A democratic system can withstand political differences and vigorous debate and emerge even stronger. But transparent and premeditated lies by elected leaders for personal gains and for the enrichment of benefactors, the propagation of those lies by a pliant media along with a tainted ballot box, which is designed to be a check on such abuses (gerrymandering) to circumvent democratic accountability, is but a small step away from authoritarianism.
Today, the Republican Party is trying to ram through what they promise is “tax reform” that will put more money in the pockets of hard-working middle class families and will create high-paying jobs. We take the case of taxes because its impact is calculable and not so easily dismissed if simple calculations are made and honorable politicians and media are willing to put their tribal interests aside and to stand up for what is right and for the greater good.
One does not need a PhD in economics or finance to understand that the tax “reform” package will disproportionately enrich the wealthiest Americans (the top 1 percent and especially the top 0.1 percent and even more the top 0.01 percent) and their descendants while increasing the national debt (an ominous burden on future generations), with about 90 percent of Americans getting a few crumbs and with some in the bottom 90 percent even losing.
Once this is rammed through Congress and signed by President Trump, it will amount to the biggest transfer of wealth—wrapped in bold-faced lie—in U.S. history. Such transfers of wealth are more aptly labeled theft. If you want to transfer wealth, so be it, but don’t lie about it. The transfers will continue year after year until the law is repealed. The tax reform bill will also transfer wealth through a reduction or elimination of the inheritance tax that will continue as long as dishonest politicians control the White House and both houses of Congress. All this at a time when the inequality of wealth and income is at its highest in American history, a disparity that is worse than in any other advanced country on earth; when the living standard of well over half of all Americans has not improved since 1980; and with many average families still suffering from the financial crisis of 2007/2008 while those responsible for the crisis doing better than they were doing before the crisis. Where is our sense of decency and justice?
Besides falsely professing middle class tax relief, the Republican Congress has argued that by reducing the corporate tax rate and the pass through tax rate (the rate small businesses pay on their income as if they were individual taxpayers), businesses will invest more, pay higher wages and thus increase economic growth. Another lie! There is scant evidence to support this claim and again the question of fairness raises its head. Everyone is free to offer an opinion, but whether a lower corporate tax rate would result in faster growth is an empirical question, which can be answered by careful examination of the data. The Trump Administration has said that the nominal U.S. tax rate of 35 percent puts U.S. companies at a disadvantage with their foreign competitors. However, the administration fails to emphasize that the effective tax rate corporations pay (what they actually pay) is around 18 percent. So reducing the nominal rate could reduce the effective rate to well below 15 percent. So U.S. companies will make more money. What will they do with it? The evidence indicates that they will use the lion’s share to declare larger dividends for their stockholders (owners of stocks), buy back their stock (stock buybacks that increase stock prices for their stockholders), pay higher salaries to senior management as bonuses for “good performance,” leaving little for expansion (growth) and higher wages. Yes, growth could go up a tiny amount but there will be no significant benefit for workers. The limit of the pass through tax rate for small businesses at 25 percent (as opposed to higher tax rates for employees who do not own a small company) is again based on fueling economic growth and higher wages but with the additional justification of enabling farmers and small businesses to pass on their farm or business to their families. If the goal is to preserve small farms and businesses for families, then the current inheritance tax exemption of $11 million for a couple and especially its proposed doubling to $22 million is the best way forward.
Another fallout of these lies and theft is that Americans are losing trust in their system of democratic governance and even in their fellow citizens. Empirical work in economics has shown that trust is an important factor in encouraging investment and in turn in economic growth and prosperity.
Lies concocted by elected leaders, a pliant media, a tainted ballot box and the resulting injustice are a potent mix, a reflection of authoritarianism, which threatens America’s democratic system. America’s elected officials have buried their moral compass with the apparent acquiescence of the electorate. We all need to take a deep breath and go back to the foundation of democratic and free market systems—Immanuel Kant (the moral philosopher, Groundwork of the Metaphysics of Morals) and Adam Smith (the father of modern economics, especially his book, The Theory of Moral Sentiments). We, the people and our leaders, must go back to “doing what is right and for the right reason.”