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Shawn Vestal: Former White House official skeptical of the ‘magic math’ of tax cuts

Fri., Oct. 27, 2017, 6 a.m.

In this photo March 22, 2013 file photo, the exterior of the Internal Revenue Service (IRS) building in Washington. Most Americans say President Donald Trump's tax plan would benefit the wealthy and corporations, and less than half believe the president's message that "massive tax cuts" would benefit middle-class workers, according to a new Associated Press-NORC poll. (Susan Walsh / AP)
In this photo March 22, 2013 file photo, the exterior of the Internal Revenue Service (IRS) building in Washington. Most Americans say President Donald Trump's tax plan would benefit the wealthy and corporations, and less than half believe the president's message that "massive tax cuts" would benefit middle-class workers, according to a new Associated Press-NORC poll. (Susan Walsh / AP)

Jared Bernstein says there are plenty of reasons to mistrust the “fairy dust” of tax cuts.

One of his strongest arguments is one of the most familiar: The past five years in Kansas.

In 2012, Kansas implemented a series of deep tax cuts that were, Gov. Sam Brownback said, going to be a “shot of adrenaline into the heart of the Kansas economy.” Instead, the heart of the Kansas economy seized up. Economic growth stayed firmly leashed, with the state’s economy underperforming its neighboring states and the nation dramatically. Massive budget shortfalls threatened state services to such a degree that moderate Republicans took over the Legislature and did the unthinkable: Raised taxes.

Forbes Magazine headlined it this way: “The Great Kansas Tax Cut Experiment Crashes and Burns.”

Bernstein, the former chief economic adviser to Vice President Joe Biden, says similar plans building up steam right now in the halls of Congress would have a similar effect.

“This kind of supply-side or trickle-down scheme never works, and the idea that we’re still arguing about it as if it’s plausible is one of the great failures of contemporary politics,” said Bernstein.

“Kansas found this out the hard way recently when they bought into the same trickle-down fairy dust that we’re debating now on the national stage. In fact their plan was crafted by many of the same people who crafted this plan that’s being put forth by the White House and congressional Republicans.”

Bernstein, as you can see, doesn’t buy it. The former White House official and current senior fellow at the liberal Center on Budget & Policy Priorities will speak in Spokane on Tuesday as part of a seminar focusing on the budget impacts of tax-reform proposals in Washington, D.C.

The president has put out his own very rough plan, and members of the House of Representatives are making an all-out push now for reforms that would be built around lowering the corporate tax rate significantly, cutting rates for business owners and individuals. Though the details have been kept quiet as House leadership attempts to build an unbreakable consensus among its members, critics evaluating the broad strokes see a plan that directs the vast majority of benefits to the top.

Republicans argue that tax cuts of $6 trillion over 10 years won’t inflate the deficit.

Rep. Cathy McMorris Rodgers will be one of the chief salespeople for the legislation, going on a national tour to pitch the plan as something that will “unleash” the economy, and arguing, among other things, that large corporate tax cuts primarily end up benefiting workers.

Kansas has become Exhibit A for critics opposing the tax-cut approach, but seems to have given no pause to supporters, who argue that the cuts will produce economic growth that will wash away the enormous deficits forecast by economists.

Bernstein said there is no more reason to think it will work now than there was five years ago, or 10 years ago, or 20 years ago…

“The conservative play since Reagan is you can have everything you want and you don’t have to pay for it,” Bernstein said in a recent phone interview from Washington, D.C. “We can’t engage in magic math that says you can have everything you want and big tax cuts too.”

He sees a federal budget that needs nourishment, not starvation, and said that looming budget challenges such as an aging population, expected impacts from climate change, infrastructure maintenance and other pressing needs means the government needs more revenue, not less. But it’s a testament to the success of tax-cut ideology and rhetoric – as opposed to the actual economic performance of tax cuts in practice – that even the idea of raising taxes, on anyone, in any way, is political anathema for politicians of all stripes.

Bernstein says that not only are tax cuts not going to produce widespread economic growth, but that the people who favor them don’t really believe they will, either. It’s part of a strategic cycle, he said, in which tax cuts benefit the biggest donors and produce large deficits. Tax-cutters then regain their fiscal hawkishness and target cuts in programs that help middle-class and poor Americans – a recipe for worsening the economic inequality that has become so pronounced over the past 40 years.

“These plans are not designed to help communities that are struggling to keep up in our evolving economy,” he said. “They’re not designed to provide government at any level with the resources they need to help people who’ve been left behind. They’re designed to provide very significant tax cuts for those at the top of the income scale, without any thoughts of how you offset those costs in the budget.”

Bernstein said that the tax debate is plagued by dishonesty, and particularly so with a lot of the sales pitch Trump has made for the cuts – making clearly untrue arguments that the U.S. is the highest-taxed country in the world, for example.

The White House has also argued that big cuts to the corporate tax rate will wind up benefiting workers the most; Bernstein said the only evidence you need that this isn’t true is the eagerness with which the stock market greets even talk of tax cuts.

“Nobody believes that – especially the markets, by the way, who are hungrily eyeing a tax cut, not because they think it’s going to raise workers paychecks, but because they think it’s going to raise corporate profits, despite the fact that corporate profitability is already close to historical highs,” he said.

The tax-cut debates in D.C. will doubtlessly move on, unaffected by Bernstein and other critics. After all, just as the proponents make the same claims year after year, so do the critics point out the failures of tax-cut evangelism regularly – they were loudly protesting the Kansas tax cuts in 2012, precisely predicting the economic disaster that was about to unfold.

Bernstein said he hopes we don’t reproduce that experience nationally.

“Maybe you don’t miss your water until the well runs dry,” he said. “But I’d like to think we’re a little more forward-thinking than that.”