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Tax reform in the US: Trump's Attack on America
by Soren Brandes
Email: marc1seed (nospam) yahoo.com
18 Jan 2018
The tax reform of the Republicans is a blow against the welfare state. It strikes low-income persons and was prepared in the 1970s. the tax reform is profitable for Donald Trump but could cost the Republicans a re-election. The character of the tax heist (NY Times) can be understood with the help of the history of the Republican tax-cutting obsession.
TAX REFORM IN THE US: TRUMP'S ATTACK ON AMERICA
By Soren Brandes
[This article published on December 21, 2017, is translated from the German on the Internet, www.zeit.de. Soren Brandes, b. 1989, is a historian at the Max Planck Institute for Education Research in Berlin. He has studied in Berlin, Lund, and Berkeley and researches neoliberalism and populism in the US and Britain.]
The tax reform of the republicans is a blow against the welfare state. It strikes low-income persons – and was already prepared in the 1970s. The tax reform is profitable for Donald Trump but could cost the Republicans a re-election.
The rich and super-rich profit while the middle class and low-income persons fall by the wayside. The controversial tax reform of the Republicans represents an enormous redistribution in favor of the well-to-do. At the end, the new rules could cost the American state more than two trillion dollars. How could this self-enrichment happen?
The character of the tax reform can be understood with the help of the Republican tax-cutting obsession. This may be the most important characteristic of a neoliberal era that began in the 1970s and finds its perfect embodiment and possibly its end in the administration of the real estate billionaire Donald Trump.
In Palm Springs, an oasis in the Southern Californian desert, an influential duo: Ronald Reagan, governor of California and Milton Friedman, one of America's most prominent economists, met one day in the winter of 1973. In the past, the neoliberal movement prevailed above all at universities and in books with Friedman as its leader. Under the guidance of the social philosopher Friedrich von Hayek, neoliberal intellectuals were engaged in refining abstract ideas. In their opinion, the market was superior to the state. Government economic planning and the welfare state limited the freedom of the individual. The state had to be pushed back to prevent humanity from ending in socialist slavery.
What was necessary for the neoliberal counterrevolution? Until then, neoliberals were only vaguely occupied with this question. The world economic crisis of the 1930s was a catastrophe for economic liberalism and not only for global capitalism. Economic liberalism moved on the defensive for decades. Therefore, the neoliberals around Hayek and Friedman were mostly seen as a radical splinter group after the Second World War.
However, the winds turned at the end of the 1960s. The signs grew that the neoliberals would expand their influence. In 1966, Ronald Reagan won the election as governor of California, the state with the largest population. With Richard Nixon's victory in the 1968 presidential election, neoliberal economists rose to the highest offices in Washington. But Nixon had no interest in limiting the welfare state. Polls showed the next election could be lost with that step.
That was the central structural problem of neoliberalism at the start of the 1970s. How can the state be shriveled in a democracy when a majority profit directly or indirectly from state programs and therefore has a great interest in their preservation? Reagan and Friedman wanted to find a solution.
"It's your money. Make them give it back!"
California is a direct democracy. With great regularity, voters go to the polls to vote on concrete initiatives. The project discussed by Reagan and Friedman in 1973 was a direct democratic initiative, the so-called Proposition 1. This bill would codify a permanent tax brake in California's constitution. Income- and land taxes would be limited – that is, the progressive part of the tax burden paid by well-to-do citizens.
Proposition 1 was a tactical breakthrough. Instead of insisting on cutting state services, neoliberals now put themselves on stage as advocates for taxpayers, particularly the middle class. They try to convince voters the tax cuts help the middle- and lower classes and not the rich. They began arguing the state robbed the little man: "It's your money. Make them give it back!' This demand became an important slogan of the Proposition 1 campaign.
Prop 1 was the first proposal in a series of tax-limiting initiatives voted on in California and other states. The campaign creators put themselves on stage as avengers of the taxpayers, as part of a "taxpayer revolt." An elitist project in the past found a new weapon in the battle against the welfare state and populism.
