Once upon a time, not long ago, in America, as far as the eye could see, we had federal budget surpluses. Our surplus country had an economy in which there was a direct connection between the country's rising tax revenues, abundant jobs, low unemployment and profitable companies. The previous national debts were continually paid off. With abundant jobs and profitable businesses, America and all of its citizens enjoyed a growing economic future as the national debt fell and infrastructure and other programs supporting the ordinary working class were able to be financed. It was a very nice time for everyone.
But lurking in our country was the political idea that our economy could improve: by cutting taxes we would increase America's tax revenue, and tax cuts would pay for themselves. Conservatives like George HW Bush called this “voodoo economics.” Others called it supply-side thinking. For most, the lurking idea was known as “trickle-down.”
Trickle-down advocates cleverly argued that significant tax cuts for America's wealthiest citizens and large corporations would make the richest richer, but would also increase our country's tax revenues. The middle class and the poor would eventually become better off if wealth “shrinks.” What a great idea – tax cuts will pay for themselves! That sounded really good. Who doesn't want to hear from their doctor that sugar is healthy?
What could go wrong with this simple-sounding solution where tax cuts increase tax revenue? A lot. The trickle-down policy has been disastrous for our country.
The ratio of national debt to gross domestic product at the start of Ronald Reagan's presidency was 31%, with debt totaling less than $1 trillion. At the end of Reagan's term, the ratio was 50%, with a debt of $2.6 trillion. At the end of George HW Bush's term, the ratio was 61%, with a debt of $4 trillion.
During Bill Clinton's term as president, the debt-to-GDP ratio fell from 61% to 55% during budget surpluses.
Tax cuts by George W. Bush in 2001 and 2003 and Donald Trump in 2017 were enacted. Tax cuts were re-sold to voters by promoting the fantasy that America would receive increased tax revenue. More than 75% of the 2017 tax cuts went to the top 1%. Tax cuts promised a painless path to prosperity: tax cuts will pay for themselves, just believe.
What was politically promised to be painless did not happen. We have felt pain and continue to feel it.
Tax cuts severed the previous connection between abundant jobs, profitable companies and the country's tax revenue. Sales did not increase; it decreased. Instead of budget surpluses, we have budget deficits. Instead of paying off our debts, we have increasing deficits and debt.
As a result of cuts by George W. Bush and Trump, the debt-to-GDP ratio was 123% in 2022 and debt was $30.8 trillion. The sugar-is-good-for-you fantasy has created an over-indebted nation.
Because of creeping tax cuts, companies and already wealthy people have become much wealthier.
The US federal deficit is rising despite a strong economy. America has had unemployment below 4% for 21 consecutive months. In 2023 alone, an incredible 2.4 million new jobs were added. America's tax revenues, even with this good economy, cannot cover the deficit, which is expected to be more than $1.7 trillion – a far cry from surplus as far as the eye can see.
Without the fairytale tax cuts, the country's debt would fall and not rise as it is now.
Trickle-down experiments have been disastrous in some states, such as Kansas, which cut state taxes with the promise that the state's tax revenue would increase as their economy boomed. Unfortunately, in Kansas, state revenues fell dramatically; Kansas became poorer until the tax cuts were reversed. The trickle-down fairy tale failed because of Kansas and its people. The only winners: corporations and the already rich.
Fiscal conservatives should be concerned that America, with its annual deficits and rising national debt, is on unstable fiscal footing. The ruinous idea that tax cuts pay for themselves, which has been lurking for decades, has failed again and again.
Alaska's SB21 experiment with the tax cut fairy tale began a decade ago. Since then, billions of dollars have flowed to oil companies. Alaska's tax cuts are failing our state. Oil's promise: higher government revenue, more jobs and bigger PFDs. Alaska's reality: less revenue, fewer jobs and shrinking PFDs. So far, over $36 billion from Alaska's savings has disappeared forever. Our state continues to decline because of the trickle-down fairy tale. Alaska must reverse its failed tax cut experiment.
Stop believing in trickle-down. Tax cuts don't pay off. Tax cuts are a painful path to poverty.
Joe Paskvan is a lifelong Alaskan and retired attorney. He served in the Alaska State Senate from 2008 to 2012, including a year as co-chair of the Senate Resources Committee. He lives in Fairbanks.
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