12/19/17: The tax bill passed, now what? The republicans are set to celebrate a longed for victory. But how should we measure success? do we just check it off a list today, or do we wait to measure what today’s action causes? The bulk of economists that we have been following warn that the tax cuts, mainly focused on large corporations and the well to do, will lead to massive deficits.
The Republicans argue that the tax cuts will pay for themselves by creating more jobs and higher wages, while leading to higher tax collections. And they may be right. But what if they aren’t? What if the economists are right? Can we safely assume that no one knows for sure that these tax cuts will be successful at stimulating the economy, creating more jobs, and if the “trickle down” effect will create more wealth for everyone. What makes the administration appointees smarter than the mainstream of professional economists?
Using some logic, in a case like this, no one knowing for sure what the future holds, maybe being a 50/50 coin toss. logicians would correctly argue to weigh the outcomes if the economists are right and the Republicans are wrong and vice versa, since no one has sufficient certainty of outcomes.
So knowing what we do know already, that the tax bill largely rewards the wealthiest folks, gives a pittance to the middle class, and actually takes away from those most in need (the Republicans are already talking about cuts to Medicare, Medicaid, and Social Security), (The cuts mentioned will be the bow to the hardline deficit hawks, without which the bill would not have passed). and absent the hoped for stimulus, will create unfathomable deficits. (A recent well researched article in the Atlantic reports that, in 2018, “the 670,000 households earning more than $1,000,000 a year will collectively benefit more from this bill than the 113,000,000 families earning less than $75,000”).
So let’s give the Republicans plenty of room. Say there is only a 25% (and not 50%) chance that the tax cuts fail to create the offsetting stimulus, dramatically ballooning the deficit. Surely rational folks would agree that there is at least some risk that the stimulus calculous is wrong, and if so, we all need to look at the outcome of a miscalculation. In short, let’s say the Republicans are wrong.
The government will either have to borrow money, much more money, or print money, to pay for all the things that Trump and the Republicans want to do (that is, build the wall, reinforce the military, rebuild the infrastructure, etc.) . Let alone the things we are already doing. All while insisting that their wealthy constituents pay less for them.
Well Trump has a bad history of defaulting on debt, even using the bankruptcy code to bail himself out. So if they miscalculate, the harm to our lenders will be enormous. Interest rates, even short of an actual default, will surely perk up, while bond buyers wait for better rates before committing more funds, like a tide going out. At the very least, the interest on our ballooning deficit will overwhelm our economy. Its pretty close to doing that already.
This means that the government will have no choice but to accelerate inflating our currency, that is, simply running the printing presses 24 hours a day, 7 days a week, no end. It’s easy to print money. And what’s scary about that is that inflation tends to benefit real estate, Trumps’ primary holding, making his mortgages easier to pay off, while increasing rent, hotel rates, and commercial property values. Trump surely knew this, if little else. And if he didn’t, it probably was explained to him by one of his collaborators.
We know a bit from studying history what inflation and hyper-inflation was like. Not fun at all if retirees have to use a month of savings to buy a day’s worth of groceries.. Ditto for all folks on a fixed income. Even if the risk is only 25%, is it worth taking? The problem is that this is a win/win risk for Trump.
The frustrating thing is that all the rest of us are thrust into taking that risk by a minority party that does not have the interest of most of its’ citizens in mind. It is a group that generally would actually either benefit from hyper-inflation or not be harmed by it.
And what if the Republicans are right? That the tax bill will dramatically stimulate the economy producing new jobs. Wait, aren’t we about at full employment already?
How much real benefit will be created? Well we already know that many of our citizens will be hurt by this tax bill.. Maybe the tax bill is going to be like “good medicine”, but maybe too, there is that 25% chance that it will kill us. Most people are not that sick to want to take that chance.