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The Trump Administration has finally produced its tax plan. No sooner did it do so than Republicans in Congress put in place budget rules to grease the procedural skids — including a provision that allows a vote to ahead without any “score” from the Congressional Budget Office. This latest procedural atrocity is no surprise, nor is the cynicism with which Republicans have been willing to abrogate every principle they claimed to uphold in the last administration. The GOP leadership will now go all-in for the latest innovation in their decades-long quest to further entrench the power of the wealthy. Given the Republicans’ control of every branch of government, their plan has a high probability of becoming law. This article will forecast the contours of the “tax debate” in the coming months, as they attempt to shepherd their legislative obscenity to passage. But it will then take a step back and consider the role that progressive taxation plays in the economy, and why it must be at the top of any left-oriented policy agenda: because without progressive taxation, the privileged have never been peacefully toppled from their position of power over the economy.

Enriching Elites The current tax debate is the mutant great-great-grandchild of the right-wing tax politics that overtook the country in the 1970s. The crisis of stagflation — a combination of slow growth and inflation — was blamed on an out-of-control tax-and-spend federal government. The “lesson” that elites chose to absorb was that the decade’s macroeconomic disaster had vindicated small government, specifically on the grounds that high taxes on high incomes cause the most productive workers to withdraw their labor supply and cause potential savers (i.e., the wealthy) to withdraw their capital. Economists pitched in by supplying theoretical models of economies permanently hobbled by taxes on capital income. Newly empowered business interests rushed those theories into policy without bothering to check if they were actually true. That gave us a decades-long downward march in effective tax rates on the rich, both at the individual and corporate levels — often playing the former off against the latter as an excuse for further reductions. For example, dividend taxes on shareholders were cut in 2003 using the argument that profits are already taxed at the corporate level; and today, major reductions in corporate taxes are being proposed using the (mostly false) claim that shareholders already pay taxes on that income at the individual level. The focus all along has been on cutting effective tax rates on capital through loopholes allowing companies to circumvent the corporate tax system (most prominently, the use of international tax havens); tax shelters to shield capital gains from tax; and vastly curtailed tax burdens on both dividends and estates. And it wasn’t just the Right pushing these moves. Though the Clinton Administration raised the top statutory marginal income-tax rates and kept the statutory corporate rate at 35 percent, it quietly allowed the effective rate to diverge further and further from what the law required — for example by streamlining the process for reclassifying “C-Corporations,” which (theoretically) pay the corporate tax on their profits, as “S-Corporations,” which don’t. It also cut the capital gains tax rate, under the not-unreasonable theory that since the wealthy choose when to realize their gains (i.e., sell their assets at a profit), a high rate just causes them to realize gains less often. But the larger lesson — that the wealthy are able to game the tax system — unfortunately went strategically unlearned. The Bush Administration’s blockbuster tax cuts of 2001 and 2003 were extremely regressive, paving the way for the current era of not just high income and wealth inequality in general, but specifically high corporate profits and capital income. The dividend tax cut of 2003 tried and failed to incentivize corporate investment — instead, all the money just went to shareholders. The same happened with the “repatriation holiday” for corporate profits that was legislated in 2004. Perhaps no economic theory has been tested and rejected as thoroughly as the proposition that reducing effective tax rates on capital causes higher investment and faster economic growth. So why, in the current era of high profits and low investment, is the same policy being tried once again? Because the point of conservative tax ideology was never to make the economy work better — it was to provide the pretext for a self-serving agenda that lets corporate shareholders (and the executives they deputize — very often, from among their number) milk the economy dry. And that’s exactly what will happen if Congress passes the current proposal to cut the corporate tax rate, “territorialize” the system to permanently exempt overseas profits, “repatriate” past overseas profits tax-free, and set a maximum rate for pass-through income. The bill’s prospects now depend on a delicate political balancing act. Some Republicans in Congress have declared their unwillingness to vote for a bill that would increase federal debt. To assuage them, the current proposal includes some tax increases on the nonrich: raising the bottom tax bracket from 10 percent to 12 percent, for example, and eliminating the deduction for state and local taxes. That puts the total price tag within a range deemed acceptable to the deficit hawks. But meanwhile, it’s created its own political problem: the GOP leadership fears blowback against vulnerable members if voters come to believe they’ll be paying higher taxes to finance a giveaway to the rich. Hence, the plan’s immediate fate hinges on balancing these two questions: will it increase the federal debt too much for one set of Republican votes, and will it take too much money away from the middle class for another set? Two nonsense economic assumptions will play a role in resolving this political dilemma. First, Republican dogma holds that cutting the corporate tax rate will cause so much economic growth that a boom in federal revenue will make up for the tax cut. Second, Republicans claim that the current corporate tax burden is ultimately borne by workers in the form of lower wages, so cutting it will actually increase wages, substantially benefitting those who rely on their labor to make a living. No serious researcher believes either of these claims, but that isn’t the point: the purpose is to give marginal votes in Congress a set of motivated economic analyses to latch onto, or just to kick up enough dust around technical issues of debt and distribution that those members can take refuge in the controversy, throw up their hands, and vote with the party. It’s tremendously cynical — but then, so is the entirety of right-wing policymaking over the last forty years. That doesn’t mean it won’t work.