Supply-side, trickle-down nonsense on the NYT oped page

April 19th, 2017 at 10:38 am

There’s a robust debate to be had as to why the NYT published this op-ed on the alleged economic benefits of trickle-down tax cuts, as virtually every paragraph touts an alternative fact. It is the opinion page, I guess, and the authors advise (or at least advised) the president, so I can see why it’s there. But it does require debunking, so thanks NYT, for some make work.

Here’s much of the article’s text, followed by my comments in italics:

In the aftermath of the health care blowup, President Trump and the Republicans need a legislative victory. Tax reform probably should have gone first, but now is the time to move it forward with urgency.

By tax reform, as they admit below, the authors mean tax cuts. This is no such urgency at all. If anything, based on simple demographics alone, we’re going to need more, not less, revenue. This is a typical ploy in this space: create an emergency that can only be solved by tax cuts on the wealthy. If you listen carefully, you hear their fear that their tactics aren’t working, and the tax debate has gotten gummed up. That’s music to my ears, but cacophony to theirs.

Unfortunately, the White House seems all over the map on the subject. One day there is a trial balloon for a value-added tax. The next, the idea of a carbon tax or a reciprocal tax. And now we are hearing the curve ball of a payroll tax cut. Steve Mnuchin, the Treasury secretary, has thrown cold water on the idea of any tax bill meeting the August deadline.

One sure lesson from the health care setback is the old admonition “Keep it simple, stupid.” The Republicans tried to fix the trillion-dollar health insurance market instead of keeping the focus on repealing Obamacare.

I take their point re the lurching of the White House on taxes, which really is remarkable and reveals the lack of not just any planning or coalition building, but even a clear sense of what they want to do on taxes. The idea that “keeping the focus on repealing Obamacare” would work, however, makes no sense, and reveals that the authors’ magical thinking extends beyond tax cuts to health care. Republican voters don’t want Obamacare to be replaced with nothing. They want more health care at less cost, which was what Trump promised them.

…Instead, the primary goal of Mr. Trump’s first tax bill should be to fix the federal corporate and small-business tax system, which has made America increasingly uncompetitive in global markets and has reduced jobs and wages here at home. The White House and the Treasury already have a tax plan that we were involved with last year. The three most important planks of that plan are:

First, cut the federal corporate and small-business highest tax rate to 15 percent from 35 percent, which is now one of the highest corporate tax rates in the world.

Our statutory business rate is a globally high 35 percent. What companies actually pay—their effective rate—is about 10 points lower, because of all the loopholes. Also, because so many businesses are now pass-throughs (where you claim your business income as personal income), you can’t talk about corporate taxes without noting a new loophole these guys are including in the plan they wrote for Trump: take the pass-through rate down to 15 percent as well. This creates a huge incentive for every high earner to become a pass-through.

Second, allow businesses to immediately deduct the full cost of their capital purchases. Full expensing of new factories, equipment and machinery will jump-start business investment, which since 2000 has grown at only one-third the rate recorded from 1950 to 2000.

Here we have the first in a series of trickle-down claims. The alleged sequencing is: cut taxes of business and the wealthy, they invest more, that raises profits and productivity, and the benefits trickle down to the middle class. Every link in that chain is broken: tax cuts, even on investment income, do not correlate with greater investment, and they certainly are uncorrelated with faster productivity growth. Businesses already receive very favorable tax treatment on their investments; in fact, their tax burden on debt-financed investments can be negative. No question, tax cuts raise after-tax profitability, but absent much more worker bargaining power, those profits stay in the pockets of those at the top of the income scale.

Third, impose a low tax on the repatriation of foreign profits brought back to the United States. This could attract more than $2 trillion to these shores, raising billions for the Treasury while creating new jobs and adding to the United States’ gross domestic product.

To help win over Democratic votes in the House and Senate, we would also suggest another component: What many workers across the country want most from President Trump is infrastructure funding. As part of this bill, we should create a fund dedicated to rebuilding America’s roads, highways, airports and pipelines, and modernizing the electric grid and broadband access — financed through the tax money raised from repatriation of foreign profits.

We at CBPP have done a lot of work on this question of “tax holidays,” where multinationals are offered a much-reduced tax rate if they “repatriate”—bring back to the US—their foreign earnings, which they’ve long held abroad to avoid US taxes. When the program is voluntary with no strings attached, it’s a big revenue loser, and you can’t pay for something (infrastructure) with less than nothing. That said, required (vs. voluntary) repatriation as part of a transition to broader reform of how we tax our MNCs would constitute real tax reform.

