The Strategy Behind the Conservative Tax Bill

“Money On My Mind” is a monthly column by Jay Mandle. The views expressed here are those of the author (not necessarily those of Democracy Matters) and are meant to stimulate discussion.

 

 

February 2018
By Jay Mandle

It is not often that we can see the raw power of wealth in action. But that power was vividly on display in the weeks preceding the December passage of the tax “reform” bill. Under the headline, “The Republican Tax Bill is Unpopular With Voters. But Here’s Who Loves it,” Fortune magazine cites Doug Deason, a major Republican donor, who said that he would withhold his checkbook from incumbent Republican Senators unless they passed the tax bill. In the same article, Representative Chris Collin (R-NY) is quoted to the same effect: “My donors are basically saying, ‘Get it done or don’t ever call again.’” And a tweet by Lindsey Graham (R-SC) counseled that Republicans who failed to support the tax bill would find not only that their “financial contributions will stop,” but that the money would go to finance primary challengers. (1)

Obviously these threats were taken seriously. Congress delivered tax reductions disproportionately targeted to the rich. But in addition, by increasing the budget deficit, the bill provided right-wing members of Congress with leverage to achieve their long sought objective – dismantling more of this country’s already tattered social safety net.

There is no doubt that corporations and rich people will be the principle beneficiaries of the tax legislation. According to the Tax Policy Center, almost two-thirds (65.8 percent) of the total federal tax reduction will go to the top one-fifth of individuals. An important source of this bias to wealth stems from the fact that the federal corporate tax rate was permanently reduced from 35 percent to 21 percent. The result will be large increases in corporate profits. Advocates of the legislation claim that these increases will result in job-creating investments. But there are strong reasons to doubt that this will be the case. More likely, most of the money will go to large shareholders in the form of increased dividends, and to executives who will be rewarded with bonuses for increased profits.

But the tax legislation not only advances elite economic interests. It serves their political agenda as well. It does this through two seemingly unrelated provisions contained in the new law. The first is that, because of the declines in the tax rates, the government’s indebtedness will increase. The magnitude of this debt increase is uncertain, but it probably will be on the order of about $1 trillion over the next ten years. The second is that tax reductions for individuals in the legislation are, unlike those for corporations, only temporary. It is not hard to foresee the opportunity that these two, when combined, provide to those intent on dismembering the country’s social safety net. Their argument will be that, in the name of fiscal responsibility, government spending must be sharply reduced. Only by doing that will it be possible to renew the individual tax reductions scheduled to expire after 2025. This argument puts at risk entitlements and programs such as Temporary Assistance for Needy Families, the Supplemental Nutrition Assistance Program, the Children’s Health Insurance Program and even Medicaid.

Even before passage of the tax bill, House of Representatives Speaker Paul Ryan (R-WI) had started to move on that front. He had announced, “We’re going to have to get back next year at entitlement reform which is how you tackle the debt and the deficit.” (2) You can be certain that, funded as they are by the superrich, neither Congressman Ryan nor any of those who follow his lead in Congress will consider the possibility of increasing corporate tax rates to deal with the growing deficit.

The argument that the budget deficit necessitates a cut back in social programs is, of course, entirely hypocritical. Its defenders are holding the continuation of the individual tax reductions hostage to their aim of reducing social spending.

But though the argument is bogus, this conservative strategy to reduce social supports taps into a profound fault line in American society. Right-wing politicians and their financial backers gain electoral support from large numbers of middle class and poor White Americans who have been stymied in their economic aspirations. The latter resent government programs that they imagine are largely designed to help minorities. In her riveting participant observation study of what she calls the “heart of the political right” in Louisiana, Arlie Russell Hochschild finds that their anger is directed toward “the local welfare office and the mailbox where undeserved disability checks and SNAP [Supplemental Nutrition Assistance Program] stamps arrive.” That, she says, is “the main theater of conflict.”

Hochschild does not find much reason to believe that this hostility to government support programs will soon be overcome. But near the end of her book, she does report that one of her informants concluded that “big money escalates our differences. Let’s get it out of politics – both sides.” (3) So perhaps after all, there is hope.


(1) Alana Abrahmson, “The Republican Tax Bill is Unpopular With Voters. But here’s Who Loves it,” Fortune, December 4 2017, http://fortune.com/2017/12/04/republican-tax- bill-donors/
(2) Nathaniel Weixel, “Ryan Eyes Push for ‘Entitlement Reform” in 2018, The Hill, December 6, 2017, http://thehill.com/homenews/house/363642-ryan- pledges-entitlement- reform-in- 2018
(3) Arlie Russell Hochschild, Strangers in Their Own Land: Anger and Mourning on the American Right (New York and London: The New Press, 2016), p 149, 233.

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