required to employ the National Environmental Policy Act (NEPA) public planning process when it implements a new livestock management plan for a grazing allotment. The NEPA process is important because it provides the general public with their only significant opportunity to provide input into livestock management on public lands. Zinke’s initiative is a demonstration project, so it’s unclear if NEPA applies, but it seems they are trying to invent a new public participation process, when a good one already exists.

I called the BLM’s national office on November 6 to ask them if the general public will have any opportunities to participate in the formulation of these new “flexible” grazing management plans. I was told that they don’t know, and that I should call my state BLM office to ask that question. So then I called the Arizona BLM office. They told me they don’t know either because they haven’t received any direction yet from the national office.

Perhaps my inability to get an answer about Zinke’s grazing initiative is simply because it’s a new program and the BLM hasn’t sorted out the details. But it’s a proposal from the Trump administration, and Donald Trump has already proven to be the most anti-environment president in modern history, and a threat to the perpetuation of the multiple use doctrine on our public lands. So I have good reason to fear that the general public’s opportunity to participate in this demonstration program will be restricted. It’s important that it’s not, because the BLM manages more than 21,000 public lands grazing allotments on millions of acres across the West and they plan to expand the use of this new process if they deem it to be “successful.”

Updates

On March 28, 2018, the BLM announced  announced 11 demonstration projects in six states for the Trump administration’s outcome-based grazing authorizations initiative.

The Story of Arizona’s Jefferson Davis Monument

arizona confederate flagMany people have stumbled upon the Jefferson Davis monument sitting in the public right of way along U.S. 60 east of Apache Junction and wondered why it was there. While it’s true that the Confederacy claimed southern Arizona as a Confederate Territory in the early part of the Civil War, Union forces from California drove all Confederate troops out of the state in early 1862.

The words carved into the stone marker are:

JEFFERSON DAVIS
HIGHWAY No. 70
ERECTED 1943 BY
UNITED
DAUGHTERS OF THE CONFEDERACY
ARIZONA

This inscription implies that this stretch of highway was dedicated as a Jefferson Davis memorial highway. Working from that assumption, several Arizona residents recently petitioned the Arizona State Board on Geographic and Historic Names (ASBGHN) to remove this designation because they thought it was inappropriate, as Jefferson Davis was the President of the Confederacy, and an unrepentant white supremacist.

The ASBGHN met publicly on September 25, 2017, to consider these proposals, which including one to rename it the Rose Mofford Memorial Highway. During the board’s meeting, however, their staff person made a presentation which showed the situation was much more complicated.

Their research found that the monument was originally dedicated in 1943 along a highway at the Arizona-New Mexico state line near Duncan, Arizona. It was part of a longstanding project by the neo-Confederate group United Daughters of the Confederacy (UDC) to get a cross-country highway dedicated to Jefferson Davis, as a response to the dedication of the Lincoln Highway in 1913. The national president of the UDC attended the ceremony, and the Duncan High School band, accompanied by its majorettes, led the procession. The crowd sang the official Jefferson Davis highway song, and local Mormon church leader J. Vernon McGrath gave the invocation, followed by an address from Arizona Governor Sidney Osborn read by the secretary of state. The UDC’s president then presented the monument to the state. The Arizona Highways Department, the predecessor to today’s Arizona Department of Transportation (ADOT), built the foundation for the monument and placed the stone marker on it. (This was before the success of the African-American Civil Rights Movement.)

Then in 1961, as part of their participation in Arizona’s Civil War centennial celebrations, the UDC got approval from the Arizona Highways Commission, the predecessor to today’s Arizona State Transportation Board, to have  Arizona’s stretch of U.S. 80 designated as the Jefferson Davis Memorial Highway. The Jefferson Davis monument’s original location wasn’t along U.S. 80, so the UDC got it moved it to its present location along U.S. 60, which was part of U.S. 80 back then. The official name of the spot where it sits, however, is the Superstition Mountain Monument, because this is the name that ADOT entered into the official U.S. Board on Geographic Names database in 1984. (There apparently was some reluctance among state officials to officially record a public monument dedicated to Jefferson Davis.)

