Sen. Susan Collins explained her vote to pass the recent tax bill citing the expert advice she received from Glenn Hubbard, dean of the Columbia Business School, and Douglass Holtz-Eakin, a Republican policy adviser and president of the American Action Forum.
“Even the joint committee on taxation has projected that the tax bill would stimulate the economy to produce hundreds of billions of additional revenue. I’ve talked [to] four economists, including the dean of the Columbia School of Business and former chairs of the councils of economic advisers, and they believe that it will have this impact. So I think if we can stimulate the economy, create more jobs that that does generate more revenue,” Collins said last month during an appearance on NBC’s “Meet the Press.”
In taking advice from this deeply Republican corner of economic academia, she did not demonstrate her carefully cultivated image of one reaching “across the aisle.” In this case, she failed to bridge the intellectual chasm existing today in economic thought, sticking with the narrow, frequently wrong vision Hubbard and Holtz-Eakin represent.
Supply-side economics is integral to Republican economic thinking. I understand it to mean that giving tax incentives to suppliers — of capital and production — more efficiently generates wealth than supporting and enhancing consumer demand. This policy has had enormous implications in American lives from the 1980s through the Great Recession and beyond. The wealth gap has grown to a level not seen since before the Great Depression, while jobs disappear and wages stagnate. The top 1 percent owns 40 percent of wealth in the U.S., and the top 20 percent owns 90 percent.
Collins strengthened the structural causes for this inequality with her vote to pass the tax bill. She, as well as Hubbard and Holtz-Eakin, are on the wrong side of history if the decades of economic malaise tens of millions of rural and poor Americans have felt is a valid measure.
The tax legislation was promoted with promises of jobs, wages and economic growth, downplaying a surety of increased debt. Washington Post columnist Jennifer Rubin asked Hubbard and Holtz-Eakin about this. Each denied explicitly saying tax cuts pay for themselves through growth. A Goldman Sachs analysis last year forecasted only about 20 percent of revenue lost from the tax cuts would be recovered through an increase in GDP.
On the wrong side of history in 2004, Hubbard co-wrote an influential paper praising the credit derivatives and securitization chain that helped produce the subprime mortgage bubble that crashed the global financial system in 2008. Multiple culprits had a role — from the ratings agencies, risk taking banks, unscrupulous mortgage originators, the repeal of Glass-Steagall consumer protections, and leadership at the Federal Reserve — but Hubbard’s paper and reputation provided intellectual ballast supporting the risk taking.
As a supply-side academic making hundreds of thousands of dollars a year consulting for the financial services industry, Hubbard’s advice provides the intellectual thinking that drives unequal growth today.
Holtz-Eakin signed on to a 2017 letter that estimated “a 10% reduction in the cost of capital would lead to a 10% increase in the amount of investment,” an optimistic assumption, especially in light of a Wall Street Journal CEO forum featuring one of the administration’s chief proponents of the bill, Gary Cohn, facing a crowd of CEOs who said they would not change their investment strategies as a result of the reforms.
The University of Chicago asked a panel of 42 economists from MIT, Princeton, Harvard, Berkeley, Stanford and Yale whether the tax bill’s reforms would generate growth. Over half of those asked either disagreed or strongly disagreed. Another 36 percent were uncertain, with low confidence that the reforms would spur growth. Richard Thayer of the University of Chicago said: “Aside from the redistribution of wealth, [it’s] hard to see this changing much.”
A highly legitimate alternative analysis was within Collins’ reach.
Jonathan Chait wrote in New York magazine: “Events since that time [the Great Recession] have hardly made supply-side economics look any better. After 2007, the ‘Bush Boom’ that conservatives had been celebrating as proof of the brilliance of their tax-cutting scheme was revealed as a bubble, which collapsed. Then in 2012, they predicted that the expiration of the Bush tax cuts on high incomes would cause the economy to slow, but instead it accelerated. The intellectual case for supply-side economics grows weaker and weaker. Yet the supply-siders control of the party remains as firm as ever.”
The economic thinking Collins ascribes to rationalizes redistributing wealth upward, generating historic inequality and the instability of inequality in American society. I have little confidence the tax code she endorsed will change that fact for the better for most Americans. The Republican Party has been, and is, just fine with that.
Stephen Demetriou lives in South Portland.
Follow BDN Editorial & Opinion on Facebook for the latest opinions on the issues of the day in Maine.