The Cost of Civilization

A Year after Trump’s Tax Cuts, a New Debate Emerges
Donald Trump, Mike Pence, Paul Ryan, and Mitch McConnell celebrate the passage of the Republican tax bill (Wikimedia Commons)

Oliver Wendell Holmes Jr. famously wrote in a 1927 Supreme Court opinion, “Taxes are what we pay for a civilized society.” They are the means to fund public services, a way of contributing to our common life and the common good, and an instrument of economic justice—the expression of solidarity through policy. But a telling mark of our barbarous times has been a decades-long obsession with cutting taxes, exemplified most recently by the massive tax cut signed into law just over one year ago—the most significant legislative achievement of Donald Trump’s presidency.

Of course, the cuts were not just Trump’s doing. They were also the work of congressional Republicans, not least the recently departed House speaker and indefatigable champion of trickle-down economics, Paul Ryan. “Most people, half the people in this country, live paycheck to paycheck, so there’s a lot of economic anxiety,” Ryan told the New York Times in November 2017. His prescription for such anxiety was, as always, “tax reform,” with the promise that the resulting economic growth and a few extra dollars in every paycheck would take care of everything.

Of course, it hasn’t. The “Tax Cuts and Jobs” bill has proved to be mostly a gift to corporations and the wealthiest Americans. The slashing of the corporate rate from 35 percent to 21 percent has provided major windfalls for large companies, including Walmart, which saved $1.6 billion over the first three quarters of 2018, and Bank of America, which saved $2.4 billion. Meanwhile, Paul Ryan had the gall to brag about the public-school secretary who was “pleasantly surprised” by the extra $1.50 per week she received in her paycheck. The legislation also specifically created a new deduction for so-called “pass-through” entities—companies organized as LLCs, sole proprietorships, partnerships, or S corporations. The result is an estimated $17 billion in tax savings for millionaires. (As it happens, most of Donald Trump’s businesses are pass-through companies.) All told, according to one estimate, 83 percent of the benefits from the tax cuts would be going to the wealthiest 1 percent of Americans.

Higher marginal tax rates on the wealthiest Americans would help combat the rampant inequality tearing at our social fabric.

This might all be easier to accept if the tax cuts actually spurred significant wage growth and investment in new projects and hiring, but mostly they haven’t. After the tax legislation was signed, some companies did make a show of offering bonuses and raises to their employees. But one analysis showed that among 145 publicly traded companies, just 6 percent of the money they saved from the tax cuts went to workers. More often, the savings have been plowed into stock buybacks, which do nothing to raise wages or increase employment.

Treasury Secretary Steven Mnuchin absurdly promised that “not only will this tax plan pay for itself, but it will pay down debt.” So far, just the opposite has happened. The federal budget deficit for fiscal year 2018 ballooned 17 percent to $779 billion; it is expected to hit $1 trillion in fiscal year 2019. If the past is any guide, Republicans will eventually rediscover “fiscal responsibility” and use the very deficits they’ve created as an excuse to cut Social Security or spending on other vital programs.

Recently, however, there have been signs that the debate over taxes, so long dominated by the GOP’s fixation on cuts, may finally be shifting. In a televised interview, Alexandria Ocasio-Cortez, the young, unapologetically progressive congresswoman from the Bronx, floated a 70 percent marginal tax rate for the wealthiest Americans. “Once you get to the tippy-tops, on your ten-millionth dollar, sometimes you see tax rates as high as 60 percent or 70 percent,” she said on 60 Minutes. “That doesn’t mean all $10 million are taxed at an extremely high rate. But it means that as you climb up this ladder, you should be contributing more.” Her comments generated a wave of commentary, with a surprising number of conservatives pretending not to know what marginal tax rates were and left-leaning writers pointing out that the top rates she proposed are not just economically sound, but had actually been the norm in the United States during the postwar decades of shared prosperity. As Paul Krugman put it in the New York Times, her ideas are “fully in line with serious economic research.”

They also square with basic ideas of fairness. Higher marginal tax rates on the wealthiest Americans would help combat the rampant inequality tearing at our social fabric. If the rich paid their fair share, the government would also be better able to address urgent problems like climate change and ensuring that every American has adequate health care. Those who care about living in a decent society could do worse than to follow Ocasio-Cortez’s lead. Call it the cost of civilization.

Published in the January 25, 2019 issue: 
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