Tax and Job Cuts Act

Comments for the Record

United States Senate

Committee on Finance

Open Executive Session to Consider an

Original Bill Entitled the Tax Cuts and Jobs Act

Monday, November 13, 2017, 3:00 P.M.

By Michael G. Bindner

Center for Fiscal Equity

Chairman Hatch and Ranking Member Wyden, thank you for the opportunity to submit these comments for the record to the Committee on Finance.  Unlike our usual comments, we will save a description of our proposal for the conclusion of our remarks and begin with a critique of the subject legislation.

We will start with the name. It should be the Tax and Job Cuts Act. It has never been proven that tax cuts create long lasting jobs. While they may create jobs resulting from hair brained schemes, because money thrust at rich people results can only be used on so many good investments, most of the new jobs support booms and busts in housing and in the Internet. For every Amazon there were 1000 failed ventures in the late 1990s. Not a good track record.

Most of the so-called job creators receiving the vast majority of the cuts already have positions or investments. Lowering their tax rates are not an incentive to hire. Investors are not in business to give charity. Individuals are hired to meet increased product and service demand from the commercial and government sectors. Wages increase above the rate of inflation when either collective bargaining or a tight labor market allow workers to demand higher prices.

If taxes are high on job creators, the job creators have no reason to resist such demands, because doing so results in any savings going to the government in tax payments from either business owners or the Executive Class. If taxes are cut for job creators, i.e. the Executive Class (stock holders usually receive a normal return regardless of tax or economic conditions, barring malfeasance), then unions are busted, wage increases are limited to inflation, jobs are outsourced to cheaper regions or nations and the cost savings go to the Executive Class, because lower taxes mean they get to keep more money. While some may get lucky in finding news jobs in new industries, the next effect of this tax cuts will be job loss, possibly on a massive scale, hence the correction of the name of the bill to the Tax and Job Cuts Act.

The open secret in this debate is that the Executive Class is also the Donor Class. The reforms for most households give either small cuts or small increases in tax payments. This is a shell game hiding the fact that the only large tax changes in the bill are cuts to the Executive/Donor Class. Gary Cohn even disclosed how excited CEOs were to receive these cuts. It is as if they think they have paid for special consideration from the last campaign season, except there is no ”as if” about it. Not only should these provisions be rejected, but Campaign Finance Reform should be immediately undertaken so such attempts at robbing the Treasury will never happen again.

There is a time to cut income tax rates on the wealthy. This is not that time. When workers receive an adequate share of the productivity gains their firms produce (even if they are labor saving), then we can begin to think about tax rate cuts for the wealthy.

We also face a debt crisis. It is not due to the retirement of the Baby Boomers. That will take care of itself and if it is not adequately funded, it can be by shifting to a subtraction value added tax as specified in our usual proposal. Instead, the Congressional Budget Office has found that continuing to roll interest payments into new debt and the resulting interest rate increases are what will destabilize the economy in the future. Tax cuts and entitlement cuts will not help that. Providing incentives to make higher taxes on the Executive/Donor Class palatable will do so, especially because a substantial amount of this debt is likely held by that class, although no income distribution figures on debt ownership are currently available.

The national debt is possible because of progressive income taxation. The liability for repayment, therefore, is a function of that tax. The Gross Debt (we have to pay back trust funds too) is $19 Trillion. Income Tax revenue is roughly $1.8 Trillion per year. That means that for every dollar you pay in taxes, you owe $10.55 in debt. People who pay nothing owe nothing. People who pay tens of thousands of dollars a year owe hundreds of thousands. The answer is not making the poor pay more or giving them less benefits, either only slows the economy. Rich people must pay more and do it faster. My child is becoming a social worker, although she was going to be an artist. Don’t look to her to pay off the debt. Trump’s children and grandchildren are the ones on the hook unless their parents step up and pay more. How’s that for incentive?

In September 2o11, the Center submitted comments on  Economic Models Available to the Joint Committee on Taxation for Analyzing Tax Reform Proposals. Our findings, which were presented to the JCT and the Congressional Budget Office (as well as the Wharton School and the Tax Policy Center), showed that when taxes are cut, especially on the wealthy, only deficit spending will lead to economic growth as we borrow the money we should have taxed. When taxes on the wealthy are increased, spending is also usually cut and growth still results. The study is available at  

http://fiscalequity.blogspot.com/2011/09/economic-models-available-to-joint.html

Our current expansion and the expansion under the Clinton Administration show that higher tax rates always spur growth, while tax cuts on capital gains lead to toxic investments – almost always in housing.  Business expansion and job creation will occur with economic growth, not because of investment from the outside but from the recycling of profits and debt driven by customers rather than the price of funds.  We won’t be fooled again by the saccharin song of the supply siders, whose tax cuts have led to debt and economic growth more attributable to the theories of Keynes than Stockman and Gramm.

This bill should not be passed. Luckily, because the revenue losses from the bill extend past the ten-year window in the Byrd Rule, which is part of the Budget Act, there is no simple parliamentary maneuver or rules change that will allow this bill to pass without votes from the Minority. Unless all tax cuts in the bill are made temporary, 60 votes must be found.

Only the Great Recession stopped the 2001 tax cuts from expiring on time and looking back at the increased growth rates since the 2013 tax bill which allowed higher rates on the wealthy, President Obama should have probably vetoed the extension in 2010. No president should ever make that mistake again and this Senate should not pass these tax cuts ever, even with real sweeteners for the middle class, such as the $1000 per child per month tax cut proposed by The Center for Fiscal Equity, although enacting a $15 per hour)minimum wage for jobs and training would make it hard to resist.

Better to scrap the current consensus bill and start from scratch. We have such a plan, which the Committee has seen before and which we would gladly help flesh out with Committee staff and the Department of Treasury, Office of Tax Policy, who should have been the site of the bill’s development in the first place. So, instead of beginning with our comprehensive four-part approach, we will end with it. Elaboration of these points can be found in our prior submissions for the record.

• A Value Added Tax (VAT) to fund domestic military spending and domestic discretionary spending with a rate between 10% and 13%, which makes sure very American pays something.
• Personal income surtaxes on joint and widowed filers with net annual incomes of $100,000 and single filers earning $50,000 per year to fund net interest payments, debt retirement and overseas and strategic military spending and other international spending, with graduated rates between 5% and 25%.  
•  Employee contributions to Old Age and Survivors Insurance (OASI) with a lower income cap, which allows for lower payment levels to wealthier retirees without making bend points more progressive.
• A VAT-like Net Business Receipts Tax (NBRT), which is essentially a subtraction VAT with additional tax expenditures for family support,  health care and the private delivery of governmental services, to fund entitlement spending and replace income tax filing for most people (including people who file without paying), the corporate income tax, business tax filing through individual income taxes and the employer contribution to OASI, all payroll taxes for hospital insurance, disability insurance, unemployment insurance and survivors under age 60.

Thank you for the opportunity to address the committee.  We are, of course, available for direct testimony or to answer questions by members and staff.