The Economic Recovery Dividend Act: A Tax Cut For The Rest Of Us

A massive tax cut doesn't have to be regressive.

First, let us assume as a given that taxes are going to be cut, in a magnitude of at least $1 trillion. This proposal is not about arguing the merits of tax cuts-vs-infrastructure improvements-vs-balancing the budget. That train has left the station.

Instead, the operative question is, how does this $1-trillion tax cut get divvied up? The Trump proposal bestows 90 percent of the cut on the top 1 percent of the population, give or take a little. (Trump himself appears to get $4 billion to pass on to his children, if the estate tax is abolished.) The rest of us divide the crumbs. Some of us may end up paying more taxes.

This 1 percent receiving the vastly disproportionate share of this cut is also the 1 percent that vastly disproportionately reaped the fruits of the recovery already.

There is another alternative. Assuming the government is giving away more than $1 trillion anyway, why not divide it equally among all 100-million tax-filing households, over perhaps a five-year period. People would get a simple refund of their total tax over those years, up to perhaps $10,000 in total. Another possibility is to simply give every tax-filing household $10,000 over those years, but surely some would object that people who haven’t paid $10,000 in taxes shouldn’t get $10,000 back in refunds. Let’s leave that one to the politicians.

The actual figure will vary depending on how many households are deemed eligible, whether the amount is capped at what people pay in taxes, and how the Congressional Budget Office scores the size of Trump’s tax cut, but $10,000 is in the magnitude of the tax cut/household being discussed.

This windfall refund would be called the Economic Recovery Dividend Act of 2017 (the “Dividend Act,” for short). It is indeed, as the heading says “A Tax Cut for the Rest of Us.”

There are economic, fairness, and political arguments supporting the Dividend Act. First, the economic arguments:

  1. The stated purpose of the tax cut is to stimulate the economy. Sending everyone $10,000 would stimulate the economy far more than sending most of the tax cut to a few people, people who largely already don’t spend what they earn. Indeed, the Dividend Act would stimulate the economy so much that the checks would have to be spaced out. If you’re willing to have your checks spaced out, you get the full $10,000. If you want your money yesterday, it’s $8000, with many options in between.

  2. Because the spending would “multiply” faster if it is returned to the economy faster, more taxable income would be created, and the ultimate reduction in the deficit under the Dividend Act would be much lower than under the Trump plan.

Next, the fairness arguments:

  1. Since all of our children and grandchildren will be equally responsible for carrying this added government debt, it seems like we should equally benefit from the very questionable judgment that creates it.

  2. A market economy can treat people harshly if they find themselves in the wrong career in the wrong place at the wrong time. Through no fault of their own, their jobs may disappear, as has happened throughout the “old economy.” It seems like double jeopardy for these folks to also have the government deal with them harshly, by giving their share of a windfall to someone else, including the “someone else” who directly or indirectly benefited from their labors. A series in the New York Times detailed how Rexnord’s CEO made $40-million while his employees were teaching their Mexican replacements how to operate complex machinery, right before getting laid off so their jobs could be exported to Mexico. Should the Rexnord CEO receive yet another seven-figure windfall while his former employees no longer have jobs or incomes, and hence get nothing?

Most compelling, though, is the populist argument, the one Trump should be embracing given his campaign rhetoric but isn’t:

  • Instead of thousands of taxpayers saving millions of dollars apiece, let’s allow millions of taxpayers to save thousands of dollars apiece.

Absent this alternative proposal that clearly spells out how much each household “loses” when rich contributors save millions, most voters won’t understand what the Trump tax cut is costing them, personally. If the Democrats can effectively show how money is being taken from them and given to a select few, they could make the Trump Tax Cut as toxic in 2018 as Obamacare was in 2010. The difference is that, unlike the GOP in 2010, they would undeniably have a point.