Politicians and pundits frequently talk about the lofty goal of boosting economic growth. Donald Trump, in a plan opposed by over half of Americans, according to a new CNN poll, has called for reducing the personal income tax brackets from seven to three, reducing the corporate tax rate, eliminating the estate tax, and doubling the standard deduction for married and single filers. Donald Trump’s tax reform proposal — like every time Republicans offer tax cuts as the proposed catalyst to fuel economic expansion — should make us roll our eyes in disbelief.
Why? Because our problem is not our tax burden. Our problem is low wages. If economic growth is truly the goal, raising workers’ wages should be our national focus, not cutting taxes.
There’s no argument over who benefits from the current Republican proposal to cut taxes, if you put aside ideology and honestly look at the numbers. According to analyses from the Tax Policy Center and the Institute on Taxation and Economic Policy, more than two-thirds of the tax cuts would benefit the richest 1% of Americans in 2018.
Even putting aside that grotesque Robin Hood-in-reverse policy, the evidence is somewhere between thin to nonexistent that tax cuts have much effect on economic growth. The Institute on Taxation and Economic Policy notes 3.4% average growth during the administration of Ronald Reagan, who cut taxes, and a higher 3.7% under Bill Clinton, who raised them. (It notes that growth then fell to 1.6% under the tax-cutting Bush administration, but rose back to 2.0% under President Obama.)
Even with his tax cuts, growth under Ronald Reagan was mostly unremarkable; he benefited from an influx of 17 million new prime-age workers, which, just by itself, would account for the lion’s share of GDP growth, because more people working means more economic activity. By comparison, Barack Obama was not only dealing with digging out of the financial crisis but also a demographic shift of an almost flat number of new prime-age workers.
Like it or not, tax cuts don’t get the job done, because 70% of our economy is powered by consumer spending. That fact leads to this clear observation: If people don’t make enough money, they won’t be able to buy stuff.
And, indeed, what has happened with wages? According to the Economic Policy Institute, from 1973 to 2013, hourly compensation of a typical nonsupervisory worker like a truck driver or hospital worker rose just 9%, while productivity increased 74%. In other words: People have worked hard, but that hard work didn’t translate into bigger paychecks.
Our political leaders can solve the problem by abandoning tax cuts and taking two alternative steps: raising the minimum wage and supporting unionization. The current federal minimum $7.25 wage has created a permanent world of poverty-stricken workers, because it has 10% less than its purchasing power when the minimum wage was last raised in 2009.
Raising the minimum wage to $15 an hour would put thousands of dollars a year more in the pockets of 41 million adults, according to an Economic Policy Institute analysis.
Setting a five-year goal of bolstering the private sector national unionization rate would kickstart wages and improve growth. Millions of people want to be in a union but aggressive corporate opposition has driven union density in the private sector down close to 5%, the lowest rate in close to 100 years.
By every measure, union wages and benefits are significantly higher, but, just as importantly, according to teh Economic Policy Institute, union labor’s decline has hurt the pay of nonunion men and women.
Of course, raising the minimum wage dramatically and embracing union growth is entirely contrary to the Republican Party’s agenda. That agenda waves the flag of the “free market” to justify shoveling more wealth to the already stupendously wealthy, and decries any limits on the pay of CEOs who are the tip of the spear in the war against workers’ wages. Republicans are charting the final annihilation of unions, in Congress and in the courts.
The Democratic Party also bears some responsibility. Too many Democrats, including senior leaders, have long participated in the almost religious fervor for tax cuts. To be sure, they emphasize, as a contrast to Republicans, “tax relief” for the middle-class, and, then, sprinkle in support for a raising wage. Yet, as the linguist George Lakoff has noted, just arguing about “tax relief” induces us to think of this as a debate over an affliction from which we need rescue.
The truth is that, as a nation and as individuals, the taxes we pay are well below the rest of the world — especially compared to countries that offer their people much more, such as universal health care. More important, taxes are the dues we pay to live in a functioning society — to pave roads, schools, communications systems and all the rest of the trappings that every corporate and personal fortune is built on.
The debate over economic growth, then, should really rest on three simple ideas. We have plenty of money in the richest nation in human history. We should not cut taxes if we want to have a society that works. We should make sure everyone earns a decent paycheck.