Since the Reagan era, the GOP has been defined as a party averse to government expansion, defense free markets and promotion of pro-growth economic taxes. While President Trump favored only the latter, many wizened Reagan supply-siders (e.g., Stephen Moore, Larry Kudlow, Arthur Laffer) imagined they had in Trump an ally in the effort to scale back government, promote free-market economics and champion pro-growth policies. As with virtually every group of Trump supporters they have been rewarded with a mishmash of unworkable, extreme populist policies sprinkled with policies that heighten wealth inequality.
President Trump’s budget would not add to economic growth or eliminate the deficit in coming years, the nonpartisan Congressional Budget Office said Thursday, casting doubt on a plan the White House has touted as central to achieving the president’s domestic agenda.
The CBO projected that the economy would grow at only 1.9 percent under the White House’s plan — far below the 3 percent goal the administration continued to outline as recently as Thursday. It also warned that contrary to White House claims that deep cuts to the safety net in the budget would lead to a financial surplus in a decade, the deficit would actually be $720 billion.
In other words, even if the president’s advisers got their way, the result would not be a more dynamic economy, but one no better than the economy they decried under President Obama — with the added feature of even bigger deficits and greater income inequality.
The pro-growth benefits of tax cuts for the rich in an era in which the top marginal tax rate is below 40 percent (as opposed to 70 percent before the Reagan tax cuts) has been in doubt for a considerable time (“growth rates over long periods of time in the U.S. have not changed in tandem with the massive tax changes in the structure and revenue yield of the tax system that have occurred.”). The failed tax-cut experiment in Kansas should have been a cautionary tale. (“Obsession with tax rates often obscures other factors in businesses’ decision-making, such as the availability of a good workforce, quality of life for employees, and proximity to airports and other infrastructure. . . . [William G. Gale, an economist and senior fellow at the left-leaning Brookings Institution wrote] that ‘While the tax cut turned into a debacle, there is a potential silver lining: three clear messages for policymakers on federal tax reform. First, tax cuts won’t boost growth. Second, special tax rates for businesses will surely generate tax sheltering and revenue losses, but will not produce much new business activity. And third, most important, when Americans see what their tax dollars buy, they choose higher revenues and more government spending over lower taxes and draconian program cuts.'”) This is not an argument for tax hikes and soak-the-rich schemes, but rather an impressive debunking of the supposed elixir of huge tax cuts for the top income-earners.
James Pethokoukis of the American Enterprise Institute wrote in May, “Remember, one thing those rate reductions were supposed to accomplish was expanding the productive capacity of the US economy through higher investment, not just stimulate near-term growth. They weren’t meant to be some Keynesian, demand-side policy. Reaganomics was a supply-side experiment. But what happened? Well, the early 1970s saw a downshift in US productivity growth that continued right through the internet boom.” Pethokoukis also reminds us that the link between tax cuts and growth in foreign countries is weak.
Tax cuts never actually “paid for themselves,” and now we see they don’t necessarily make for smart economic policies. A mix of huge tax cuts, unbridled spending, tax protectionism and anti-immigrant schemes does not deliver jobs, growth and prosperity but rather big deficits, economic anemia and unpopulist giveaways to the rich.
This can be the expected result when a group of ideological dinosaurs tries to apply 30-year-old policies to current economic ills. The problem is not, we suggest, that the top 1 percent pay too much taxes but that we so far have lacked viable solutions to hiking productivity, which in turn produces growth and wage increases. Freed from the ideological rigidity that has afflicted the GOP for the past few decades Trump had the opportunity to create a new, more politically palatable and economically effective economic approach; instead, he recycled old ideas and added a heavy dose of anti-growth, anti-common sense ideas, including trade protectionism and immigration restrictionism.
What would be a new 21st century, centrist approach to address the dislocating effects of globalism, income inequality and sluggish productivity? Smart Republicans and Democrats should be able to agree on revenue-neutral corporate tax reform (to attract investment), economically focused legal immigration reform (to attract the best talent) and vastly expanded job training, apprenticeships and education reform (to create workers who can thrive in the 21st-century economy). They could agree to couple free-trade deals (see the latest E.U.-Japan deal, for example) with effective support for those displaced by creative destruction accentuated by globalism. And they could agree to smartly designed infrastructure plans and expansion of the earned-income tax credit to promote work and reduce dependence on cash benefit payments. None of that is possible, however, so long as the GOP is enthralled by a brew of dubious economic plans and cannot devise a budget that is politically feasible and fiscally responsible.