An End to Tax Cuts in the US?

Paul Sweeney: Americans are not in favour of cutting taxes! The American Enterprise Institute, a Right Wing think tank, is saying that it’s the end of the day for Republicans who are seeking tax cuts. They argue that the tax cutters are out of tune with trends. What is happening in the US of A?

James Pethokoukis, writing in the Financial Times on 12 November 2015 said “The Republican party’s raison d’être is cutting taxes. It may even be its divine commission. God put Republicans on earth to cut taxes, the conservative columnist, Robert Novak, once said, and failure to do that means “they have no useful function”.”

He argues that the standing of Republicans with middle-class voters has improved little from 2012. He is worried as they are barking up the wrong tree, calling for even more tax cuts and that next years election may be the first time since 1948 that the Republicans have lost three consecutive elections. He even argues that tax cuts especially benefiting the richest “do not work in a time of high inequality.”

Clearly there is something stirring in the US body politic if the Right is now abandoning tax-cutting and even thinking about inequality.

The reason might be a recent YouGov study of issues in the US which found the following views:

“YouGov's latest research shows that Americans tend to be skeptical of the idea that lower taxes on the wealthy stimulates the economy, with the end result of greater wealth for everyone. 45% of Americans say that they disagree with the idea, while 29% say that they agree with it. Most Democrats (62%) disagree, while most Republicans (50%) agree with the theory. Independents tend to disagree (42%) rather than agree (28%) with the idea.”

(YouGov, US, 26th January, 2015).

The survey also found that

“Overall, 36% of Americans think that inequality is pushing the world's economic system to an imminent crisis, while 27% think that a crisis is foreseeable but not imminent. 16% think that the world economic system can sustain growing inequality, while 21% don't know.”

Food for thought. If this reflects the mood in the US, politics there may be changing.

But another very disturbing trend has also emerged in the US which may speed up political change (or perhaps lead to more alienation). Nobel prize-winning economists Coase and Deaton found that between 1999 and 2013, for whites aged forty-five to fifty-four, educated to a high-school diploma or below, the number of deaths per hundred thousand people rose by 134.4. This is an increase of over 20 percent. It should be falling.

In stark contrast, in other advanced countries, the death rate of middle-aged people fell by about a third between 1999 and 2013. Similarly, the death rates for Hispanics and blacks in the United States declined. Yet up to 1999, the mortality rate for this group was also falling.

Interestingly many of those dying were because of suicides and liver diseases which are associated with drug and alcohol use and latterly obesity.

In short it appears that middle-aged white Americans, especially those only with a high-school education or less, are not sharing in these longevity gains. Instead many are dying.

There is growing income and wealth inequality in the US (and most countries) but there, the level of wage stagnation has been prolonged, as jobs shifted offshore and the gains in productivity were not shared and then productivity slowed. These reasons may be contributing to this mortality trend. But poorly educated blacks and Hispanics have not shared in the ebbing (dead?) American Dream either. Yet their mortality rates have not fallen.

It seems that middle-aged white males are deeply disillusioned with their lot in the USA and are now suffering from severe alienation. They are taking to drink and drugs. Is it possible that soon they will take to the streets instead? Or maybe even to the polling booths?

The clear change in public attitudes to tax-cutting may lead to more progressive policies. The success of Obamacare in the face of very strong opposition demonstrates that American politics may be moving to some substantive change for the better.

Paul Sweeney is Chair of TASC's Economists Network