America’s tax-cut Peronists

Namethe country. Its leader rails against foreigners, erects various importbarriers, and pushes for low interest rates and lots of cheap creditfor favoured sectors. Government debt is already high, but the would-bestrongman in power decides to pile on even more by increasing the budgetdeficit, arguing that this will boost prosperity to previouslyunattainable levels. While the government claims to represent the commonpeople, state contracts are awarded to friends of friends.Theanswer, of course, is Argentina under Juan Per?n, who was in power from1946 to 1955 (and again briefly in 1973 and 1974), and many of hissuccessors. One of the richest countries in the world around 1900 waslaid low by decades of unsustainable economic policies that made peoplefeel good in the short run but eventually ended in disaster, such asrunaway inflation, financial crisis, and periodic debt defaults. (To beclear, Argentina’s economic policies today are quite different; for deepand up-to-date analysis, I recommend the work of my colleague AlbertoCavallo.)But if your answer was the United States under PresidentDonald Trump, you would not be far off. There is reason to fear that theUS is now on the path to what was previously known as Latin Americanpopulism.Consider the remarkable volte-face of the Republican Partyon fiscal responsibility. There used to be a national debt clock in thehearing room of the House Financial Services Committee, and Republicanswould rant about government profligacy as it ticked upward. When I wasin that room recently, the clock was “under repair.”Self-proclaimed“fiscal conservatives,” such as Mick Mulvaney (a former member of theHouse of Representatives who now runs government finances as head of theOffice of Management and Budget), are close to enacting a massive taxcut, despite knowing that it will drive up the deficit and the nationaldebt. Mulvaney and his colleagues could not care less.Despitecontrolling both Houses of Congress and the presidency, the Republicansare beset by internal divisions. As a result, they are finding it hardto “pay for” the tax cuts with any reduction in tax expenditures(incentives for various activities such as corporate borrowing, mortgagefinancing, or retirement saving). But Republicans are deeply committedto gigantic tax cuts, in large part because their donors are demandingthat they enact them. As a result, the US will merely end up with biggerbudget deficits.Facts used to matter in Washington, at least alittle bit. But this is no longer the case in the age of Trump, at leastnot when it comes to taxes. Instead, the strategy has been to state, ina bald-faced manner whatever one wants to believe and heap ill-manneredabuse on anyone who cites evidence to the contrary.In Chapter 3 ofWhite House Burning, James Kwak and I reviewed what happened after thetax cuts enacted in 2001 under George W Bush. Great promises were madeabout the cuts, including that they would help most Americans. But whilethey did help rich people become richer, there is no evidence that theydelivered faster growth or higher incomes for the middle class.Instead, they boosted the budget deficit and contributed significantlyto increasing the US national debt (by around $3tn through 2010), whichweakened the government’s ability to respond to crises, either in termsof national security or financial instability.I have testifiedrepeatedly before Congress on matters of fiscal policy. During thefinancial crisis of 2008-2009, Republicans were certainly interested inthe facts. But this quickly tapered off, most notably in the House ofRepresentatives. In fact, Kevin Brady, the representative who told memost clearly that he was not interested in looking at even moderatelyinconvenient facts, is now Chair of the House Ways and Means Committee,which plays a key role in what happens with taxes.Ron Wyden, thesenior Democrat on the Senate Finance Committee, calls the proposedRepublican tax cuts “a middle-class con job.” He is being polite.Thecut in corporate taxes that the Republicans are likely to support willnot boost wages significantly. As the Congressional Research Service,describing the broader blueprint put forward by House Speaker Paul Ryan,has put it, “the plan’s estimated output effects appear to be limitedin size and possibly negative.”Including all possible positiveeffects of the Republican proposals, the Tax Policy Centre has concludedthat federal government “revenue would fall by between $2.4tn and$2.5tn over the first 10 years and by about $3.4tn over the seconddecade.”The Trump administration has responded to this type ofsensible, fact-based analysis in the way one has come to expect: bybeing rude.American populism in the Trump era, though promisinggreat gains for working people, will in fact benefit only those who arealready rich. To be fair, this is quite a twist on anything Per?n couldhave imagined pulling off. The results of irresponsible populism,however, are always the same. – Project Syndicate* Simon Johnsonis a professor at MIT’s Sloan School of Management and the co-author ofWhite House Burning: The Founding Fathers, Our National Debt, and WhyIt Matters to You.