Conservative proponents of supply-side tax cuts remain stuck in the 1980s. Tax cuts worked then, so tax cuts will work again to stimulate growth. That syllogism defies logic, given how the economy and workforce have changed in 37 years since the first Reagan tax cut. Income inequality has skyrocketed, globalism has rejiggered economies of every developed country, and automation has reduced labor needs in certain industries. Moreover, as William A. Galston points out:
[L]abor-force participation among Americans of prime working age (25 to 64 years) dropped by 2.5 percentage points. In the same period, labor-force participation for U.S. women 25 to 64 fell from eighth to 26th among nations in the Organization for Economic Cooperation and Development. For men, the ranking dropped from eighth to 29th. American men experienced the largest decline of any OECD country, and American women were the only female cohort in the entire OECD whose workforce participation fell. . . .
During the last two decades of the 20th century, the U.S. workforce expanded at an annual rate of about 1.5%. During the next two decades, it will expand at an estimated 0.5% annually. By itself, this slowing growth of the workforce will be enough to knock a full percentage point off annual economic growth. Productivity improvements that once yielded 3% growth will now yield only 2%.
Part of the drop in labor-force participation is due to the aging baby boomers, while a skills gap, the opioid crisis and wide geographic disparities in wealth factor into the problem as well. Cutting top marginal or corporate rates is unresponsive to those concerns. Galson suggests:
We need to make it easier for formerly incarcerated men to rejoin the workforce, for women to balance the demands of work in the home and in the market, and for older Americans to continue working well past what previous generations considered retirement age. We need to attack substance abuse—especially opioids—which thwarts too many men and women on the threshold of the workforce. And where there is solid evidence that poorly designed social supports discourage work, we should restructure them.
I would add to the mix education reform, vocational training and apprenticeship programs. And contrary to Republicans’ anti-immigrant crusade, we need more immigrants, who tend to be younger, to backfill the workforce as baby boomers retire. Anti-immigrant ideologues seem to think a smaller workforce makes us richer; the opposite is true. Galston argues, “If the U.S. prioritized working-age entrants the way most other advanced countries do, it would increase annual labor-force growth by up to 0.3% without increasing the aggregate level of immigration.” However unpopular politically, we also need younger, lesser-skilled immigrants in agriculture, service industries (ask the owner of Mar-a-Lago) and even manufacturing. We can either surrender to the xenophobes or act rationally to improve our economy.
If Republicans want tax cuts, they should at the very least focus them in ways that address our outstanding economic challenges. Child-care tax credits to allow women to return to the workforce, substantial expansion of the Earned Income Tax Credit and tax credits to aid relocation from high- to low-unemployment locales make sense; cutting taxes for multimillionaires or for corporations do not. (MarketWatch reports, “The stock buyback boom continued apace in the first-quarter earnings season that is now drawing to a close, with U.S. companies announcing $6.1 billion of buybacks a day, according to Trim Tabs Investment Research.”) Handing out tax breaks to big corporations does not necessarily inure to workers’ benefit. (Even the Wall Street Journal concedes, “The renaissance in capital spending the tax cut was supposed to bring about isn’t showing up in the economic data.” In addition to stock buybacks, corporations have expended huge amounts on acquisitions and mergers.)
In other words, GOP economic policy these days has gotten just about everything wrong. Employing 1980s tax policy, immigration restrictionism and trade protectionism, Republicans’ economic policies make it virtually impossible to reach sustained growth of 4 percent (as Trump promised in the campaign) or even 3 percent (as he promised in selling the tax plan). The party seems not to have had a creative economic idea in more than three decades. Its puny economic results therefore should come as no surprise.