If there’s one thing Dean Heller absolutely totes adorbs about Donald Trump more than anything else, it’s Trump’s “pro-growth” agenda, by which Heller means tax cuts for rich people. And the person Heller repeatedly moons over while gushing about prospective tax cuts is Heller’s new BFF, Treasury Secretary Steve Mnuchin.
After the hilarious health care debacle, and with Trump and the Republicans having to negotiate with themselves to even avoid a government shutdown, there’s a fair amount of buzz that this crowd can’t pass tax cuts for rich people. Alas, that seems like wishful thinking. Heller was mercifully granted a reprieve from having to vote on Trumpcare. Cutting taxes on corporations and the wealthy, by contrast, is something Heller is itching to loudly, proudly do — and then, pompoms aloft, jump up and down and cheer about it ever after.
Not that big tax cuts are any sounder, policy-wise, than repealing Obamacare without a credible replacement. Trumpcare would have tossed millions from health coverage; tax cuts will blow up the deficit.
But Mnuchin, who Heller pretended to yell at once, for headlines, has an answer for that, an answer with which Heller not only agrees, but surely finds irresistible: “The tax plan will pay for itself with economic growth.”
Give rich people more money and they’ll invest it in business and that means they’ll have to hire more workers and there will be so much prosperity that tax revenues will roll in hand over fist and … it’s the same supply-side elixir Republicans have been selling (and Democrats, too often, buying), for 40 years. Except now they call it “dynamic scoring.”
Would you like to rehash arguments over Reaganomics? Good, me neither. But I would like to revisit something Mnuchin’s former employers at Goldman Sachs said shortly after Trump was elected, which is to say shortly before Trump drained the swamp by putting Goldman Sachs people in charge of the U.S. economic policy (again). As reported in Market Watch:
S&P 500 companies will spend about $780 billion on share buybacks in 2017, marking a 30% rise from 2016, buoyed by corporate tax reform and the repatriation of cash from overseas, Goldman Sachs said Monday.
Buybacks will account for the greatest share of cash use by S&P 500 companies for just the second time in 20 years, analysts wrote in a note. They are expecting companies to spend a total of $2.6 trillion next year, with 52% going to investing for growth, in the form of capital spending, research & development and mergers and acquisitions. The remaining 48% will go to shareholder awards, in the form of share buybacks and dividends.
“We expect tax reform legislation under the Trump administration will encourage firms to repatriate $200 billion of overseas cash next year,” analysts led by David Kostin wrote. “ A significant portion of returning funds will be directed to buybacks based on the pattern of the tax holiday in 2004.”
Here’s how I described stock buybacks in a piece I did for Desert Companion a couple years ago:
When corporations repurchase their own shares, they take shares off the market. That (usually) raises the price of remaining shares, to the benefit of the wealthiest investors, whose ownership of U.S. stock is of course inordinately large. Apple has been leading the buyback frenzy. “Activist” investor and occasional Las Vegan Carl Icahn has relentlessly bullied Apple into bigger and bigger buybacks — some $200 billion over a three-year period that will not be spent to build a phone that can hold a charge or increase salaries at the Genius Bar or in Chinese sweatshops, but to further enrich people like Icahn.
CEO pay packages are almost always tied to share price. So even as more and more working Americans are getting sucked deeper into financial black holes, CEO compensations have gone supernova, thanks in large part to stock prices manipulated by buybacks.
Yes, tax cuts can stimulate the economy and boost economic growth. But stock buybacks are also an excellent example of why economists (as opposed to politicians and radio-show hosts) view tax cuts as among the least effective forms of stimulus, bang-for-buck wise. So much of the money doesn’t, well, trickle down.
Heller evidently has a habit of covering his ears and saying “blahblahblabblah” when people who displease him say anything about the economy (see his repeated false claims that no one in Washington D.C. said the words “economic growth” during the entire Obama administration). There is no reason to believe Heller has considered how stock buybacks are merely exhibit A among the evidence that cutting taxes on rich people is not the most efficient — and far the from the fairest — way to create jobs and stimulate economic growth.
But Heller’s faith in the market economy seems pretty one-dimensional; it doesn’t allow for complications. Growth is “good” and that’s all he needs to know. This is why we’ll never see Heller thoughtfully ponder why Nevada’s economy has grown, even as median household income hasn’t. His buddy Mnuchin presumably could explain it to him. But one of the reasons the treasury secretary and Heller get along so wonderfully is that perverse maldistribution of wealth is something about which neither one of them seems to give a shit.