The Great American Tax Scam

​On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act into law that had been passed by the US Congress the previous day. This new law provides neither tax cuts nor jobs in the long term for the vast majority of Americans. Sponsors claim that this is a tax “reform” bill, but it instead is likely to lead to another major economic downturn. You don’t need to be an economist to be alarmed by this tax law. It moves our country further from democracy and clearly in the direction of oligarchy, or rule by the few. 

Despite the claims of its sponsors, this new tax law will not provide economic growth.[1] Its provisions instead are likely to lead to economic decline. It is similar to tax cuts in the 1980s and early 2000s that were marketed as great boosts to the economy. The 1980s cuts led to a need for extensive borrowing by the government, which slowed the economy.[2] The 2007 Great Recession brought us close to depression before we went into deep debt to reverse it, and it negatively affected those across a wide range of incomes and industries. This tax law threatens your financial well-being and that of your family, as well your livelihood and retirement for years to come, regardless of your income bracket.

It provides “tax relief” almost entirely to those at the top of the income scale.[3] Suddenly, legislators who claim to be “fiscal conservatives” are willing to explode our already huge national debt with tax cuts for themselves and those who provide millions of dollars to their campaigns. This essentially is a transfer of funds to the most wealthy from everyone else.

Tax rates will be cut the most for the highest income Americans, while providing minimal or no relief for those earning up to $200,000, with some of their tax rates going up. The richest one percent will have their incomes increased by 2.2%.[4] This tax law will reduce corporate taxes permanently from 35 to 21 percent and eliminate the tax on inheritances except for the very few largest estates. In 2027, the benefits for low and middle income individuals disappear, while the benefits for the top one percent will remain.[5]

Sponsors claim that these cuts are needed to rescue a stagnating economy. The US economy actually is doing well, although many who suffered during the Great Recession and who voted for economic relief in the last election still have not recovered.[6] This “tax reform” law does nothing to address their needs; instead it is likely to make their situation worse. It provides 100% deductions to companies for automation and no provision for those who will be displaced.[7] This will continue the deterioration of the job picture for blue-collar workers. Congress instead should promote incentives for companies that really create jobs and train workers to function in the new economy. Providing funds to improve our deteriorating infrastructure — including bridges and roads — would result in jobs and increased wages to those whose incomes have stagnated.

The new tax law limits deductions of state and local property taxes, which will put tremendous pressure on state budgets, including education and health care expenses. It limits deductions for charitable giving, which will threaten the existence of organizations that survive by donations.

The individual mandate to buy health insurance also will be eliminated under the guise of individual rights, which will raise rates for those who do buy insurance. This is like claiming that drivers should not be required to purchase auto insurance because they consider themselves unlikely candidates for an accident.

Currently the US has a $20 trillion dollar national debt that has more than doubled over the past ten years. That amounts to over $60,000 per person and is steadily increasing. The interest on this debt must be paid on time or the government will shut down. 6% of our tax dollars went to the interest alone on the national debt in 2016.[8] In every major downturn the debt has gone up precipitously due to lower tax revenues. Larger government debt ultimately requires higher payments from taxpayers — that is, you and me.

Who owns this debt? Mainly bankers, wealthy individuals, and some foreign governments. So tax cuts that mainly benefit the wealthiest Americans increase the national debt and shift the burden from higher to lower income taxpayers.

History shows that huge tax cuts for the wealthiest never have worked to stimulate the economy for long. Instead, they have forced middle and lower class families to pay a larger share of the federal budget. Tax cuts will not create jobs because corporations already are sitting on billions of dollars that they do not use for this purpose. These “job creators” will expand hiring only when there is an increasing demand for their goods and services. This comes from expanding the purchasing power of the bulk of the population.

One of the main parallels between the Great Depression that started in 1929 and the Great Recession that began in 2007 was widening income inequality.[9] The tax law will expand inequality to new levels. Tax savings by corporations go mainly to their investors, who then look for a return on their increased income. And what will the wealthiest Americans do with their windfall? There is a limit to how much one can spend, so they will “invest” it, which means they will increase the amount of money available for loans, usually via real estate or by purchasing stocks or bonds. Too much money pumped into the economy creates a flood of easy credit and over-speculation. People who borrow will fall further behind. Inflation will increase, as it always does when there are excess amounts of money available. This inevitably leads to a downturn.

