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It takes only two things to keep people in chains: The ignorance of the oppressed and the treachery of their leaders..
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Let’s begin with three facts:

  1. I am no fan of Robert Reich. (See: What next? Kristallnacht?)
  2. I am no fan of Donald Trump. (See: The secret GOP checklist of Presidential requirements.)
  3. Whatever Trump’s tax plan turns out to be, it will benefit him far more than it will benefit you. For “Trumpayola”, the White House is a gigantic piggy bank. Related image

So when a man, whom I believe lacks knowledge of economics, criticizes a President whom I know lacks honesty and also lacks knowledge of economics, how shall I focus my criticism of Reich’s article, 5 Reasons Why Trump’s Corporate Tax Cut is Appallingly Dumb, April 25, 2017?

Reich’s career is impressive. As he himself says:

ROBERT B. REICH is Chancellor’s Professor of Public Policy at the University of California at Berkeley and Senior Fellow at the Blum Center for Developing Economies. He served as Secretary of Labor in the Clinton administration, for which Time Magazine named him one of the ten most effective cabinet secretaries of the twentieth century. He has written fourteen books, including the best sellers “Aftershock”, “The Work of Nations,” and”Beyond Outrage,” and, his most recent, “Saving Capitalism.” He is also a founding editor of the American Prospect magazine, chairman of Common Cause, a member of the American Academy of Arts and Sciences, and co-creator of the award-winning documentary, INEQUALITY FOR ALL.

Trump’s career also is impressive: By lying, stealing and relying on daddy to fund him with millions of dollars and then save him from disaster, Trump has amassed a fortune and become President.

Given that background, here are Reich’s “5 Reasons Why Trump’s Tax Cuts Are Appallingly Dumb.”

1. The White House says the United States has one of the highest corporate tax rates in the world. Baloney. After corporate deductions and tax credits, the typical corporation pays an effective tax rate of 27.9%, only a tad higher than the average of 27.7 percent among advanced nations.

Whether or not America’s corporate tax rates are higher or lower than the average of other nations, does not in any way address the wisdom of corporate tax cuts.

Federal taxes reduce corporate profits. Tax cuts increase profits. Is Reich saying that increasing corporate profits would be bad for America?

2. Trump’s corporate tax cut will will bust the federal budget. According to the Congress’s own Joint Committee on Taxation, it will reduce federal revenue by $2 trillion over 10 years. This will either require huge cuts in programs for the poor, or additional tax revenues from the rest of us. 

Here, Reich demonstrates shocking ignorance of Monetary Sovereignty. Unlike state and local governments, the federal government has the unlimited ability to create its own sovereign currency, the dollar. It never can run short of dollars.

Reducing tax revenue does not require the federal government to make “huge cuts in programs for the poor, or additional tax revenues from the rest of us.” 

Even if all federal tax collections fell to $0, the federal government could continue spending forever.

It would be astounding if a former Secretary of Labor and the author of fourteen books, including one titled, “Saving Capitalism,” did not understand the fundament truths of federal finance and of Monetary Sovereignty.

One only can wonder, is it ignorance or intent?

3. The White House says the tax cuts will create a jump in economic growth that will generate enough new revenue to wipe out any increase in the budget deficit. This is supply-side nonsense.

The Congressional Research Service (CRS) reviewed tax cuts since 1945 and found no evidence they generate economic growth. Ronald Reagan and George W. Bush both cut taxes, and both ended their presidencies with huge budget deficits. Bill Clinton raised taxes, and the economy created more jobs than it did under Bush or Reagan.

This is wrong in so many ways, one scarcely knows where to begin. Well, let’s begin with this: The formula for Gross Domestic Product, the most common measure of the economy is: GDP = Federal Spending + Non-federal Spending + Net Exports.

It is clear that cutting taxes will, by formula, increase GDP.  Every dollar paid in federal taxes is a dollar lost to the economy and causes a reduction in GDP.

There is, however, a distinct difference between a reduction in tax rates, and a reduction in tax collections.  As the CRS said, “Throughout the late-1940s and 1950s, the top marginal tax rate was typically above 90%; today it is 35%.” But virtually no one paid that 90% rate.

Bottom line: Trump is correct that cuts in federal tax collections will increase economic growth.

But Reich says Trump also claims, tax cuts will bring in enough new revenue to wipe out any increase in the budget deficit. Reich calls this “supply-side nonsense.”

