Middle Class Loses, Plutocrats Win With Trump’s Tax Cuts
Trump’s “middle class tax cut” is a tax hike. Economist Bill Black says Trump could have been a popular President, if he hadn’t lied about middle class tax cuts and building infrastructure
MARC STEINER: Welcome to The Real News Network. I’m Marc Steiner. Great to have you all with us.
Many middle class and working class Americans expected huge or at least significant refunds on their tax returns, because the alleged tax cuts given to the people–or, should I say, promised to the people–by Donald Trump was what everybody was expecting to see when they finished filing their taxes. It hasn’t happened. Probably won’t happen. And might be seen by some as a shell game. Our guest today says that if Trump had been real and honest about middle class tax cuts and infrastructure investment, then he would have perhaps dominated the Republicans and saved the House for the Republican Party, and would have become the hero of the working and middle classes in this country. That doesn’t seem to have happened.
And our guest today, joining us from Minneapolis, Minnesota, is Real News contributor Bill Black, who is teaching there this semester, and is associate professor of economics and law at the University of Missouri Kansas City, and a former financial regulator and author of the book The Best Way to Rob a Bank Is to Own One. And, Bill, welcome back. Always great to have you with us here on The Real News.
BILL BLACK: Thank you.
MARC STEINER: It really is. Always enjoy our conversations. So it seems like Donald Trump, at least in terms of his campaigning, had a good idea according to you. I want to talk about why you think that, when it came to middle class tax cuts. So was he lying from the get go, as we say? Or what was that process about? What do you–what do you think happened there?
BILL BLACK: Well, it’s likely that he was lying from the get go, because there was never a draft of a true middle class tax cut, which is what he promised on the campaign trail in 2016. And even when he realized in 2018 that the Republicans were in danger of losing control of the House, and he went around promising that the first order of business will be the creation of a true middle class tax cut, perhaps as early as December of 2018. There was A) Never a plan to do that, and B) Never an attempt to actually do that. So at all times it appears that the plan was actually designed to be almost entirely for the wealthy.
MARC STEINER: But let’s hear this clip from Donald Trump. This is what he’d said at the signing of the tax cut. And I’m going to juxtapose this with a tweet that was sent out by a Republican. But let’s hear this first.
DONALD TRUMP: We’re going to sign this. This is a little picture of it. All of this, everything in here, is really tremendous things for businesses, for people, for the middle class, for workers. And I consider this very much a bill for the middle class, and a bill for jobs.
MARC STEINER: So that’s what Trump said as he signed this. And then there was this interesting tweet from a Republican, who wrote: I’m a Republican voter, and I just did our taxes, and the GOP tax bill cost my family thousands of dollars this year on a return due to changes, thereby hitting us with THE LARGEST TAX INCREASE OF OUR LIVES. We are middle class homeowners, and you raised our taxes. Infuriating! Says Dennis Jordan, on February 5.
So what is this dynamic here? I mean, this is something that, when this happened, people were really saying yes, you’re going to give us money back. It didn’t happen. So talk about this contradiction that you alluded–began to talk about in my first question.
BILL BLACK: Sure. The question I ask in the article is why did Trump choose to be so spectacularly unpopular? Because had he done what he promised and had a true middle class tax cut that gave, for example, $5,000 a year to the typical middle class household, he would be spectacularly popular. And almost certainly they would have–the Republicans would have retained control of the House, and quite possibly they would have gained seats in the House. And of course they would have gained seats in the Senate. And Trump would be well positioned for re-election. He would have greatly expanded his base, and he would have paid off to his base, as well. And you know, convinced them that backing him was exactly the right thing.
And that’s the biggest thing. But also, if Trump had done what he promised and had a true infrastructure bill, where he spent $2 trillion on infrastructure, he would have divided the Democratic Party. Much of the Democratic Party in the Congress would have signed on to him. He could have given the money to counties, cities, and states. So all these heads of governmental units would be eager to say nice things about Trump to get money, and we know how much Trump likes having people say nice things about him. You know, there would be this competition in flattery. It would be incredibly nauseating, but it would be incredibly successful for Trump.