It also will endanger Social Security, Medicare, and Medicaid. According to the non-partisan Congressional Joint Committee on Taxation, it will add 1.4 trillion dollars to the national debt. This will allow the same politicians who champion tax cuts to claim that we no longer can afford these programs. Some already have declared this position. According to Florida Senator Marco Rubio: “The driver of our debt is the structure of Social Security and Medicare for future beneficiaries.” House Speaker Paul Ryan also is bragging about his plan to cut back on what he calls “entitlements.” As these benefits are cut, it further increases the income gap.
 
By contrast, in the 1990s we raised taxes in this country. The annual deficit and national debt were reduced. The economy improved after years of stagnation because we actually could pay our bills.

Taxes are our investment in our present and future — in roads, bridges, education, police and military services, disaster relief, health insurance, programs for the elderly and disabled, and everything else we need to keep our economy and nation functioning. But there is reluctance, by many, to contribute their fair share of our expenses. Imagine the wage earners in your family refusing to share earnings with other family members. Your family’s finances would collapse, just as this tax law is likely to cause our economy to collapse. As the tax burden falls increasingly on those who can least afford it, inequality increases. This will deepen the widening income gap to extreme levels, leading us closer to a government that is run by and for the most wealthy.

At many points in history, bubbles have been created — and then have burst — based on an increasing economic divide between the few and the many. When the great bulk of economic power rests in the hands of a limited number of players, the welfare of the entire population becomes compromised. Currently the richest one percent of families controls a record-high 38% of the country’s wealth, according to a recent Federal Reserve report.[10] A great gap between the wealthiest and the rest reduces economic flow and sinks the economy for those at all income levels.

There are two types of citizens in democracies: those who simply hope that their elected officials will work for them, and those who are willing to take action to ensure that their government works in their favor. This is one of those times when maintaining our democracy hinges on those of us who are willing to act. If you liked the last recession, you will love the crash that our Congress and President are about to bring down on us.

Hopefully you want to maintain our democracy and not see it deteriorate because of a deepening divide between lower-to-middle income Americans and the wealthiest. This is the unfortunate pattern that is happening in many countries around the world that have tried democracy.

Do we really learn from history? We soon will find out.


Here’s what you can do:

1. Contact your legislators immediately in every state and let them know that if they voted for this law they will lose the support of their voters. The message is simple: “If you voted for the tax reform bill, I will not vote for you in the next election. You need to vote to rescind it.”
2. Support politicians who vow to rescind this law and replace it with legislation that will stimulate our economy rather than destroy it, such as infrastructure rebuilding. Unless the law is rescinded, there will be no money for the programs that are needed to strengthen the economic picture for the vast majority of Americans. The excuse will be that we cannot increase the deficit, which this tax scam does by $1.4 trillion. 

To locate the contact information for your federal legislators go to:
​

• For Senators: https://www.senate.gov/general/contact_information/senators_cfm.cfm
• For Representatives: https://www.house.gov/representatives

Steve Zolno is the author of The Future of Democracy, published by Regent Press. He can be reached at thefutureofdemocracy.net.

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[1] “Seven Take-Aways From The Senate’s Tax Cut and Jobs Act,” Tax Policy Center, December 5, 2017.
[2] Day of Reckoning, by Benjamin Friedman, Page 234.
[3] “How the GOP tax plan took a u-turn on the middle class,” Washington Post, December 10, 2017.
[4] “Winners and Losers of the Senate Tax Bill,” Toni Nitti, Forbes, December 2, 2017.
[5] “Despite Many Changes, the Senate’s Tax Cut Still Mostly Benefits Business and High-Income Households,” Tax Policy Center, December 5, 2017.
[6] “The Never-Ending Foreclosure” in The Atlantic by Alana Semuels, December 1, 2017.
[7] “Senate Republican have put themselves under the gun to vote on a tax bill this week,” CNN Money, November 30, 2017
[8] “Policy Basics: Where do our tax dollars go?” Center for Budget and Policy Priorities, October 27, 2017.
[9] “Income Inequality,” by the Associated Press, August 19, 2016.
[10] “The top one percent of Americans now control 38% of the wealth,” CNBC.com, September 27, 2017.