As much as possible, this bill should include private financing for projects like toll roads and energy drilling. We also favor “user pays” financing, such as toll roads, and we would oppose any Fannie Mae-type financing structure for projects that would put taxpayers on the hook for hundreds of billions in potential losses.

This user-fee stuff is a terrible idea for infrastructure. The whole point of “public goods” is that they are projects that don’t generate the return on investment that would motivate private firms to make such investments. In other words, this is a thinly disguised privatization plan.

…We should emphasize that business tax relief is not a sellout to corporations but a boon for middle-class workers. A study by the Tax Foundation and Kevin A. Hassett, then at the American Enterprise Institute and now the chairman of President Trump’s Council of Economic Advisers, found that middle-class wages rise when business taxes fall.

The additional increase in real wages could be nearly 10 percent over the next decade, which would reverse 15 years of income stagnation for the working class in America. And, if we are right that tax cuts will spur the economy, then the faster economic growth as a result of the bill will bring down the deficit.

Here we have the “money” ‘graf: the straight-up claim that trickle down tax cuts will boost the earnings of the working class, which will help offset their cost—the Laffer curve in action. I guess I should give the authors credit for adding “if we are right,” though I’ll give you very long odds that the editors insisted on this addition. Because there’s no reason to ask if they’re right. They’re not, with the latest exhibit being the state of Kansas, an “experiment” derived by some of these very authors.

BTW, I’ve endorsed my friend Kevin Hassett for his new job as a voice of economic reason in this administration. But I’ve been careful to note this flaw in his work and his thinking. In fact, the study they reference here has been thoroughly debunked in various places.

…As for fixing the maddeningly complex individual income tax system — lowering tax rates and ending needless deductions — we are all for it, but that should wait until 2018. Jobs and the economy are the top priority to voters.

Republicans need to act with some degree of urgency. The financial markets and American businesses are starting to get jittery over the prospect that a tax cut won’t get done this year. A failure here would be negative for the economy and the stock market and could stall out the “Trump bounce” we have seen since the president’s election.

Again with the urgency, and “trust us, folks, it’s not the zillionaires for whom our hearts bleed—it’s ‘jobs and the economy.’” Not to mention the stock market, which is getting “jittery” over the possibility that Trump won’t deliver a tax plan like the one these guys wrote, which delivers fully half of its goodies to the top 1 percent (or even better, the Ryan plan, which, once fully phased in, delivers 99 percent of its cuts to the top 1 percent).

Puh-lease. How stupid do these people think we are (rhetorical question!)? Their simple scheme—Trump wins, the rich get big tax cut—has turned out to be harder to pull off than they’d hoped. That’s a feature, not a bug, of our current political moment, even if it means we have to read a WSJ oped in the NYT.

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23 comments in reply to "Supply-side, trickle-down nonsense on the NYT oped page"

  1. Gerald Scorse says:

    “…even if it means we have to read a WSJ oped in the NYT.” Exactly what it was, best line in the piece.

  2. Eclectic Observer says:

    Very good deconstruction analysis. Of course all you needed was to look at the authors to know it was going to be supply side–as in trickle down economics blather. These folks are forever looking for a problem to promote an ideology.

  3. Jeff Friedman says:

    Does anyone know the underlying cause of the pandemic of mind boggling ignorance and stupidity that is enveloping this country?
    Everyone with a pulse should know that Republican politicians are bought and paid for by the Top 1% and are in their respective positions for the sole purpose of doing the bidding of their ultra wealthy puppet masters. So why do hardworking, struggling members of the middle class and the working poor keep voting for them when Republican policies are the unassailable reason for their struggles?
    Has anyone noticed the trifling detail that Bill Clinton left a burgeoning economy for George W. Bush, who immediately proceeded to ruin it with tax cuts for his friends in the Top 1%? Then Barack Obama inherited a disaster that required a super human effort to rescue us from the brink of depression. So how did Obama achieve such a remarkable result despite nonstop, Republican obstruction? Mainly by allowing the majority of Bush’s ill advised tax cuts to expire, a development that Congressional Republicans were powerless to prevent.
    Why is our infrastructure in such a frightening state of disrepair? Because Republicans stand in the way of every proposed tax increase on their wealthy benefactors, who happen to be the only ones who can afford to pay for the improvements, the construction of which would obviously create untold thousands of new jobs and families newly able to purchase discretionary items, thereby creating even more jobs to keep up with the increased demand.
    ”Trickle down” is the most obvious snake oil since professional charlatans roamed the Old West with their wares. Put more money in the pockets of the middle class, and they will spend it stimulating business and necessitating the creation of new jobs.
    Put more money in the pockets of the Top 1%, and where does it go? Grand Cayman Island.
    But the people who suffer most from our system of obscene economic inequality continue to vote for Republicans for ”reasons” they can’t even articulate, much less explain.
    How corrupt is the current iteration of what used to be the GOP? Not one member of the Republican Congress evinces the slightest concern that the world’s most successful snake oil salesman stole the presidency with the help of our most adversarial foreign power and is engaged in a continuing effort to turn the oval office into the western hub of a global crime ring, the extent of which can only be speculated upon.
    But what the hell? He nominated an anti-abortion Supreme Court justice, and Constitution-shredder, Mitch McConnell, rammed the far right rubber stamp to confirmation by perpetrating a hideous contortion of senate rules that will leave an indelible stain on the upper chamber and ended any chance this country may have had for bipartisan accomplishment.