Redistribution from bottom to top
In November 1973, Proposition 1 was defeated by a public that still believed in the welfare state. However, the inflation of the 1970s had consequences for the tax system and undermined trust in the state control of the economy. In inflationary times, wages nominally rise and skid in higher tax brackets. Thus, the tax burden increases for individual citizens without their real wages rising. The tax-limiting proposal, the so-called Proposition 13 on the 1978 California ballot, was accepted by a large majority.
That was only the beginning of a long battle against the welfare state. The slogan "Starve the beast" circulated within the Reagan government in the middle of the 1980s. The "beast," the state, should be starved out. In 1981 and 1986, President Reagan brought massive tax reforms through the US Congress. The consequences for American state indebtedness can be read in simple graphs. The US debt burden doubled in the Reagan years.
The urban elites are also impacted
The tax cuts had devastating effects on the whole system of the state. The public schools run by the cities are largely operated with funds from the land tax – that tax reduced greatly by Proposition 13. California schools that were among the country's best in 1973 became sad casualties of Reagan's tax-cutting policy. By 2003, they were in 48th place of 50. More than half of the students in the 8th grade cannot adequately read and write. The taxes missing from the schools remain with homeowners and super-rich landlords.
California is only one of many examples of redistribution from bottom to top. Students in oil-rich Oklahoma can only attend school four days a week in many counties. Taxes were lowered there for decades. Teachers run away in bands on account of the low pay. The political economy of tax-cutting has permanently damaged the US on the local, state, and national planes.
Everyone's situation has become precarious
State institutions have no money to tackle urgently necessary infrastructure projects without the taxes of the well-to-do middle- and upper classes. Public building projects necessary in urban areas are not even discussed because the essentials are lacking. Streets, bridges, and water mains are dilapidated. Health care is still hardly affordable for low-income persons. The poorest are impacted most intensely, particularly Afro-Americans, Latinos, and immigrants.
The failure of the state has also reached other groups. Few Americans have enough money and power to screen themselves from the neoliberal crises. Despite their privileges, the urban elites on the coasts are also stricken. The housing market forces them into tiny apartments that they can barely afford. The lack of social relief mechanisms for parents makes founding families difficult.
In a certain sense, this is good news. The situation has become so precarious that it becomes striking. The middle class can no longer ignore the situation of workers and the homeless because their own future is beginning to waver – in an economy that only casts profits to the extremely rich. Therefore, the majority of Americans resolutely oppose Trump's tax-saving programs.
"Support the bill or never call me again!"
Here is what is really new. Steven Mnuchin – Goldman Sachs millionaire, US Treasury Secretary and one of the architects of the plan – repeats the old familiar legend that the tax cuts will "pay for themselves." References to the "Starve the beast" ploy are not lacking. Paul Ryan, the Speaker of the House of Representatives, has already annou9nced he will turn next year to the destruction of "Medicare" and "Medicaid," the health insurances for seniors and the poor. All this is to patch up the hole in the budget ripped open by the tax reform.
According to polls, less than 30% of the interviewees approve the plan. That has not happened in decades. That is the good news.
In the 2016 election campaign, Donald Trump effectively cultivated the neoliberal hatred for "Washington" – for the state, allegedly corrupt bureaucrats, politicians, and lobbyists. With the tax-cutting program, American neoliberalism is losing its popular base and central strategy because many Americans know the consequences only too well. The prospects of the Republicans for an election victory in 2018 or 2020 are dismal.
Why did the Republicans push through the tax reform in Congress? The New York congressperson Chris Collins already revealed his political motive: "My donors tell me: Support the bill or never call me again!" In the Senate, Bernie Sanders declared: "The state treasury is ransacked!" Redistribution from bottom to top has been the goal of neoliberals since time immemorial not only in the US. In Germany, the same strategy is used again and again that the tax cuts should benefit low and middle incomes.
Olesya Kazantseva, "Base Erosion and Profit Shifting," 2015, grin.com, https://www.indybay.org/newsitems/2017/12/06/18805126.php
Matthew Yglesias, "Apple could get a staggering $47 billion windfall from the tax bill," Dec 8, 2017, https://www.vox.com/policy-and-politics/2017/12/8/16746034/apple-gop-tax