As the midterms approach, President Obama has re-entered politics to accuse Republicans of serving as handmaidens of Wall Street, corporations and the rich with their Tax Cuts and Jobs Act of 2017. Obama complained in two recent speeches that he has not received adequate recognition for his contribution to the soaring economy, for which he claims credit. This is Obama’s fantasy land, because he has a total misunderstanding of basic economics.
Over the past three years, we have emphasized that corporate and business taxes are borne most heavily — 70-90 cents of every dollar — not by businesses and Wall Street but by workers in lower wages and fewer jobs. That is why this tax reform has led to an explosion of jobs and increased wages for average workers. Obama and the Democrats in Congress will not acknowledge this reality because it does not jive with their rhetoric, which trends more toward socialism every day.
Obama’s economic “recovery” was no recovery at all, but the worst response to a recession since the Great Depression — precisely because he pursued just the opposite of the pro-growth policies of Presidents Kennedy and Reagan that are embedded in the 2017 Republican tax reform. Deficits under Obama soared, doubling the national debt, because of his near-zero economic growth, business-crushing regulation, tax rate increases and rampant expansion of federal benefit programs with relaxed work requirements.
Obama reopened his assault on President Trump and congressional Republicans with a claim that tax cuts increase the deficit but that Republicans really don’t care about deficits and national debt. This, from the king of deficits and debt, under whom the United States had record-shattering deficits of over $1 trillion four years in a row.
The Congressional Budget Office (CBO) originally estimated the GOP tax reform, as passed, would lose $1.456 trillion in revenue over 10 years. But as Larry Kudlow, President Trump’s chairman of the White House National Economic Council, reported on CBS’s “Face the Nation” last month, “Even the [latest] CBO numbers show now that the entire $1.5 trillion is virtually paid for by higher revenues and better nominal GDP.”
Many people have trouble understanding the relationship between tax policy and the economy, and the economy’s effect on tax revenues resulting from differing tax policies. Some of those people are candidates on the ballot this year, asking for your vote and criticizing their opponents for supporting the Trump tax cuts. Some of those people work in the media, and their ignorance only feeds general confusion.
The bottom line: when the economy grows, tax revenues grow, and when the economy declines, tax revenues decline. Today, the economy is booming in response to the 2017 tax reform, and the resulting effect on tax revenues is so strong that even state and local tax revenues are increasing.
When Kennedy entered office in 1961, the top income tax rate was 91 percent. He led Congress to cut income tax rates across the board, from the highest to the lowest, by about 23 percent. That produced an economic boom in the 1960s and federal tax revenues started growing almost immediately.
Similarly, when Reagan entered office in 1981, he led Congress to enact across-the-board tax cuts of 25 percent and, in the 1986 tax reform, replaced the entire federal income tax structure with just two rates — 28 percent and 15 percent. Even with those sweeping tax cuts, federal tax revenues during Reagan’s presidency actually doubled because of the booming growth resulting from such tax liberation.
Something similar is happening with the Trump/Republican tax cuts. As former senior congressional staffer Mike Solon reported in Real Clear Politics on Aug. 5, CBO’s April 2018 Budget and Economic Outlook stated (page 94) that 10-year federal tax revenue estimates had risen by $1.008 trillion “for economic reasons.” Solon said, “This is the largest jump in revenues ‘for economic reasons’ ever reported by CBO and results from, in CBO’s words, their ‘current projections suggest[ing] a stronger economic outlook than those that the agency published in June 2017.’”
In June 2017, just the anticipation of Trump’s tax cuts led to increased investment and growth, producing $195 billion in new revenues “for economic reasons.” With further revenues and increased growth by April 2018, the total resulting revenue increase was $1.238 trillion, offsetting 88 percent of the originally projected $1.456 trillion revenue loss, or virtually all of it.
Under Obama, just the opposite happened: Congress enacted a tax increase of $650 billion in early 2013, which he said would promote “fairness” and reduce the deficit. But Solon notes that one year later, CBO’s February 2014 Budget and Economic Outlook reported (page 96) that “10-year revenue estimates fell by $1.415 trillion ‘for economic reasons,’” increasing the deficit. By Obama’s last year (2016), CBO’s 10-year projected revenue loss from his 2013 tax
increase had ballooned to $3.1 trillion, almost five times his supposed tax increase, which only further increased the deficit.
Clearly, Obama doesn’t know what he is talking about in his stand-up routine on the economy and economic policy. The Trump/Republican tax reform is not significantly increasing the deficit, but rather producing growth that is paying for the tax cuts, just as Reagan’s and Kennedy’s did. Next time Obama wants to talk about economics, he should lie down until the fever passes.
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