    • Smith says:

      80% of the Bush tax cuts were made permanent by Obama, all but the top 1% got to keep the Bush cuts. This included the top 10 up to 1% who collect 30% of all income. See Saez and Piketty charts. That 30% is 10 percentage points higher than they got in 1980, $1 trillion a year more! The 1% collect 20% of income, and lost .6% when the tax cut expired only for them, now they 19.4 % Well actually it’s back over 20% again. Krugman strongly critiqued Obama’s weak bargaining skills in allowing this to happen (unnecessarily)

      Check info before claiming Obama or Democrats did anything really progressive, Romneycare another case in point

      • P. M. Hutchinson says:

        Early in his administration, Obama was so fixated on trying to keep his campaign promise to “bring the country together” ( i.e., bi-partisanship, “work” with Republicans), that he did LOTS of (in retrospect) stupid stuff. Had nothing to do with “weak bargaining skills.” Had everthing to do with a very savvy human being (politician by nature) trying to suck recalcitrant Republicans out of being their usual anti-American criminal cabal and into being actual public servants. Obama didn’t know (at that point) that McConnell & co. had sworn to obstruct him in all matters, at any cost – no matter how sweet the carrot. In the end, the only thing “we the people” got out of it was a wasted example of some outstanding strategic thinking, keen intelligence, unwavering perseverance, and general goodwill to some really nasty, nasty men (and women).

      • James E says:

        The main reason the some of the tax cut was made permanent is the fact many of the component of the tax cuts (2001 & 2003) were part of the reconciliation bill knowing full well that it would blow up the deficit and expire in ten years (Bryd Rule). Obama had to wait for the law to sunset in order to force the Republicans to agree to some form of tax increase ( McConnell and Obama agreement) which became part of the Tax Increase Prevention Act.
        Krugman’s right on one thing: Obama had a weak hand in the bargaining largely he had to deal with the Republican majority in both chambers who were fixated on obstructing him.

    • William Miller says:

