The December 2017 Tax Cut Law: Rationale, Effects and Moral Landscape

The GOP tax cut bill was sold to Americans as tax cuts for the middle class and tax increases for wealthy people like the president that would pay for themselves. It has turned out that the benefits flow mostly (~80%) to wealthy people like the president and corporations. It has mixed effects on middle class taxpayers, with decreases for most but increases for some. The president repeatedly claimed his tax would increase, but in fact they significantly decreased. Fact checker Snopes rates as true the claim that the Republican-sponsored Tax Cuts and Jobs Act includes a deduction benefitting golf course owners.

CNBC reported that “corporate taxes collected for the October-December [2018] period have fallen 17 percent from a year earlier, while taxes collected from individuals have fallen about 4 percent.” Corporations used a significant slice of their tax benefits to buy back stock to reward stock owners, including executives. Benefits to the economy from corporate spending on equipment, R&D and employees appear to be fading. That data contradicts congressional Republican claims in 2017 that the tax cuts would be revenue-neutral, with the federal deficit projected to add about $1-2 trillion in 2018-2025.

On top of the 2017 tax cut law, the president wanted to go one step further to help redistribute additional wealth to the wealthy. The New York Times wrote in 2018: “The Trump administration is considering bypassing Congress to grant a $100 billion tax cut mainly to the wealthy, a legally tenuous maneuver that would cut capital gains taxation and fulfill a long-held ambition of many investors and conservatives.

Currently, capital gains taxes are determined by subtracting the original price of an asset from the price at which it was sold and taxing the difference, usually at 20 percent. If a high earner spent $100,000 on stock in 1980, then sold it for $1 million today, she would owe taxes on $900,000. But if her original purchase price was adjusted for inflation, it would be about $300,000, reducing her taxable “gain” to $700,000. That would save the investor $40,000.

Capital gains taxes are overwhelmingly paid by high earners, and they were untouched in the $1.5 trillion tax law that Mr. Trump signed last year. Independent analyses suggest that more than 97 percent of the benefits of indexing capital gains for inflation would go to the top 10 percent of income earners in America. Nearly two-thirds of the benefits would go to the super wealthy — the top 0.1 percent of American income earners.”

In essence, this tax cut would continue a long US trend of redistributing wealth to the wealthiest individuals and households. This redistribution policy using tax law has been a treasured conservative goal for decades. For context, this represents a snapshot of what Americans think wealth distribution should be compared to what it is based on a 2010 survey.

Some candid comments from politicians and bureaucrats:
1. “This is going to cost me a fortune, this thing, believe me. This is not good for me. . . . I think my accountants are going crazy right now. . . . . This is not good for me. Me, it’s not so — I have some very wealthy friends. Not so happy with me, but that’s OK. You know, I keep hearing Schumer: ‘This is for the wealthy.’ Well, if it is, my friends don’t know about it. . . . . It’s all right. Hey look, I’m president. I don’t care. I don’t care anymore.” -- President Trump, remarks on tax plan, St. Charles, Mo., Nov. 29, 2017

2. The tax cuts will lead to a spike in Americans’ insurance premiums. Repeal of the Affordable Care Act’s individual insurance mandate is a major driver behind coming premium hikes. -- Former Trump HHS Secretary Tom Price

3. “My donors are basically saying, ‘Get it done or don’t ever call me again.'” -- Rep. Chris Collins (R-NY)

4. “The financial contributions will stop” if the GOP failed to pass its tax cuts. -- Sen. Lindsey Graham (R-SC)

5. “Get Obamacare repealed and replaced, get tax reform passed. “Get it done and we’ll open it back up.”-- wealthy Texas GOP political donor Doug Deason referring to the “piggy bank” being closed for donors

6. “Fundamentally the bill has been mislabeled. From a truth in advertising standpoint, it would have been a lot simpler if we just acknowledged reality on this bill, which is it’s fundamentally a corporate tax reduction and restructuring bill, period.” -- Rep. Mark Sanford (R-SC)

7. The tax bill won't pay for itself as claimed. Instead, the tax cuts will boost national debt by nearly $2 trillion, despite long-standing republican rhetoric that tax cuts pay for themselves by generating higher economic growth. Mulvaney acknowledged to Congress this year that the administration’s lowered its revenue projections by $1.8 trillion over the next ten years due solely to the effects of the tax cut. -- Trump budget director Mick Mulvaney

8. The tax bill is an attack on blue states that didn’t vote for the president. “They go after state and local taxes, which weakens public employee unions. And getting rid of the mandate is to eventually dismantle Obamacare.” -- Trump economic adviser Stephen Moore

9. “The most excited group out there are big CEOs, about our tax plan.” -- Trump National Economic Director Gary Cohn

10. The tax bill incentivises companies to keep some jobs overseas. “With a territorial system, there will be a real incentive to keep manufacturing overseas.” -- Sen. Ron Johnson (R-WI)

11. “If it ends up costing what has been laid out here, it could well be one of the worst votes I’ve made. I hope that is not the case, I hope there’s other data to assist, whether it’s jobs or growth or whatever.” ..... “None of us have covered ourselves in glory. This congress and this administration will likely go down as one of the most fiscally irresponsible administrations and congresses we’ve had.” -- Sen. Bob Corker (R-TN)

12. Trump speaking a few hours after he signed the bill into law to happy patrons at Mar-a-Lago “You all just got a lot richer.”

13. The average American family would get a $4,000 to $9,000 raise under President Trump's tax plan. -- Trump White House advocating for passage of the tax bill

14. The corporate tax cut isn’t “trickling down” to workers. “There is still a lot of thinking on the right that if big corporations are happy, they’re going to take the money they’re saving and reinvest it in American workers. In fact, they bought back shares, gave out a few bonuses; there’s no evidence whatsoever that the money’s been massively poured back into the American worker.” -- Sen. Marco Rubio (R-FL)

Sources:
1. https://thehill.com/policy/finance/382663-corker-tax-cuts-could-be-one-of-worst-votes-ive-made
2.https://www.theguardian.com/us-news/2017/jun/26/koch-network-piggy-banks-closed-republicans-healthcare-tax-reform
3. https://newschannel9.com/news/connect-to-congress/sen-corker-calls-congress-trump-administration-one-of-the-most-fiscally-irresponsible
4. https://www.alternet.org/news-amp-politics/here-are-6-times-republicans-told-truth-about-their-disastrous-tax-cuts
5. https://www.washingtonpost.com/news/wonk/wp/2017/10/16/the-average-american-family-will-get-4000-from-tax-cuts-trump-team-claims/
6. https://www.nytimes.com/2017/11/29/us/politics/a-main-street-tax-speech-becomes-a-trump-riff-on-the-rich.html

The moral landscape: One can argue that in a liberal democracy, a political moral imperative is to at least consider public opinion. The tax situation mostly ignores public opinion, offering only a fig leaf, but is highly responsive to and rewarding of special interest demands for more money (the data below is from a 2010 survey).

So far, the federal debt has increased contrary to what the public was told, with net wealth redistribution going to to top. In a 2018 article entitled Trump’s Tax Cut Was Supposed to Change Corporate Behavior. Here’s What Happened., the New York Times wrote: “Skeptics said that the money companies saved through tax cuts would merely increase corporate profits, rather than trickling down to workers.”

Trickle down economic theory was originally called the Horse & Sparrow theory. In an earlier, more honest period, Horse & Sparrow was used to describe the idea as feeding a horse enough oats so that some pass through and fall on the road for sparrows to pick thought the packaging before eating. We all know who the horses and sparrows are: Very few horses and very many sparrows.

Despite the foregoing moral morass, republican politicians sometimes still claim the moral high ground:

It is a matter of differing worlds views. For example, congressional republicans do not see the president profiting from his properties as anything to be concerned about in terms of corruption, actual conflict of interest, or violations of any law. By contrast many sources, and at least some conservative sources believed that the charitable foundation that Hillary Clinton and her husband controlled constituted serious perceived or actual conflicts. By comparison with the Clinton Foundation, which made its finances public, the properties that the president owns and still operates represent perceived or actual conflicts that are probably 10- to 100-fold more serious because the money flowing through them and the opacity of their operations are probably 10- to 100-fold greater.

B&B orig: 7/31/18, 5/5/18

Big Business Morality: Considering More Than Just Shareholders?

The Washington Post reports that the organization representing the nation’s most powerful chief executives, the Business Roundtable, may be reconsidering the core corporate principle that shareholders’ interests should come above all else. The overriding moral principle has been maximizing shareholder value (profits) is the top priority. Although WaPo does not couch the issue in terms of morals, corporate introspection about corporate morality and social responsibility seems to be occurring. 

But despite the rhetoric, it is unclear that any significant changes will be forthcoming. The Business Roundtable's statement is vague, short and arguably consistent with the rhetoric of existing corporations. The CEOs who signed the document could continue business mostly or completely as before and simply claim they made significant changes. Three of the five main points are:

• Supporting the communities in which we work. We respect the people in our communities and protect the environment by embracing sustainable practices across our businesses.

• Investing in our employees. This starts with compensating them fairly and providing important benefits. It also includes supporting them through training and education that help develop new skills for a rapidly changing world. We foster diversity and inclusion, dignity and respect.

• Delivering value to our customers. We will further the tradition of American companies leading the way in meeting or exceeding customer expectations.

That is aspirational, but vague to the point of being meaningless.

The origins of corporate morality: The modern corporate view of corporate responsibility to shareholders above all others dates at least back to the 1970s. A Newsweek article from 2017, Harvard Business School and the Propagation of Immoral Profit Strategies, included these comments on corporate morality:

Friedman didn't shy away from taking alarmist stances. If you want to get noticed in economics, you pretty much have to do so—just ask Paul Krugman. "[Speeches] by businessmen on social responsibility," Friedman wrote, "may gain them kudos in the short run. But it helps to strengthen the already too prevalent view that the pursuit of profits is wicked and immoral and must be curbed and controlled by external forces. Once this view is adopted, the external forces that curb the market will not be the social consciences, however highly developed, of the pontificating executives; it will be the iron first of Government bureaucrats."

It was a remarkable intellectual sleight of hand. Executives who act in ways most of us would consider moral—with an eye to the environment or some other social goal—are, Friedman said, acting immorally. When Joel Bakan interviewed Friedman for his 2005 book, The Corporation: The Pathological Pursuit of Profit and Power, the economist repeated the point he'd made nearly 40 years before, but with a twist. In Friedman's view, "hypocrisy is virtuous when it serves the bottom line," Bakan observed, "[whereas] moral virtue is immoral when it does not." 

In 1970, Nobel Prize–winning economist Milton Friedman published an essay in The New York Times Magazine titled "The Social Responsibility of Business Is to Increase Its Profits." Flouting the midcentury view (and that of the most influential faculty at the Harvard Business School) that the best type of CEO was one with an enlightened social conscience, Friedman claimed that such executives were "highly subversive to the capitalist system."

Against the backdrop of that moral mindset, is the Business Roundtable statement more fig leaf than substance? 

Does Ethnonationalism Constitute a Form of Racism?

The president nominated Steven Menashi to the New York-based Second Circuit Federal Court of Appeals. In 2010, Menashi (a Jewish American) published a law review article entitled Ethnonationalism and Liberal Democracy, which can be downloaded here. His article includes this:

“The sociologist Robert Putnam has concluded that greater ethnic diversity weakens social solidarity, fosters social isolation, and inhibits social capital: ‘[I]nhabitants of diverse communities tend to withdraw from collective life, to distrust their neighbours, regardless of the colour of their skin, to withdraw even from close friends, to expect the worst from their community and its leaders, to volunteer less, give less to charity and work on community projects less often, to register to vote less, to agitate for social reform more, but have less faith that they can actually make a difference, and to huddle unhappily in front of the television.’ These findings confirm that the solidarity underlying democratic polities rests in large part on ethnic identification.

Surely, it does not serve the cause of liberal democracy to ignore this reality. .... The trouble, however, is that ‘the democratic principle does not define the framework within which it operates.’ Because it embraces a principle of universalistic human equality, modern democratic thinking cannot justify the particularistic national context in which liberal democracy was nurtured and continues to thrive. The difficulty with the modern attitude is that it assumes human equality exists prior to political society and that liberal democracy springs logically from this preexisting fact. But this gets the chronology wrong. ‘We are not born equal; we become equal as members of a group on the strength of our decision to guarantee ourselves mutually equal rights,’ writes Arendt. ‘Equality, in contrast to all that is involved in mere existence, is not given us, but is the result of human organization insofar as it is guided by the principle of justice.’

People face the reality of difference; there are not only the distinctions of ethnicity, sex, religion, and so on, but also each individual’s particular attributes. People become equal through a mutual decision to disregard such differences in the distribution of political rights. In this way, human equality is the product of liberal democracy rather than its source.”

It is important to recognize equality “as a working principle of a political organization in which otherwise unequal people have equal rights” because otherwise equality “will be mistaken for an innate quality of every individual, who is ‘normal’ if he is like everybody else and ‘abnormal’ if he happens to be different.” A political order may insist that certain human differences are irrelevant while people themselves regard those differences as meaningful and are consequently reluctant to recognize others as their equals. Where the political order does not account for differences which correspond to deeply felt allegiances, the fact of difference becomes a threat to the political order. “The dark background of mere givenness, the background formed by our unchangeable and unique nature, breaks into the political scene as the alien which in its all too obvious difference reminds us of the limitations of human activity—which are identical with the limitations of human equality. Thus, the Weimar Republic saw no difference between Jews and Gentiles while a majority of Germans found the difference all too meaningful—and their insistence upon difference found horrific violent expression.

Sometimes, then, differences must be openly acknowledged in the political sphere so that equality can be established on the basis of our differences rather than in denial of them. National rights—and national governments—serve this role.”

Rachael Maddow aired a segment characterizing the article as an argument that ethnic purity is an important aspect of liberal democracy.

 

Several sources characterized Maddow's segment as a smear job that mischaracterized what Menashi was saying in his article. Mensahi rebutted Maddow's piece, with one source (The Daily Signal, a radical right source) citing portions of his response: “I take seriously the role of the United States as a nation of immigrants and of Israel as a home for the Jewish people, both of which are important because of suffering that has been caused by ethnic nationalism. ..... Carrie Severino, general counsel for the Judicial Crisis Network [a radical right source], tweeted about Maddow: ‘Had she actually read his law-review article, she would know that Menashi says the exact opposite of what Maddow claims. Intentional distortion?’”

Law and Crime, a factually reliable center-left source, wrote: “Writing for the National Review, attorney Ed Whelan argued that Maddow’s segment was rife with false claims and grossly distorted the article’s scope and purpose: Menashi’s argument about national identity is clearly not about ‘racial purity’ or a ‘unifying race.’ Indeed, the fact that Israelis from Ethiopia are black makes it impossible to take seriously the claim that Menashi is making a case for “racial purity.” Menashi further states that it ‘is not even clear … that Israel’s national identity can even be described as ‘ethnic’” (in a narrow sense of that concept), as Israeli Jews come from ‘Argentina, Ethiopia, Germany, Morocco, Russia, and Yemen.’”

To provide some context, a 2018 research article (downloadable here), Ethnic Diversity and Social Trust. A Critical Review of the Literature and Suggestions for a Research Agenda, commented: “In this chapter we critically review the empirical evidence for a negative relationship between contextual ethnic diversity (measured locally within countries) and social trust. We cautiously conclude that there are indications of a negative relationship, although with important variations across study characteristics including national setting, context unit analyzed, and conditioning on moderating influences.” The authors go on to propose additional research to advance understanding of possible relationships between ethnic diversity and social trust.

What is going on here?: Is Menashi a racist? Is he arguing for a white ethnic nation and against ethnic or racial diversity? Or, as the Daily Signal writes do Maddow and MSNBC “need to apologize for this anti-Semitic attack” which some call a racial smear?

How Can We Assess Racism?

In a recent discussion on another topic, the matter of how science can measure racism came up. The issue was raised in the context of our president arguably being racist, but what about some or maybe most of his followers? Some social science data indicated that social unease, not racism per se or economic concerns was the main factor in Trump's election. This comment started a discussion on how to think about racism as a complex matter of biology and overt behavior: It is more complex than that. For most affected folks, it's not racism per se. It is fear-unease about demographic and social changes (which includes a race component, but not necessarily racism), America's shifting global military and economic dominance, etc.

A response to that was expressed as follows:

"Demographic and social changes" is code for racism, full stop. I realize you think it's more complex than that, but when has this ever been used in a way that did not straightforwardly equate to saying "whites are afraid of their new status as a non-majority?" Nothing you say here suggests any other meaning. Nothing I have ever seen or heard has ever made a meaningful distinction between whatever complexities are supposed to accompany this and racism.

Assuming for the moment that I'm right in this regard, then what does it mean to say that for "affected folks" are motivated by the gradual dissolution of white political dominance except that whites are motivated by racism?

If whites are motivated by racism, then why should any of the politics of the post civil rights era have been possible? Why should lax immigration policies - legal or otherwise - have been allowed to continue for so long? More to the point: why should this sudden concern about a trend which is literally decades old suddenly manifest in a way which is so plainly coincident with economic crises for working class white males, who've suffered more and recovered less over the long run from the financial crisis than any other demographic group? ( And for that matter, why is it that this fact is so rarely acknowledged? )

That led to this: One paper that influenced my thinking made these comments: “Results do not support an interpretation of the election based on pocketbook economic concerns. Instead, the shorter relative distance of people’s own views from the Republican candidate on trade and China corresponded to greater mass support for Trump in 2016 relative to Mitt Romney in 2012. Candidate preferences in 2016 reflected increasing anxiety among high-status groups rather than complaints about past treatment among low-status groups. Both growing domestic racial diversity and globalization contributed to a sense that white Americans are under siege by these engines of change.”

Trump and other authoritarians are playing on those sentiments by fomenting all sorts of bigotry including racism.

Which led to this:  The question is whether or not their actions are racist, or in other words whether or not they are holding certain races to different standards. The answer to that question is unambiguously "yes". Chanting "Jews will not replace us" is an example of racism, though in this case primarily a sinister, if veiled, threat.

Assuming that the flawed logic Dr. Mutz applies is representative, the flaw that she and some other social scientists are making is an important category mistake. The mistake is believing and arguing that the kind of data involved here allows one one to dissect and establish a cause and effect relationship between one or more psychological states (conscious or not) and causes of behavior.
In this case, the observations of behavior that one can call 'consistent with racism' can arise from multiple causes including 'social unease' over impending demographic change, economic complaints or pressures, actual racism and maybe other psychological states the data is not designed to detect.

Exactly. Treating racism as the original cause of all this is closed minded, and it literally denies the principle of sufficient reason, a bedrock principle of scientific endeavor. We must ask ourselves what the underlying causes of racism are, and in this regard the Civil War era yields many lessons.

I generally agree here, too. I do disagree with the term "actual racism", however, since the only distinguishable feature of racism is how the racist treats other races, not what they think. Since I disagree with the idea that racism is a phenomenon without its own ulterior reasons, I can agree that the causes for it might be disparate, but I cannot agree with the idea that a given cause makes the resulting behavior any more actualized.

It's important to bear in mind the reasons why we're having this conversation, why we're trying to understand what motivates contemporary white racism. I hope my example of the heart attack and anxiety treatments makes this clear: we cannot expect that a mismatched treatment will successfully cure the patient - quite the opposite, in fact. The purpose of this inquiry is to identify an effective strategy to combat white racism.

In my view, clamping down on speech, whether dark or not, is not helpful in the long run. Suppression of shared ideologies no longer works in our computerized, connected social networks, and I think some sort of eruption will happen sooner or later, and its opponents will be less aware of it, and therefore less prepared, than they should be. HRC's campaign is an object lesson in this regard.

I think material explanations are more useful than psychological ones, not least in part because the former can help explain the latter, but the latter cannot explain the former. This does offer the possibility of a causal relationship being established which can be empirically tested. We can ask, for example, if racist behavior becomes more widespread or severe during periods of economic prosperity. Yes, this too is only a correlation, but unlike correlating psychological causes it suggests a course of action, an experimental strategy for mitigating racism. Similarly, we can test the explanation from social unease, and its relationship to racist behavior and economic status. At a first approximation we can ask ourselves how economic prosperity might affect social unease and/or mobility, etc.

The answers to these questions, the results of these tests will offer a much more effective strategy than merely stating the symptoms will.
                                                                                                                                                  

It seems reasonable to believe that racist behavior can arise from different mental or emotional states, including fear, feelings of unease over economic pressures and demographic changes. Although mental states can be detected in various ways, it isn't clear that (1) there is a single mental cause for observed overt behavior that appears to be racism, or (2) that science can accurately measure mental cause and effect at present.

The discussion included an assertion that "clamping down on speech, whether dark or not, is not helpful in the long run," seems contradicted by current cognitive science belief about politics, this for example about how the mind processes incoming information:

The first step is automatic, uncontrollable unconscious processing, which occurs in less than one second. In this mode of thinking, unconscious feelings precede and shape conscious thinking before we are aware that this has happened. 

The available evidence reveals this first step is heavily biased if the information is contrary to personal beliefs, morals and social identity. In those situations, unconscious processing distorts information to make it more acceptable to the person’s pre-existing beliefs, morals and identity. Information that confirms pre-existing beliefs, morals and identity, even if it is false, tends to be uncritically accepted as true.

Thus, whether we like it, or accept it or not, our brains respond emotionally and judges incoming information before we are aware of it. Racism can arise from that. So can fear and other emotional responses.

With no exceptions that I can recall, all the Trump supporters I have dealt with over the years forcefully claim they are not racist. Does their support for an arguably racist leader make them racist? With no exceptions that I can recall, all of them forcefully deny that Trump is a racist. Should we care what their mental state is and just look at overt behaviors and make judgments on that basis alone? What is fair here? What is possible in practice? How much can science say about this without a solid basis in probative empirical data?