Income inequality, or if you prefer its workaday aphorism—the rich get richer and the poor get poorer—long has been a simmering topic in the cauldron of American politics. Thanks to our newly reformed tax code the lid is about to be blown clear off the pot. Donald Trump’s jack-booted march to the White House was in large measure fueled by white middle and lower class discontent with wage stagnation. All the while corporate profits soared and those at the economy’s upper edge saw their slice of the economic pie fatten in the wake of the 2008 financial collapse and ensuing recovery. It’s no secret this recovery had a disproportionate impact on those at the top than those at the bottom.
Enter the Republicans. Fresh off their embarrassing Obamacare repeal debacle, Republicans have finally scratched a bugaboo off their hit list. Tax reform. Hastily assembled and heavy-handed, the Tax Cuts and Jobs Act (TCJA) now stretches from sea to shining sea. While not much is known about the tax code equivalent of mystery meat, just enough detail has been allowed to slip that one may draw at least a few tidy conclusions. Since I’m currently enthralled with policies influencing the haves and have nots, I feel it’s a subject worthy of exploring in a bit more depth.
At TCJA’s heart lies trickle-down economics. Corporations and the wealthy are its chief beneficiaries. This cannot be disputed. Nor overstated. The hope is that this big fat wet kiss to our economic elites will have the broader effect of getting the rest of the economy hot and heavy. Even if this hypothesis bears fruit what would be the impact, if any, on income inequality?
Walmart and others have begun raising wages, albeit meagerly, and Apple has announced plans to pursue a multi-billion dollar investment scheme right here in the good ole’ U.S. of A. While this will certainly stimulate parts of the economy, we should be under no illusion that the rich will not get richer and the poor will not get poorer. The gap between those at the top and everyone else will widen. The size of the pie may indeed increase but the portion of the pie consumed by those at the very top will undoubtedly increase at a faster rate. This is the sad tale of trickle-down economics.
The quick-witted may ask why any of this matters. After all, wasn’t it JFK who famously said “a rising tide lifts all boats”? But what if some of the boats, those belonging to the fisherman and crabbers, have had their anchors impaled in the seabed while the yachts and cruise ships of the ultra-rich and corporate titans float untethered? Or to position it less dramatically, what if some of the boats have fallen into disrepair and are taking on water. The tide may rise but the boats still sink.
For more than half a century the difference between what is earned by those at the top compared with those at the bottom has been increasing. This period correlates with the era of trickle-down economics and heavy tax cuts for the wealthy. Sound familiar? Here we are again with another massive gift to those who need it least. Some will say this is the natural order of capitalism and they may well be right. What isn’t often acknowledged is how this natural order typically comes to an end. Rarely is it violence free.
The only difference this time round is large corporations, the ones who turned finding tax code loopholes into a kind of dark art, are now incentivized to bring all that amassed offshore cash back home. Their short game is noble, home sown capital investment, but with a knee-capped corporate tax rate structure, the government’s coffers are sure to suffer. This suffering is of great consequence because data from the last hundred years or so clearly shows income inequality constricting only during periods following significant federal spending. That is, when the feds invest in programs that help its people the poor get richer. The nation as a whole prospers.
This is not to suggest our tax code needed no reform but it is hard to see the logic in this new law as a long-term strategy. Not only will the middle and bottom lose ground in real dollar terms, the perceived gap will also grow. Barring divine intervention, the deficit will balloon. Republicans have already sharpened their knives (and in some cases used them, see Obamacare individual mandate repeal) for the anticipated slaughter of programs which overwhelming benefit the middle and lower classes. This in an effort to recoup projected tax revenue shortfalls. Here we’re hit with a double-whammy; a giveaway to the rich in the form of a massive tax break and a takeaway from everyone else in the form of program cuts.
As Republicans continue their indiscriminate dismantling of all things Obama, the rate of increase in the cost of healthcare will escalate, making it necessary for more worker income to be diverted toward it, magnifying the inequality further.
The economy may rain money before the boom goes bust but the question we should be asking ourselves is who is going to get wet?