Budget and Tax Issues

SAME TIRED GOP TAX CUTS DON’T ADDRESS TODAY’S PROBLEMS!

Designing a budget and a tax “reform” policy (I put reform in quotation marks to make the point that the outdated tax cut ideas being proposed by the Trump & GOP are not “reform”) requires an understanding of what our biggest economic challenges are at this time.  A one size fits all tax cut policy wont address today’s problems. That kind of policy will make the problem worse.

CURRENT PROBLEM POLICY NEEDS TO ADDRESS

I think we all agree that our biggest challenge today is income inequality.   While the rich are getting richer, the poor and middle class are seeing their wages stagnate as costs continue to increase.   Additionally, our economy is changing drastically as technological advances increase. Therefore, the types of jobs that are available are changing in this country. Many jobs are being automated and many available jobs do not have enough trained applicants applying (demonstrating a need for education and/or training).

CURRENT BUSINESS ENVIRONMENT

At the same time as stagnant wage growth and job automation, companies are holding large amountS of cash and displaying record profits. Additionally, interest rates are very low, so they can easily borrow money for a low cost. Business’ in many sectors are routinely saying that they cannot find qualified workers.

WHY CURRENT PROPOSED POLICIES DO NOT ADDRESS THE PROBLEMS WE HAVE TODAY.

If we all understand that these are the problems, then the next issue is how to solve these problems. Our current administration and GOP are looking backward to the eighties suggesting that America will get a Reagan like boost by cutting taxes. This one size all tax cut approach ignores where we are right now. Reagan’s tax cut came at a time of stagflation when individuals and business needed more access to capital, because income tax rates were high (highest tax rate was 70 cut to 28) and interest rates were very high (19%).   The lowering of interest rates from 19% to 9% made capital more available to companies and consumers. Reagan also spent on military and infrastructure and he benefited from a natural transition from a recession to economic expansion.

Since our interest rates are low and our income tax rates are not historically high our current problem is not availability of capital. Very few studies find any concrete benefit from cutting income tax levels on upper income earners at this time. Drastically cutting corporate tax rates at a time when corporations already are making record profits, especially to create deficits also does not make a great deal of economic sense as interest payments on the additional debt will crowd out any benefit from increasing availability of capital and increased investment.   Additionally, if we are taking money from healthcare and education to cut taxes, we diminish our future productivity and increased productivity is how you spur economic growth.

SO WHAT CAN WE DO TO CREATE A BETTER FUTURE

Rather than a budget that cuts healthcare access and access to education, we should be investing increasing access to education and innovation (GOP budget $1.9 trillion reduction in spending for health care, as well as cuts to income security programs and student loans)

Making sure our education is preparing our kids and young adults for the current job market and innovating for the future. Developing public and private partnerships for working and business development as they do in Germany (second largest manufacturing economy with employee benefits). Our healthcare system has to address costs not premiums. If we are paying over $10,000 per capita in health care costs versus other countries that pay one third to half for better coverage, our economy is losing money to an inefficient healthcare model.

Investing in our infrastructure would create jobs and the investment would make our country more efficient for the future. Using cutting edge technology and energy to advance our country into the future would put us back into the forefront of innovation rather than trying to revive dying industries. Additionally, we can work to lower our energy costs and prepare ourselves to withstand the increasing intensities of storms and conditions due to global warming.

The way in a country benefits from trade is by producing goods and services that are better or more innovative.   For example, Tesla doesn’t make a cheap car, it makes an innovative product.   We can’t afford to look back, the future is ahead of us.