      Jeff – You asked about CAUSE – “Does anyone know the underlying cause of the pandemic of mind boggling ignorance and stupidity that is enveloping this country?”
      Yes – here’s the answer. Over decades, plutocracy has funded propaganda and agents including Trump, the GOP, fake religious organizations, biased media, and think tanks to destroy the valid information and open minds that are needed for democracy. The result has been income and wealth inequality.
      Since the New Deal, progressives have been losing political power and 99% of the public has been gradually losing almost all economic wealth and income in America to plutocracy which is also disparaging science because it restricts the “free market”. To regain the political power to win back the Congress and the WH and stop the destruction of democracy by plutocracy, progressives need to understand the failure of traditional news media like CNN and the NYT and promote the reading of five important books and an Alternet article that reveal the CAUSE. BTW, the new book, Shaken, doesn’t describe the real CAUSE. The five books and article provide people with the information needed to understand how plutocracy has controlled politics in America for decades beginning with attacks on the New Deal and moving to the GOP gerrymandering in 2010, controlling the news media to be agents of plutocracy and its propaganda by dispensing short, superficial messages (and superficial books like Shaken ) without the honesty, equity and balance required by the Fairness Doctrine which was eliminated by the FCC under pressure from Reagan in 1987, and AT THE CORE – plutocracy has been funding strong ideological political propaganda in fake “churches” to brainwash the public just as ISIS does with a fake version of Islam.
      FIRST BOOK – The book, Ratf**ked: The True Story Behind the Secret Plan to Steal America’s Democracy, describes how the GOP did the gerrymandering in 2010 with only $30 million that gave them majorities even though the Democrats had more votes. But progressives need to dig deeper and actively promote an understanding of the plutocracy that drove the gerrymandering and drives ALL other GOP political strategies.
      ALTERNET ARTICLE – To get enough political power, progressives should promote an Alternet article and 4 other books to understand how the Trump/GOP are agents of plutocracy that has been integrating politics into fake religion and promoting lies since the end of WWII to destroy democracy, exploit hate, and move income and wealth to a group of 400 billionaires as plutocrats who own more than 61% of the wealth in America.
      The impact of religious brainwashing on elections is described in an Alternet article of March 13, 2017: An Insider’s View: The Dark Rigidity of Fundamentalist Rural America – In deep-red white America, the white Christian God is king.
      A SECOND BOOK, One Nation under God – How Corporate America Invented Christian America, details the history since the 1930’s of how right wing corporations attacked the New Deal by integrating right wing politics into a fake version of Christianity to support plutocracy. They attacked the New Deal, which was based on a true version of Christianity that promoted having government services help the poor, sick and elderly. The attack was based on a perverted version of fake Christianity aligned with Ayn Rand’s ideology. The New Deal was based on the ideals of the Social Gospel, a movement dedicated to the public good, economic equality, eradication of poverty, slums, child labor, an unclean environment, inadequate power of labor unions, poor schools and eradication of foreign wars (WWII …). Right wing corporate America run by rich white men who owned their private businesses formed a political plutocracy to fight against these reforms and the plutocracy has been trying to undo the New Deal ever since the end of WWII. One of their most successful tactics was getting religious leaders to preach a new version of Christianity with a fake model of Jesus promoting selfish, free-market enterprises with minimal government services and taxes while disparaging the Social Gospel Jesus of the New Deal.
      A THIRD BOOK, Dark Money: The Hidden History of the Billionaires Behind the Rise of the Radical Right, should be promoted by progressives as a good primer on plutocracy and the impact of Citizens United.
      THE FOURTH AND FIFTH BOOKS are novels that are essential reads to understand how plutocracy operates – (1) False Faith and Equestrian Games and (2) Polo … Game Changer, expand the understanding of plutocracy by showing with stories containing characters based on in-depth research and with revealing language how a billionaire plutocrat like Trump gets elected by (1) exploiting the funding of fake churches by plutocrats that brainwash people with the integration of distorted versions of religion (fake version of Christianity) with right wing politics, (2) creating the public perception of the billionaire’s intent to apply their successful business capability to share wealth with the public when they intend the opposite – to hoard all the wealth for themselves, and by (3) controlling the political agenda and the myopic press to never talk about the strategy of moving most of America’s wealth to the rich plutocrats that has been playing out for decades.
      Trump, a billionaire plutocrat, and the GOP Congress are manipulating the news media with constant lies to make fools out of the public and destroy democracy. The news media will always fail to reveal how Trump and the GOP Congress actually conned the public to get elected because the media is driven by ratings and entertainment, thrives on short, superficial, empty messages that can be easily compromised with debates about false statements and fake news and relies on research based on interviews for media stories like Shaken that don’t reveal the CAUSE . As verified with linguistic and behavioral psychology research, the public needs to get educated by reading books, especially novels, and watching movies based on deep ethnographic research that communicate with expanded stories how plutocracy has caused the shift in political power and wealth in America over the last four decades.
      For an example of propaganda, consider the commonly heard news media message that “ISIS presents a corrupted version of Islam to inspire acts of violence”. That’s true. But what isn’t mentioned is that combining politics with a fake version of a religion is the strategy of plutocracy to get political power. That insight comes from reading a novel, False Faith and Equestrian Games, in which the story’s protagonist ( a politically independent war veteran) is presented week after week with sermons that shows how right wing plutocrats have deployed the same tactics as ISIS to fund and control fake churches and faith groups that preach a twisted version of a religion (Christianity) combined with right wing politics to brainwash people including war veterans to vote for Trump and other GOP politicians and brainwash those people to even commit acts of violence such as bombing abortion clinics in the name of religion/politics.
      The public will continue to be conned by Trump and the GOP until progressives including economists successfully promote the reading of these five books that describe the history and operation of plutocracy in America. Plutocrats have used brainwashing with deceptive tactics such as appearing to be successful, public caring billionaires but who are self-serving, public destroyers who put Alt-right white male supremacist, xenophobic, misogynist extreme ideology into “churches” and “faith groups” they fund and control to preach a fake version of a religion (a fake version of Christianity) just like ISIS has done with a fake version of Islam.

