“Let’s not and say we did” was a quote we often used when I was growing up. It needs to be said plainly today to U.S. Treasury Secretary Steven Mnuchin, who has a new tax cut plan that may be constitutionally questionable.
The stealth $100 billion plan, which would index capital gains taxes to inflation, is yet another unfunded tax cut that will benefit only the wealthy, just as last year’s huge tax overhaul has benefited only corporations.
Once again, tax cut zealots are arguing that such a reduction in capital gains taxes, which could be enacted without the approval of Congress, will pay for itself. They claimed the same thing when passing a budget-busting tax cut last year.
Despite the constant assertions from the supply-side economics crowd, the massive corporate tax cut is not paying for itself. Quite the contrary. The Bureau of Economic Analysis has shown that corporate tax revenue has plunged to 1.3 percent of the federal take, near a 75-year low.
The Treasury is borrowing funds at a much faster clip than anticipated this year to cover a burgeoning budget deficit that will soon top $1 trillion.
In the current quarter, the Treasury will borrow $329 billion, $56 billion more than estimated in April with even bigger borrowings due in the final quarter of 2018.
Why undertake a capital gains tax cut when the larger tax cut has failed to produce more revenue, as promised, or create more jobs or higher wages?
Once again, the argument is that a cut in capital gains taxes will lead to more business investment and, thus, more jobs and even greater, and more broadly shared, prosperity.
We have seen no evidence that the corporate tax cuts have delivered on that elusive promise.
Indeed, the bulk of the tax cuts have fattened corporate profits, doubling what they were on average a year ago. The money has been spent, almost exclusively, on share buybacks, dividend hikes and M&A activity.
Little, if any, of the funds have bolstered wages, which have actually fallen this year, on average. And companies have not used the money for job creation, which has not been a problem, anyway. The U.S. economy has 6.6 million open jobs compared with 6.3 million unemployed individuals. There is a shortage of workers, not jobs.
Then there is the minor issue of cutting the capital gains taxes without the consent of Congress. The “power of the purse” resides solely with Congress, not with the executive branch.
Nonetheless, the Treasury, via an executive order from the president, could move to reduce capital gains taxes and give a potential shot in the arm to the stock market just as the midterm elections are approaching. President Donald Trump likes to brag about new stock market highs.
That, of course, is a cynical view, but the market has been moving mostly sideways since late January and, despite a surge in corporate profits and strengthening economic numbers, has shown little enthusiasm for making new highs.
Republicans have not been running on the success of last year’s tax cut package because it has had little impact on the average American household. This latest tax cut wouldn’t, either. Only about 5 percent of Americans own two-thirds of all stocks and mutual funds, by some measures.
Once again, this tax plan is a sop to the rich funded by the poorer among us. If we really want to help average Americans, while busting the budget, too, the administration should restore all the deductions that were eliminated to fund corporate welfare. At least individual taxpayers would get a break.
Meanwhile, the effect of rising budget deficits is making itself felt, at least in subtle ways, right now.
Russia has reportedly sold nearly all its U.S. Treasury holdings. And while Moscow is nowhere as big a holder of U.S. bonds as China, Japan or Britain, surging deficits and strained relations with at least two of those nations could leave the U.S. vulnerable to a run on the bank.
If that happens, the wealthy will likely continue to thrive. The less fortunate, however, may have a much more difficult time just trying to survive.
As the U.S. becomes more and more addicted to long-discredited supply-side economics and its attendant deficits, it’s time to heed some advice from a respected former first lady: “Just say no.“