The United States has a problem. Over the past decade, most of its families have been spinning their wheels. The median household income, adjusted for inflation, has grown by just 1.5 percent ― $839 ― since the beginning of the Great Recession.
Over the same period, the total annual economic output of the United States has grown at 10 times that rate. The gains are even more impressive on the stock market, which has climbed about 40 percent (also adjusted for inflation). This is not due to the unique savvy of our investors. Business is just good. Corporate profits are booming, and the value of financial assets tied to those profits is booming along with them.
The experience of the past decade shows very clearly that trying to assuage the economic strains on the middle and working classes by pumping up Wall Street only helps people who already own a lot of financial capital. And people who already own a lot of financial capital don’t need help. Half of all gains from the sale of stocks and bonds accrue to households that make over $1 million a year. Less than one-fourth of American households own more than $25,000 in stock. And the 400 wealthiest households take about three-fourths of their very substantial annual incomes from financial investments.
So the tax legislation passed by House Republicans last week shouldn’t really be understood as economic policymaking in any traditional sense. It’s not about stimulating growth or investment or improving incentives. It’s class war. Republicans are assisting the efforts of a very small, very rich faction to take an ever-growing share of the nation’s wealth from the rest of us.
Republicans dialed up about $6 trillion worth of tax cuts. Senate rules require them to offset $4.5 trillion of that with new revenues, or face a Democratic filibuster that would kill the legislation. The tax cuts for the capital class blew a huge hole in their budget. The detritus they threw into that $6 trillion hole is, essentially, you.
A $1.5 trillion corporate tax cut would go straight to people who own stock in corporations. Another $696 billion would go toward repealing the alternative minimum tax ― a provision that is supposed to prevent the super-rich from paying no taxes at all. Another $596 billion tax cut would assist so-called “pass-through” entities ― hedge funds, investment vehicles, law firms and other things rich people use. Best of all is the repeal of the estate tax, which would enable millionaire and billionaire families to pass their fortunes on from generation to generation without ever having to pay taxes on financial assets.
Even the people who would benefit from these windfalls do not generally think it would encourage them to do anything productive. On Wednesday, Wall Street Journal Editor-in-Chief Gerry Baker asked a crowd of CEOs whether they would increase their investments in new equipment or technology if the bill passed. Only a few raised their hands. “Why aren’t the other hands up?” asked an embarrassed Gary Cohn, President Donald Trump’s chief economic adviser.
To realize these wonders for the 1 percent, Republicans have assembled a potpourri of problems for everyone else. The $47.5 billion they would strip from people paying student debt or attending graduate school would all but end post-collegiate education for anyone without a trust fund. By eliminating the deduction for state and local government taxes, Republicans would bleed municipalities and force cutbacks in public education and infrastructure. Local governments would get blasted again by the elimination of a $17.3 billion program to help refinance debt at lower interest rates, and the bill would strike a further $38.9 billion in financing to build hospitals, affordable housing and university buildings. They’d end a $54 billion tax credit for research into rare diseases. And a $300 million credit for businesses that comply with the Americans with Disabilities Act. And the deduction for personal medical expenses. And credits for renewable energy.
The most outrageous revenue-raiser doesn’t actually stick it to the poor or the middle class. Republicans, according to the Joint Committee on Taxation, would reap $293 billion from the “repatriated” earnings of corporations. This sounds like some kind of special tax, but it’s actually an accounting trick that rewards companies for stashing money offshore. The official tax rate on domestic profits for the biggest corporations is currently 35 percent. The GOP bill would slash that down to an ultra-low 20 percent. The repatriation clause would allow companies to pay a 14 percent rate on cash currently hoarded abroad for the purpose of avoiding U.S. tax altogether. It would be another giveaway for people who own corporate stock. Only one class in the class war gets to count losses as profits.
This is why a substantial majority of households earning between $30,000 a year and $200,000 a year would face a tax increase under the legislation, according to an analysis by the nonpartisan Tax Policy Center. But the political implications of the bill are far worse than its mathematical results.
Before he left office, Senate Majority Leader Harry Reid (D-Nev.) took special pleasure in pillorying the Koch brothers ― the longtime Republican donors who, with their various enterprises, aggressively lobby for right-wing political priorities on Capitol Hill and backed political candidates whom Reid opposed.
“They are in it to make money,” Reid once told MSNBC’s Chuck Todd. “That’s their whole goal here. To add zeroes to their billions.”
It wasn’t quite true. The Kochs do use politics to pad their pocketbooks, of course. They stand to make a fortune from the GOP tax bill. But like other billionaires, the Kochs love spending money. They fund cancer research and make enormous grants to universities, and smaller grants to individual artists and intellectuals. They pay huge sums to put their names on fancy buildings where prestigious things take place. There is the David H. Koch Hall of Human Origins at the National Museum of Natural History in Washington, D.C., and the David H. Koch Theater at Lincoln Center in New York, to name just two.
No, what the Republican donor class cannot tolerate is democratic accountability. They don’t want to see schools and hospitals going up just because people voted to build them. They want the priorities of American society to be organized according to the whims of our financial princelings, not the political will expressed by free people living in a democracy. You do not have a political right to fair treatment and a decent standard of living. You should instead feel gratitude for the benevolence of your overlords.
By answering the call of their billionaire paymasters, the Republican Party will not tap some previously inaccessible well of economic potential waiting to fuel wage and job growth. It will simply bring us a few trillion dollars closer to a society where a small number of financial dynasties can bypass the political inconveniences posed by the middle and lower classes. And, when they deem it appropriate, steal from them.
CORRECTION: A previous version of this story incorrectly identified Gary Cohn as secretary of the Treasury.