Columns » Ernest Dumas

Tax sham



This week begins another ritual that has become the most celebrated sham of modern times. We always look forward to it, because it will make our country richer and happier and change all our lives for the better. We call it tax reform.

Every one of us is for it, because each of us is entitled to our own notion of what it is. Congress, at least superficially in collaboration with President Trump, begins work on a great tax overhaul, hoping finally to register one nominal win in the first year of rigid Republican control of all branches of government.

In Little Rock, a legislative tax-reform committee is settling in to hire one of the bidding consulting firms that is most likely to tell the committee what it wants to hear: Reducing taxes on business and the well-to-do people will rev the Arkansas economy and produce more and better-paying jobs.

Congress has been following the ritual for 40 years, Arkansas for the last half-dozen or so. Federal tax rates on high incomes have gone down steadily, with occasional small upward bumps under Reagan, the first Bush, Clinton and Obama. Each tax cut was going to create massive business investment, millions of new jobs and higher wages for everyone. The little tax hikes, according to the critics, would lead to stagnation, recession and joblessness.

Perversely, the predictions of gains and slumps were wrong every time, after the big Reagan tax cut in 1981, after his serial tax increases the next six years, after Bill Clinton's tax increase in 1993, after George W. Bush's three tax cuts, after Barack Obama's tax cut in 2009 and after his tax increase in 2013. The same in Arkansas: The economy grew after Dale Bumpers', Bill Clinton's and Mike Huckabee's tax increases and slumped after Mike Beebe's tax cuts, although the national recession was hardly his fault.

But, hey, the theory of tax-cuts-equals-growth-sounds too good. It must work sometime.

We call the process tax reform, not tax cuts, because reform suggests impartiality and the public interest. We will cut some taxes and raise others to achieve fairness and rearrange the tax burden in ways that will cause corporations and rich people to invest their spare money in more shifts, new product lines and higher wages rather than executive bonuses or higher shareholder dividends.

The great working force never fails to be gulled. From his early campaign days to this week, Trump has sometimes been specific about gargantuan tax cuts for the rich and sometimes vague, like last week. But he did assure working folks that cutting taxes for corporations and high incomes would ultimately mean higher wages for them. We don't call it trickle-down economics anymore.

A few Republicans are talking about another round of tax reform like Reagan's in 1986, where Republicans like Jack Kemp and Democrats joined the White House in closing giant business tax loopholes while lowering some tax rates, which produced more revenue and sent the economy into a healthy whir for a few years. The loopholes, including the one that benefited land developers like Trump, were opened again in 1991. Trump went to Congress and lobbied to get it restored.

Republicans are talking about changing the income tax code, mainly by lowering the top corporate rate of 35 percent, so corporations won't plop trillions of dollars offshore to avoid U.S. taxes. They would bring the money home and invest in new product lines and jobs. George W. Bush proved that it doesn't work that way. He slashed the tax rate to the bone for a period so that corporations could repatriate all that money and stimulate the economy. They brought more than $300 billion home, but nearly all of it went to stock buybacks, executive pay and shareholder dividends and little to new payrolls.

You wouldn't know it, but economists generally believe that slashing income tax rates does not stimulate growth or raise incomes, except for shareholders and executives.

Joseph E. Stiglitz, the Nobel Prize-winning economist: "The notion that changing tax rates is going to lead to a growth spurt is pure nonsense ... . Growth is slow because labor-force growth is slow. It is only going to grow slower because of immigration restrictions. And we're not investing in education and research, which is why productivity is slow."

Trump and his party know that this is nonsense. If you see to it that Trump and many of his friends pay no taxes and that the unfortunate ones who do pay them pay less, we will be a great country again.

In Arkansas, the tax-reform strategy, at least by the governor, is to shave rich people's and corporations' taxes a little at a time, to avoid the sudden fiscal catastrophes that struck the Republican governors of Kansas, Louisiana and Oklahoma when they did it all at once. Education, health care and public safety will perish by grades.

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