Reich is correct when he calls this “supply-side nonsense.” Cutting tax rates does not increase tax collections.

But Reich is horribly wrong when he implies that reducing the federal deficit should be a government goal. Dollars are created in two ways and destroyed in two ways:

Dollars are created by federal deficit spending and by most forms of lending. Dollars are destroyed by federal taxes and by loan payoffs.

Deficit reduction (aka austerity) always is recessionary.  When Reich uses the words, “Appallingly Dumb” those words should be applied to any deficit reduction scheme.

Further, when Reich says, “The Congressional Research Service (CRS) reviewed tax cuts since 1945 and found no evidence they generate economic growth,” that simply is not true.

Here is what the CRS report actually said:

“There is not conclusive evidence, however, to substantiate a clear relationship between the 65-year steady reduction in the top tax rates and economic growth.”

The CRS was talking not about “tax cuts” (meaning cuts in tax collections) but rather about cuts in top tax rates. Huge difference, which Reich surely must know.

Since virtually no one was paying those top tax rates, of course there was no “conclusive evidence” of a relationship to economic growth. If any taxes at all were collected, the amounts would have been too minuscule to make any conclusive difference in GDP.

Finally, when Clinton raised taxes and reduced deficits (he actually ran a surplus), he caused a recession, as federal surpluses always do.

4. American corporations don’t need a tax cut. They’re already hugely competitive as measured by their profits – which are at near record highs.

Reich is saying, American corporations don’t “need” higher profits. What can one say about such an idea other than it is, to use Reich’s own words, “appallingly dumb.”

What next? We don’t “need” economic growth?

5. The White House says corporations will use the extra profits they get from the tax cut to invest in more capacity and jobs. Rubbish. They’re now using a large portion of their profits to buy back their shares of stock and to buy other companies, in order to raise their stock prices. There’s no reason to suppose they’ll do any different with even more profits.

Ah, yes, one last bit of silliness from Reich.

If corporations are using a “large portion” of their profits to buy back shares, to whom are those dollars going. Answer: To shareholders, just as dividends do. Buybacks are another form of dividends.

Unless you oppose corporations paying dividends, you shouldn’t oppose corporations buying back stock.  The dollars go to exactly the same hands.

The sole objection (and it is an important one) is that the dollars would be better spent on increased salaries that go to lower-paid workers (the “99%”) than to the 1%.  Buybacks increase the Gap between the rich and the rest.

But, in no case are dollars better directed to the federal government in the form of taxes. Federal taxes take dollars from GDP.

[Aside: State and local taxes do not reduce GDP. Those tax dollars remain in the money supply.]

In summary, it’s difficult to say what hurts the economy more: Trump’s preference for the rich over the rest, or Reich’s promulgation of “The Big Lie,” that federal taxes are necessary to fund federal spending.

Take your pick.

Rodger Malcolm Mitchell
Monetary Sovereignty

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The single most important problems in economics involve the excessive income/wealth/power Gaps between the have-mores and the have-less.

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.

Implementation of The Ten Steps To Prosperity can narrow the Gaps:

Ten Steps To Prosperity:
1. ELIMINATE FICA (Ten Reasons to Eliminate FICA )
Although the article lists 10 reasons to eliminate FICA, there are two fundamental reasons:
*FICA is the most regressive tax in American history, widening the Gap by punishing the low and middle-income groups, while leaving the rich untouched, and
*The federal government, being Monetarily Sovereign, neither needs nor uses FICA to support Social Security and Medicare.
2. FEDERALLY FUNDED MEDICARE — PARTS A, B & D, PLUS LONG TERM CARE — FOR EVERYONE (H.R. 676, Medicare for All )
This article addresses the questions:
*Does the economy benefit when the rich can afford better health care than can the rest of Americans?
*Aside from improved health care, what are the other economic effects of “Medicare for everyone?”
*How much would it cost taxpayers?
*Who opposes it?”
3. PROVIDE A MONTHLY ECONOMIC BONUS TO EVERY MAN, WOMAN AND CHILD IN AMERICA (similar to Social Security for All) (The JG (Jobs Guarantee) vs the GI (Guaranteed Income) vs the EB (Economic Bonus)) Or institute a reverse income tax.
This article is the fifth in a series about direct financial assistance to Americans:

