In 1917, Thomas Adams, an advisor to the U.S. Treasury Department, said “modern taxation…is a group contest in which powerful interests vigorously endeavor to rid themselves or present or proposed tax burdens. It is…a hard game in which he who trusts wholly to economics, reason, and justice, will in the end retire beaten and disillusioned.” It turns out he was right.
In his new book, The Power to Destroy: How the Antitax Movement Hijacked America, Michael Graetz, professor emeritus of both Columbia and Yale Law Schools and a leading authority on tax politics and policy, explains how the antitax movement in fact threatens the nation’s social safety net, increases inequality, fuels the national debt, decreases economic opportunities, and impedes the nation’s ability to protect its people from the vicissitudes of life.
The end of Worl War II ushered in an historic period during which the United States experienced widely shared economic prosperity. But in 1978, California voters approved Proposition 13, which capped property taxes; then-Governor Reagan called it the “second American Revolution.” Proposition 13 became the prototype for subsequent tax cutting efforts at all levels of government. Step one, large corporations and wealthy individuals and families bankroll a campaign to convince legislators and voters that everyone will benefit economically from the proposed tax cut. Step two, the tax cut becomes law. Step 3, corporations and the wealthy save millions of dollars; those who voted for it, not much. Step 4, the promised economic benefits do not materialize. Step 5, the government has lost so much tax revenue it is forced to reduce or eliminate services such as education. Step 6, the process begins again.
California’s largest businesses saved millions of dollars the year after Proposition 13 took effect. Homeowners – the same voters who believed the campaign promises – received less than a quarter of the total amount saved. Before Proposition 13, property taxes were a substantial source of funding for public schools, fire and police departments, and other local services. The immediate effect was a sharp reduction in available funds for these and other public goods. Proposition 13 led to a significant decline in per-pupil spending. California, which once ranked among the top states in education funding, saw its position fall dramatically; schools experienced budget cuts, leading to larger class sizes, reduced programs, and deferred maintenance.
Now, more than forty years later, administrations from Reagan’s to Trump’s have pushed tax cuts, mainly for the wealthy and large corporations, all the while claiming that tax cuts “pay for themselves” in new federal revenue despite evidence to the contrary. Opposition to any tax increases and plans for more tax cuts have become the cornerstone of Republican ideology.
As a result, the wealthiest ten percent of America’s households now own nearly three-fourths of the nation’s wealth, while the bottom half owns no more than two percent. One out of three large, profitable corporations paid no taxes in 2018, the first year Donald Trump’s 2017 tax cuts went into effect. Corporate profits are at record highs, but in 2021, nineteen Fortune 100 companies paid little or no federal income taxes, including AT&T, Bank of America, Chevron, ExxonMobil, Ford, General Motors, Merck, and Nike. AIG, one of the “too big to fail” companies that triggered the worldwide financial collapse of 2008 and received a $180 billion bailout from the federal government collected a $216 billion tax refund in 2021.
Proponents of tax cuts argue that cuts stimulate economic growth, leading to increases in total tax revenue and consumer spending, and improve overall economic efficiency because businesses will have higher after-tax profits to reinvest in the business, leading to expansion, innovation, and hiring more workers. But that is not what happens. Rather, there are stock buy-back programs and higher salaries and bonuses for the top executives. According to the Congressional Budget Office, Trump’s 2017 Tax Cuts and Jobs Act added an estimated $2 trillion to the national debt and includes temporary provisions that Republicans now want to permanently extend at an additional estimated cost of $4 trillion. Together, the Bush and Trump tax cuts have added $10 billion to the national debt.
Our tax system used to be more equitable and progressive. Before the series of tax cuts enacted over the past 40 years by Republican presidents and Congresses, the wealthy and corporations paid a fairer share of tax revenue. In the middle of the last century, the highest-income Americans – those with annual incomes over $1 million – paid effective tax rates in the 40-60 percent range compared to the 20-25 percent they now pay. Large corporations also paid much higher effective tax rates. Stock dividends, a significant source of income for the wealthiest Americans, were taxed at the same rate as wage income. Now they are taxed at about half that rate. Also, more family fortunes used to be subject to the estate tax.
As Professor Graetz concludes, “In the twenty-first century with significant inequalities of wealth and income, a growing economy and unprecedented levels of national debt and interest costs, large tax cuts are irresponsible.”
Mark Berg is a community activist in Adams County and a proud Liberal. His email address is MABerg175@Comcast.net.