Opinion

Citizens: Beware of sugary tax-cut talk

Posted August 8

Wow! We had quite a two-week period here in Washington, D.C. From my perch across the street from the State Department, near the White House, and with the Pentagon visible across the Potomac, I have observed some basic decisions finally being made:

1. Our nation has decided to neither repeal nor replace Obamacare. We did that on two awkward, convulsive votes in the Senate, in which it was decided not to repeal or to replace. Now, senators are scrambling to begin some kind of amendment process to repair and shore up the existing Obamacare. It will be very expensive in terms of federal health care subsidies needed this fall.

2. President Donald Trump appears to have finally decided to make a restart. He is streamlining his staff, getting tough with dissident personalities, leaks and the rather strange behavior that has been coming out of the White House. General John Kelly, the new chief of staff, will bring a much needed sense of discipline and we finally are putting the right foot forward. Hopefully this restart will include a limitation on some of the president’s more erratic tweets.

3. The United States has adopted sanctions on Russia. I don’t agree. I am a passionate free trader. Sanctions just don’t work. Russia is a country that will stay there and we might as well trade with them and keep those channels open. For example, years of sanctions on Cuba did not result in a regime change. It probably enhanced Castro. I believe President Trump and Secretary Tillerson are correct to oppose sanctions, but Congress voted so overwhelmingly that the president had to sign the legislation.

4. Now, both parties and the president are cheerfully talking about a tax cut. This is politically very popular, but I think it is escapism. Senate Republicans in particular want to pivot from health care to a more popular subject. However, health care will not go away because collapsing Obamacare must be addressed by fixing it with major subsidies. Congress hates to do that because it is heavy lifting, but tax cuts have all the political sugary sweetness of a deadly poison, in my opinion.

Let me comment a bit on the popular tax cut. Unless a tax cut is simultaneously paralleled with spending cuts, it could be a disaster. Our biggest problem is the federal deficit. I left the Republican Party and became an independent largely because Republicans have become big spenders without any regard to the deficit; the Democrats are just as bad.

A huge deficit would mean more weakening of the dollar, more inflation and endangerment for our bonds. For example, the average person with a 401(k) has been very pleased to see the stock market go up, but nobody is talking about how the dollar has gone down. As the dollar goes down, senior citizens with 401(k)s (such as me) have less purchasing power and inflation will accelerate. All the great promises about a tax cut are accompanied by some vague promises that our economy will grow. But there is no economic model to support this.

On the contrary, as the noted economist and former Harvard President Lawrence Summers has pointed out, “we cannot have tax cuts without substantial military and social spending cuts … or the deficit will balloon.”

It is now up to average citizens to question politicians who glibly promise tax cuts without giving commitments on what spending cuts they will simultaneously attach to the same bill. The citizenry must not accept the glib, vague promises that somehow all sorts of new prosperity will bring in more revenue. There is no economic model supporting this hypothesis. In fact, just the opposite. Tax increases with revenue cuts that have resulted in a balanced budget have resulted in more prosperity. For example, the Clinton tax increase provided us with a stable economy, a rising bond market and a surplus. Thus, there might be a sound case for a tax increase on the wealthy if we cannot cut spending.

Beware of your congressional representatives and the president promising tax cuts in the next few months. Be sure to question what spending cuts they are simultaneously attaching to the tax bill. An alert, aware citizenry must not swallow the sugary, easy talk of tax cuts unless the politicians are willing to say what spending cuts will accompany them. Neither Donald Trump nor Congress nor anyone else seems to mention the word deficit!

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