Passing the GOP’s tax reform bill without one Democratic vote, 71-year-old President Donald Trump got his signature legislation through Congress today, now sitting on his desk for signature. Democrats got their payback for passing Obamcare March 23, 2010 without one Republican vote, not a good thing. Democrats deviated from Senate tradition changing the rule to pass legislation with a simple majority, not the supermajority guaranteeing at least some minority party backing. Today’s vote was every bit as partisan as Democrats with Obamacare, getting a taste of their own medicine. Whether it’s right or wrong, House and Senate GOP majorities accomplished the first tax overhaul since President Ronald Reagan in 1986. Back then, Reagan promised as a candidate in 1980, with his chief economist Arthur Laffer by his side, to balance the federal budget by 1983.
When Reagan took office Jan. 20, 1981, the U.S. economy was a mess under former President Jimmy Carter, with double-digit inflation, 10% unemployment and federal budget deficit of $60 billion. Reagan signed the Economic Recovery Tax Act Aug. 13, 1981, providing more fiscal stimulus to the economy. Despite reducing unemployment to 7% by the end of Reagan’s first term Jan 20, 1985, the budget deficit had grown to $155 billion, causing the government to continue borrowing cash from the Federal Reserve Board, driving up the national debt. While it’s true the economy continued to add jobs under Reagan, more jobs never balanced the federal budget. By the time Reagan left office, Jan. 20, 1989, the deficit has grown to $239 billion, a 400% increase from Carter. Today’s new tax bill promises more fiscal stimulus to corporations, potentially adding jobs but not reducing deficits.
Sen. Bob Corker (R-Tenn.), head of the Foreign Relations Committee, was the last Republican to sign on to Trump’s signature tax legislation out of concerns for deficits and the national debt. Trump’s whopping $1.5 trillion in tax cuts over the next ten years, put the U.S. Treasury on a lean diet. Under former President Barack Obama, tax rates stayed the same from the predecessor former President George W. Bush. Because of the 2008 financial crisis and Great Recession, the Federal Reserve slashed interest rates to zero-to-a-quarter percent Dec. 16, 2 008 and implemented three provide three rounds of quantitative easing. Once Fed Chairwoman Janet Yellen ended the last round of quantitative easing Oct. 29, 2014, the economy operated on no stimulus, creating a flat U.S. Gross Domestic Product [GDP]. Only recently during 2017 second quarter has GDP jumped to over 2%.
Trump hopes that slashing corporate tax rates from 35% to 21% gives companies more cash expand businesses, adding new jobs. Trump hopes Reagan’s economist Laffer’s curve, showing cutting tax rates stimulates the economy, works in 2018 and beyond. After the 1986 tax reform bill, it took three years for the economy to run downhill. Whether that same scenario happens again is anyone’s guess. What’s certain after slashing $1.5 trillion or $150 billion a year in tax revenue to the Treasury are increased federal budget deficits. Trump expects minor tax breaks to individuals to boost consumer spending, something not likely to happen. With rents and health care costs rising, it’s doubtful small individual tax cuts will boost consumer spending. Senate Majority Leader Chuck Schumer (D-N.Y.), railed against the GOP tax overhaul as bad for the Middle Class. What Schumer fails to see is how less tax revenue will harm Democrats and Republicans.
House Speaker Paul Ryan (R-Wis.) praised the new tax bill as beneficial for all. “People have been hit by the media and the Democrats on their TV screen that everyone is getting a big tax increase, and that’s just not the case,” said Ryan. Before the vote Schumer warned Republicans they were “messing up America,” concerned about the long-term effects of tax cuts. Since the 2008 economic meltdown, moderate tax rates allowed the government to have sufficient revenue to continue important military and social programs. Leaving the government with $150 billion less revenue a year, the GOP’s tax plan promises greater budget deficits and government borrowing. “It’s not just an ideological difference,” said Schumer. “It’s something dramatically opposite of what America needs.” Schumer and the Democrats worry that with less tax revenue, the GOP will slash essential social programs.
Railroading the GOP’s tax reform through Congress, Democrats now know the consequences of forcing Obamacare on the American public in 2010. Trump said eliminating the Obamacare mandate in effect kills Obama’s signature legislation. While the Affordable Care Act still survives, it’s a bitter reminder to extreme partisanship prevailing on Capitol Hill. Today’s tax reform is good for corporations but uncertain how it will help ordinary taxpayers. It’s doubtful that slightly bigger paychecks would significantly effect the economy, when rents and health care outpace inflation. With Wall Street booming, Trump’s got some time before the economy turns negative. There’s no end in sight, barring some catastrophic event, to the bull market, keeping revenues flowing in to the U.S. Treasury. If the economy continues to grow, it won’t look good for Democrats in the 2018 Midterm elections.