Why Modern Monetary Theory’s Employer of Last Resort is a bad idea. Sunday, Jan 1 2012
MMT’s Job Guarantee (JG) — “Another crazy, rightwing, Austrian nutjob?” Thursday, Jan 12 2012
Why Modern Monetary Theory’s Jobs Guarantee is like the EU’s euro: A beloved solution to the wrong problem. Tuesday, May 29 2012
“You can’t fire me. I’m on JG” Saturday, Jun 2 2012

Economic growth should include the “bottom” 99.9%, not just the .1%, the only question being, how best to accomplish that. Modern Monetary Theory (MMT) favors giving everyone a job. Monetary Sovereignty (MS) favors giving everyone money. The five articles describe the pros and cons of each approach.
4. FREE EDUCATION (INCLUDING POST-GRAD) FOR EVERYONE Five reasons why we should eliminate school loans
Monetarily non-sovereign State and local governments, despite their limited finances, support grades K-12. That level of education may have been sufficient for a largely agrarian economy, but not for our currently more technical economy that demands greater numbers of highly educated workers.
Because state and local funding is so limited, grades K-12 receive short shrift, especially those schools whose populations come from the lowest economic groups. And college is too costly for most families.
An educated populace benefits a nation, and benefitting the nation is the purpose of the federal government, which has the unlimited ability to pay for K-16 and beyond.
5. SALARY FOR ATTENDING SCHOOL
Even were schooling to be completely free, many young people cannot attend, because they and their families cannot afford to support non-workers. In a foundering boat, everyone needs to bail, and no one can take time off for study.
If a young person’s “job” is to learn and be productive, he/she should be paid to do that job, especially since that job is one of America’s most important.
6. ELIMINATE FEDERAL TAXES ON BUSINESS
Businesses are dollar-transferring machines. They transfer dollars from customers to employees, suppliers, shareholders and the federal government (the later having no use for those dollars). Any tax on businesses reduces the amount going to employees, suppliers and shareholders, which diminishes the economy. Ultimately, all business taxes reduce your personal income.
7. INCREASE THE STANDARD INCOME TAX DEDUCTION, ANNUALLY. (Refer to this.) Federal taxes punish taxpayers and harm the economy. The federal government has no need for those punishing and harmful tax dollars. There are several ways to reduce taxes, and we should evaluate and choose the most progressive approaches.
Cutting FICA and business taxes would be a good early step, as both dramatically affect the 99%. Annual increases in the standard income tax deduction, and a reverse income tax also would provide benefits from the bottom up. Both would narrow the Gap.
8. TAX THE VERY RICH (THE “.1%) MORE, WITH HIGHER PROGRESSIVE TAX RATES ON ALL FORMS OF INCOME. (TROPHIC CASCADE)
There was a time when I argued against increasing anyone’s federal taxes. After all, the federal government has no need for tax dollars, and all taxes reduce Gross Domestic Product, thereby negatively affecting the entire economy, including the 99.9%.
But I have come to realize that narrowing the Gap requires trimming the top. It simply would not be possible to provide the 99.9% with enough benefits to narrow the Gap in any meaningful way. Bill Gates reportedly owns $70 billion. To get to that level, he must have been earning $10 billion a year. Pick any acceptable Gap (1000 to 1?), and the lowest paid American would have to receive $10 million a year. Unreasonable.
9. FEDERAL OWNERSHIP OF ALL BANKS (Click The end of private banking and How should America decide “who-gets-money”?)
Banks have created all the dollars that exist. Even dollars created at the direction of the federal government, actually come into being when banks increase the numbers in checking accounts. This gives the banks enormous financial power, and as we all know, power corrupts — especially when multiplied by a profit motive.
Although the federal government also is powerful and corrupted, it does not suffer from a profit motive, the world’s most corrupting influence.
10. INCREASE FEDERAL SPENDING ON THE MYRIAD INITIATIVES THAT BENEFIT AMERICA’S 99.9% (Federal agencies)Browse the agencies. See how many agencies benefit the lower- and middle-income/wealth/ power groups, by adding dollars to the economy and/or by actions more beneficial to the 99.9% than to the .1%.
Save this reference as your primer to current economics. Sadly, much of the material is not being taught in American schools, which is all the more reason for you to use it.

The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.

MONETARY SOVEREIGNTY