    • AngloSaxon says:

      Dude, Clinton left a bubble in non-residential investment triggered by Y2K while credit markets were just powering up. That itself was a historical oddity. Basically the boom split in half in regards.

      Our economies now are consumption based drunk and fuck societies. We just need to come to grips with that. We lack aspirations for bigger and nationalistic goals like riddening our bodies of fossil fuel pollution or colonizing the solar system. That is just a major dopamine antagonist man!!! I need the rush!!!! Then you wonder why drugs became such a problem in the 1990’s.

  4. Nick Batzdorf says:

    Apologies if I’ve posted this here before, but the famous 3-legged stool is a law of physics:

    Everyone is covered, everyone pays in, those who can’t pay are subsidized.

    Remove one leg and thousands of people *will die.*

    Coming up with an improvement on the right is a total fool’s errand. There never was and never will be one, because it’s not possible.

    That obvious point always seems to get lost in talk about political victories and losses.

    • tom harlow says:

      Amen. Thx for posting the physics!

    • BruceJ says:

      “Remove one leg and thousands of people *will die.*”

      You say that like it’s a bug for the conservative side. That’s a feature. Tie health insurance to employement and you get a population of slaves willing to do anything to stay employed, and a population of unemployed, willing to do anything to get a job.

      Remember, Jay Gould, one of the original Gilded Age robber barons boasted “I can hire half the working class to shoot the other half”.

      This isn’t something form a far-off age, either :

  5. Bob Palmer says:

    It was a good of the Times to run that laffable Trickle Down op-ed. Times readers will be outraged and thus motivated. Too often these days we stay in our own silos, reading only what we already
    agree with. Besides being unaware of what else is going on in the world, we may get lazy and let the chauvinists steal the show (again).

  6. Gene says:

    There is an urgent need to cut taxes on the rich and corporations, in order to generate the capital needed to build state of the art fully-automated factories so that we can eliminates the remainder of US msnufacturing jobs without the inconvenience of shipping them to foreign countries.

  7. Smith says:

    Germany at 30%, France at 33%, UK at 19%, and Italy at 28%, to take just the larger 4 in Europe, with Japan at 31%. That doesn’t seem like the U.S. is out of line at 35%. (data from
    I think it is a mischaracterization to say “globally high 35%” vs. on the high side but within a few percent of most developed countries. Whose side are you on? I know you’re saying effective rates are 10 points lower, but why even go there? Closing loopholes is no reason to lower rates, or worse repatriate foreign profits with a tax holiday (something Obama supported).
    U.S. companies are bigger, they should be taxed more. We don’t have VAT taxes and our income taxes are lower. We are already a low tax country. Lowering corporate taxes hurts the small businessman and startup as they find it harder to compete.
    If UK, was any kind of model to follow, there wouldn’t be Brexit.

    • AngloSaxon says:

      Well, except that “Brexit’s” 3rd of supporters were neo-liberals(Farage/Murdoch say high) themselves who have more radical aspirations than the EU neo-liberals with austerity and plutocracy.

  8. Bill O'Keefe says:

    This boils down to a simple question. Would the economy be better off with the government spending marginal tax dollars or does it do better off if taxpayers, at all income levels, get a tax cut and then spend it. The wealthy do not take avoided taxes and put them in a mattress.

    • drouse says:

      What they do is take those avoided taxes and add them to the already vast capital flows that slosh around the globe seeking maximum return on investment. Way too much money chasing too few returns and the insistence on maximizing returns leaves social wreckage in its wake.

    • mere mortal says:

      Mr. O’Keefe, that is almost comically dishonest.

      A policy that benefits “taxpayers, at all income levels” is simply not on offer. What it honestly “boils down to” is a different question. Would the economy be better off with the government lowering the tax burden on businesses and the wealthiest taxpayers.

      “The wealthy do not take avoided taxes and put them in a mattress.” Laughable.

    • Ward says:

      Aren’t you forgetting the marginal propensity to consume and the velocity of money?

  9. Nick Batzdorf says:

    I was wondering why my life felt incomplete until I saw that I managed to miss this one.

    But really, it isn’t necessary to read past the byline: