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Bad governance

Democratic procedures serve a purpose

by Hans Dembowski


More money for Barron, Eric, Tiffany and Ivanka Trump.

More money for Barron, Eric, Tiffany and Ivanka Trump.

In December, Republicans in the US Congress showed the world how not to make tax policy. Even the Financial Times and The Economist, which are not run by left-wing activists, disagreed with their tax-cutting frenzy.

Just like President Donald Trump himself often does, the tax reform reminds observers of bad governance in much poorer countries than the USA. This legislation will dramatically increase the national debt and exacerbate problems of inequality. Lawmakers did not assess options diligently, but avoided the regular process that would have involved the opposition party and various interest groups. Their secretive arrogance meant that no one could get a clear understanding of the reform impacts. Some tax cuts were temporary, others permanent, and various exemptions will disappear.

Republican leaders pledged absurd things. No, the tax cuts will not pay for themselves by triggering spectacular growth that leads to additional tax revenues. This promise neither worked out when the Reagan administration made it in the 1980s nor when the Bush administration did so 20 years later.

Republicans posed as deficit hawks when Barack Obama was president, but now they have decided to let the national debt grow by up to $ 1.5 trillion in ten years. When Obama took office, the economy was depressed, but they opposed fiscal stimuli. Now that the economy is close to full employment, they feel the need to boost growth.

Company profits are currently quite high, however, and most of that money is being invested in financial assets. There is no reason to believe that, as Republicans claim, yet higher profits due to tax cuts will be used for the job-creating expansion of production capacities. On the other hand, the USA needs public investment in infrastructure, but less tax money means even less scope for funding. 

The doublespeak was amazing. During the election campaign last year, Trump claimed that high stock-market indices indicated a dangerous bubble, and that increasingly good employment data were fake news. The trends have not changed, but he and his Republican friends now claim that the data prove that they are doing wonderful work. They have a habit of shifting goalposts, but – apart from taxes – have failed to pass any major legislation.   

Competent journalists have pointed out these and many other shortcomings. It is obvious that something is going seriously wrong when the pro-business Financial Times and the Economist disagree profoundly with tax cuts.  

Among other things, the Economist bemoaned the Republicans’ effort to rush through legislation without appropriate public deliberation: “A robust and factual debate is essential to good policymaking.” This aspect cannot be over-emphasised. By its very nature, tax legislation is complex. Loopholes and unintended side effects must be avoided, so it is dangerous to draft reforms in haste.  Inviting public responses to draft legislation is a good way to avoid mistakes. Democratic procedures serve a purpose, and using shortcuts and bypasses is an expression of arrogant hubris.

As the Economist also pointed out, “the whiff of self-enrichment does not help”. President Trump has unprecedentedly kept his tax returns secret, so one cannot precisely say how the new tax regime will affect his billionaire’s wealth. He says it will hurt him, but that is probably a lie. He owns the kind of businesses that benefit from the reform. Moreover, the reduction of the estated tax will one day substantially boost his children's inheritence.

By the way, the reform proposals flew in the face of Trump’s campaign promises. The beneficiaries will not be the middle class and even less the people who are suffering the adverse impacts of globalisation. On the contrary, it is foreseeable that Republicans will now want to cut social-protection spending to rein in the debt.

All summed up, this is the kind of legislation one would expect from an arrogant autocrat in a poor country. The elite will become still more privileged, and personal benefits accrue to the president and his family. Republican legislators paid no attention to what resources the government needs to pay for the services it is supposed to deliver. Even before they passed the tax reform, conservative Senator Orrin Hatch began to argue that they had run out of money to spend on health care for poor children.

Hans Dembowski is editor in chief of D+C Development and Cooperation / E+Z Entwicklungs und Zusammenarbeit.