And what would have happened to the economy? If he’d had a real middle class tax cut, if he’d had real infrastructure, the economy would be booming. And there wouldn’t be significant inflation, because you get significant inflation when you are at capacity. It’s when you’re bidding for really scarce real resources that are in significant shortage that you get that kind of inflation. Well, because of the Great Recession, tens of millions of people have withdrawn–over 10 million people–had withdrawn from the labor markets. So we had this unusual capacity, plus the economists saw overwhelmingly that growth was down considerably because of the effects of the recession. So this stimulus had lots of extra capacity that it could have affected, get people back into the workforce, increased productivity, increased middle class wages, increased working class wages. It would have been a win-win-win-win-win-win.
And it would have been even better, because while on the infrastructure bill Trump would’ve gotten very strong bipartisan support from Democrats, on the tax bill, if it had been a $1.6 billion tax reduction that went overwhelmingly to the middle class and gave roughly $5,000 dollars in tax reduction to the typical middle class family in America, well, you know, the folks who are the deficit hawks, they’re entirely in the Democratic Party. The Republicans don’t give a damn about deficits. They only pretend to care about deficits when there’s a Republican president. But everybody knows as soon as there’s a Republican president, you know, happy to spend whatever we spend. But the Democrats actually are this group of people that, you know, act like they have to be the responsible adults, and they think that running budget surpluses is a good thing.
MARC STEINER: So let me ask you this question, because you write this–when you write in your article many Democrats would have supported, as you just said, cuts to the middle class taxes; better yet, from Trump’s perspective, many Democrats, like Pelosi and Schumer, would have really opposed Trump’s tax triumph on the economically illiterate basis that budget surpluses are next to godliness, is how you put it in your article. And so–but let’s talk about that. I mean, it’s almost counterintuitive to say that surpluses are not necessary, or necessarily a bad thing, and that it’s OK to have deficits. Can you talk a bit about that for a moment? Because it also says in some ways, the way you put it in your article, that Schumer and Pelosi have no answer for this. So talk a bit about what your perspective is, here.
BILL BLACK: So, Schumer and Pelosi are in a trap of their own ideological making, based on horrible economics. So it doesn’t sound counterintuitive to an economist or somebody in finance, because we know that–when you say it sounds counterintuitive you’re assuming that the government is just like a household. Right?
MARC STEINER: Right. Which is what people do all the time.
BILL BLACK: Right. So from a household perspective, yeah. We can–we borrow, but running up any significant amount of debt is often a really good way to have terrible things happen. But for a country that has a sovereign currency like the United States, that borrows only in that sovereign currency, and allows the currency to float, then there is no such effect. And it isn’t similar. So let me give you a specific example. And one of the reasons Democrats like Pelosi believe this and Schumer believe it is that they have been taught not just by economists, but by politicians.
So this is a big thing of the folks called the New Democrats; Bill Clinton, Al Gore, and folks like that. They were responsible. Surpluses were good. In fact, budget surpluses by the United States are heavily, heavily associated with producing really severe recessions. In fact, the United States in the typical year runs a deficit. In fact, the United States, for hundreds of years the debt has been increasing. Even Warren Buffett, in his annual letter to shareholders, that famous letter, has a passage in it this year saying, you know, people like me for years scolded about the deficit and how it was this terrible thing and destroying growth. You know, I was completely wrong. And he gives an example of that, and how if you bought gold you’d be immensely poorer than if you had bought stock. Because the state is productive, unlike the Republican myth. When the state does good things, the economy grows better. Not worse. It is false that the government can never do anything useful. Look at the Erie Canal.
MARC STEINER: So this is really interesting. In the time we have left here–so let me read this other quote here that you have from your article, and then talk a bit about this. I mean, you say–because this goes to the heart of what you wrote, I think, and what you’re saying the issue was, that Trump could have followed up his tax cut’s success with a real infrastructure program distributed through grants to counties, cities, and states. Again, this would have been spectacularly popular, and even Pelosi and Schumer would have rushed to cosponsor the legislation. This would have been the second Trump triumph, as you write.
So–but the question I had then with that is, which kind of tags on to what you were just describing, is if you had this gigantic middle class tax cut, which might have given $5,000 more in refunds to people making between $50,000-$75,000 as a family, working class families in this country, then how do you pay for that infrastructure development?
BILL BLACK: You don’t pay for government spending through taxes. Right? The United States government creates money directly. It has a sovereign currency. Almost everything you’ve been taught about how a monetary system works, and therefore what sounds intuitive, is absolutely a myth. And what it’s actually describing is archaic monetary systems when you had a gold standard. It is not the United States. The United States is not going to default on its debt. Look at the borrowing costs of the United States right now. It’s down near zero. The tax cut would have been no bigger, right, the hypothetical tax cut I was doing–which is, after all, a thought exercise. What if Trump had taken the money that he gave overwhelmingly to the wealthy, and given it overwhelmingly to the middle class instead? Same amount of money.