Subsequently, in 1989 U.S. 80 was decommissioned. The portion of old U.S. 80 from Benson through Douglas and then on to the state’s border with New Mexico was renamed State Route 80. The name Jefferson Davis Memorial Highway, however, still appears on some maps for the stretch of S.R. 80 between Benson and Tombstone, although it appears that its official designation as the Jefferson Davis highway died when U.S. 80 became defunct.

But even though there may no longer be a Jefferson Davis Memorial Highway in Arizona, the monument remains along U.S. 60 across from the Peralta Road turnoff. The ownership of the monument isn’t clear. It was donated to the state during its 1943 dedication, but ADOT is reluctant to acknowledge state ownership. The Arizona Division of the UDC was disbanded about 2002, but a local organization called the Dixie Chapter of the UDC exists, although it appears to be solely dedicated to placing wreath on veterans’ graves on Memorial Day, and it’s unclear if it’s affiliated with the national UDC. A 1998 encroachment permit issued by ADOT to the neo-Confederate group Sons of Confederate Veterans, Colonel Sherod Hunter Camp 1525, indicates that they are the monument’s owners.

The ownership of the monument, however, isn’t as important as the public’s opportunity to request that it be relocated to a museum or private property. ADOT’s encroachment permit regulations (A.A.C. R17-3-502) include a list of the things that qualify for a permit. The list includes, “For such uses as the Director specifies.” In other words, anything that ADOT is willing to approve. There are no provisions in ADOT’s regulations, unfortunately, to allow the public to protest the approval of an encroachment permit, or to petition for the removal of an existing monument.

The Arizona State Transportation Board, however, has jurisdiction over all issues related to Arizona’s highways, as per state law in A.R.S. § 28-304.B.3. So it appears that the only way the Jefferson Davis monument can be removed from the public property along U.S 60 is for state residents to persuade the board that it shouldn’t be there, or convince the legislature to pass a bill to have it removed.

Updates

On October 13, 2017, the Arizona Department of Transportation issued a letter wherein they stated that their official position is that a Jefferson Davis Highway no longer existed anywhere in Arizona, and that the Jefferson Davis monument along U.S. 60 is privately owned. The letter failed to identify the monument’s owner.

On October 20, 2017, the Arizona State Transportation Board met and ignored requests from the public that they order the Jefferson Davis monument to be removed from the U.S. 60 right-of-way.

On October 23, 2017, and again on November 6, ADOT’s Executive Officer Floyd Roehrich, Jr. responded to inquiries from the public by explaining that the ASTB would not become involved in this issue, and that the responsibility for the monument lies solely with ADOT’s Director John Halikowski. He added that ADOT believes the monument should be relocated to private property because it keeps getting vandalized, and neo-Confederate groups conduct ceremonies there which could create problems because it’s in the highway’s right-of-way. They are trying to identify which local group owns the monument. After the owners are identified, they will initially ask them to move it themselves.  But if they don’t have the money for that, then ADOT will move it.  They hope to have a decision and take action on it by the end of the year.

Arizona's Jefferson Davis monument in the public right-of-way
Arizona’s Jefferson Davis monument in the public right-of-way on U.S. 60. (Jeff Burgess)

Sometime during the weekend of November 18/19, 2017, the monument was vandalized again. This time somebody permanently damaged it by shooting at it. The local police are investigating the crime.

Arizona's Jefferson Davis monument damaged by gunfire.
Arizona’s Jefferson Davis monument damaged by gunfire. (Jeff Burgess)

On June 4, 2018, the Southern Poverty Law Center released a report showing that more than 1,700 monuments, place names and other symbols honoring the Confederacy remain in public spaces.

As of October 28, 2018, the Jefferson Davis Highway Monument was still in place along U.S. 60, and the Arizona Department of Transportation was not responding to requests for information about its status. The monument appeared to have sustained additional damage.

Arizona's Jefferson Davis Highway Monument, 10/28/18
Arizona’s Jefferson Davis monument 10/28/18 with new damage. (Jeff Burgess)
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