GOP tax bill: Wrong debate at the ​wrong time

As President Trump and Republicans go full throttle to ram a partisan tax bill through Congress this week, let’s step back and ask a basic question: What does the U.S. economy need most today? The answer isn’t tax cuts – it’s public investment in modern infrastructure.

Having wasted most of 2017 trying to kill ObamaCare, however, Trump and his party have accomplished next to nothing and are desperate for a political “win.” Their budget-busting tax plan is designed to solve Republicans’ political problems, not the country’s economic problems.

{mosads}From an economic perspective, the Republicans are fighting the wrong war in the wrong place at the wrong time.  Tax cuts may make sense when the economy is slowing down and needs a jolt. But with healthy business profits, a surging stock market and tight labor markets pushing up wages, there’s little need now for a dose of fiscal stimulus.   

In fact, average working families finally are beginning to reap the gains of the long economic expansion that started under President Obama. Blue collar wages have soared in the last two years, growing even faster than those for professionals and managers. Despite all the populist angst about a “rigged economy,” stronger growth is narrowing economic inequality.

Trump’s attempts to take credit for all this are ludicrous, since he and his party have passed no major economic legislation this year. You can’t steer the massive U.S. economy with a handful of executive orders.

That’s why Trump and his party have gone back to the GOP’s “big idea” of 1980: that cutting marginal tax rates will produce miraculous growth rates by boosting the stock of private capital available for productive investment. Never mind that it’s never worked in practice; the Trump Republicans need some way to put their stamp on a reviving U.S. economy.

“This tax reform is marketed as a way of getting more capital invested into the economy to create jobs,” Rep. John Delaney (D-Md.) said at a recent Capitol Hill forum on infrastructure. “But I think it’s completely misdiagnosing the problem, because the capital that is needed in the economy right now is public investment, not private investment.”

He’s right. The most important constraint on long-term economic growth isn’t tax rates, it’s the nation’s creaking infrastructure. Since 2006, the average age of streets and highways has gone from 23.8 years to 28.7 years, even after adjusting for fixes and improvements. And Flint, Mich., is far from the only U.S. community struggling with crumbling water and sewer systems.    

A big push to repair and modernize America’s aging transport, water and energy systems would create high-wage jobs, spur innovation and bolster U.S. competitiveness. Better infrastructure would also lower costs for American entrepreneurs taking advantage of new technology to start businesses. 

Of course, it is possible to construct an intelligent tax reform package – as opposed to GOP giveaways to the wealthy – that would help make U.S. companies and workers more innovative and competitive. U.S. business tax rates are too high and should come down to the levels of our main economic competitors. It’s also time to end tax preferences that mostly benefit affluent families and to shift the tax burden from income and payroll to consumption. But such fundamental tax reforms require working with Democrats, and being willing to share political credit. The Trump Republicans are greedy for a strictly partisan victory.

In contrast, a major upgrade of America’s economic infrastructure is a rarity in our balkanized politics – something everyone seems to agree on. During the campaign, Trump promised a massive, $1 trillion infrastructure package.  “No longer will we allow the infrastructure of our magnificent country to crumble and decay,” he declared last summer.  Hillary Clinton also proposed a big infrastructure initiative, and bipartisan bills abound on Capitol Hill.

Yet the GOP’s insistence on passing tax cuts first will make it harder to tackle the infrastructure challenge. For example, House Republicans have proposed to kill the exemption for “private activity bonds” that help leverage private investment in repairing and upgrading infrastructure. And if Republicans use revenues from repatriating overseas profits to offset the cost of their rate cuts, that money won’t be available to finance the big infrastructure push we need.

GOP leaders have broken their promise to make tax reform “revenue neutral” and now propose to add $1.5 trillion in new borrowing to the national debt. Where are the fiscal hawks of the House Freedom Caucus, who were so fierce in their attacks on Obama’s alleged fiscal profligacy? Back in their nests, cooing contentedly as their party sticks future generations with the bill for lower tax rates today.

While conservative claims that tax cuts “pay for themselves” have been thoroughly debunked, public invests in infrastructure are different. Economists view building new public assets as genuine capital investment that will raise U.S. productivity and generate stronger future growth.

Trump administration officials say they will turn to infrastructure after they’ve wrapped up the tax bill. But that bill is not popular with voters, and there may be enough Republicans left in the Senate with the backbone to stand up to the tax cut stampede, just as they blocked Trump from gutting ObamaCare. But by shutting Democrats out of the tax debate, Republicans are poisoning the ground for bipartisan cooperation.  

So even if the Trump Republicans get their “win,” both our economy and our broken political system will lose.

Will Marshall is President of the Progressive Policy Institute. ​