Well, first, the economic stimulus would be stronger, because what middle class folks do when they have that is that they buy additional things, because they need additional things, right? And that stimulates the economy. What do you do when you give immense amount to really wealthy people? They buy more stock. They buy back stock. What they overwhelmingly don’t do is increase research and development. What they overwhelmingly didn’t do with the money was build new plant and equipment. So there was very little stimulus in terms of bang for the buck. You would have gotten much more stimulus out of a middle class plan.
But again, politics is the key. Why would Trump not do something that would make him spectacularly popular? And of course, that’s the real key to my article, is saying Trump doesn’t do things primarily for his base. Trump does things for the plutocrats. Because Trump is a cheap guy.
MARC STEINER: [Laughter] What were you going to say, Bill?
BILL BLACK: All those promises about how, you know, he was the wealthiest, incredibly, and he [could fund his own election], those were all lies. The money came from the plutocrats. And the plutocrats–Mnuchin was the Secretary of Treasury. He designed the tax plan. So it was a plan for plutocrats, designed by plutocrats, and the details put in by Mnuchin’s minions, who are the worst of the worst scum of Wall Street. And you knew with absolute certainty that they would not write a bill that gave the tax cuts to the middle class. They would give it to themselves, because they are spectacularly greedy people. Right?
So Trump has chosen with this and with infrastructure not to take the path that A) His base would have loved, and B) Would have expanded his base dramatically. Right? He’d be the most popular president at this point in his term in modern history if he had given the middle class a $5,000 tax cut.
The actual tax cut of the bill–he gave away about a billion six, right, of reduced revenue. A billion–I’m sorry, a trillion six. A trillion of it went to corporations. $200 billion of it went to the estate tax, which should be called the billionaires tax, right? To the absolute wealthiest people. And then another $150-200 billion went to the absolute wealthiest one tenth of one percent, in the way of taxpayers. And then about $100 billion goes to everybody else. So you could have had an enormous tax cut for the middle class with the same amount of money. And as I said, it isn’t just that it would be good. It’s that Pelosi and Schumer would have done this deficit scold stuff–oh, no, no, you must not do this, it will destroy the country. It would have happened anyway. And you’d look, and you–what do you see? Do you see massive inflation from this tax cut? None. None.
MARC STEINER: None. None. None.
BILL BLACK: We can’t even hit the inflation target that the Federal Reserve tries to hit, right? And so Pelosi and Schumer would have been totally discredited. They would have retained control of the House. The next vote almost certainly would have deposed Pelosi as House Minority Leader in those circumstances. And so it’s this delicious irony. While Pelosi is terrible on deficits, and therefore terrible on things like the New Green Deal, because she thinks they will cause deficits, she’s actually, of course, very skilled as a legislative leader. And so the wonderful irony of all this is that Trump made possible the resumption of the Pelosi speakership. And every time she gives him a legislative defeat, it is what we call in the econ biz the opportunity cost of not following his campaign promise to create a real middle class tax cut and a gigantic infrastructure program. That’s how in hock he is to the plutocrats, that he can’t even do the things that would have made him immensely popular and vastly more powerful.
MARC STEINER: So while we can’t get into this now in this segment, but the next time we talk we can, with some others and you as well, Bill, is this also set up the internal struggle inside the Democrats about the economy, which is really an important thing for us to get into. Maybe maybe next week we can really dive into that.
BILL BLACK: I will leave it simply with it is insane–I mean, it’s like the definition of insanity–to say that we can’t afford to save the planet from climate change, and that we should instead just destroy the planet because we’ll save money.
MARC STEINER: And on that note, we’ll leave it there. And next time we get together we’ll pick up on those two points, and the point about the internal contradictions inside the Democrats, where that might take us. And, Bill Black, thank you, as always, for an entertaining and informative conversation. I always enjoy talking with you. Thank you so much for being with us.
BILL BLACK: Thank you.
MARC STEINER: And I’m Marc Steiner here for The Real News Network. So stay tuned for the next piece with Bill Black. We’re going to get into the questions of what’s happening inside the Democrats; what it really means for the economy. Take care. Thank you so much for being with us.