The quid pro quo moment has arrived.

New York Republican Congressman Chris Collins summed it all up the other day, when he cited the pressure he and his GOP colleagues are facing to pass tax cut. "My donors are basically saying, 'Get it done or don't ever call me again.'" 

GOP donors have long dreamed for such a moment; a unique alignment of venality and shamelessness that is putting all of their most deeply held dreams within their grasp. Elimination of the estate tax. Slashing the corporate tax rate. Creating a tax rate on pass-through income that will have the effect of extending the hitherto reviled carried interest loophole to a new universe of beneficiaries. And they understand that the moment may be fleeting, that it may not survive the new year, much less the Alabama special election just two weeks away. This is not a moment--to paraphrase Charles Colson--to let go for a better grip.

Three years and what feels like eons ago, in his majority opinion in McCutcheon v. FEC--in which the Supreme Court removed limits on aggregate individual contributions to federal campaigns--Chief Justice John Roberts was dismissive of the corrupting influence of political contributions. Should a recipient of donations act in his or her donors interests, Roberts suggested that was a reasonable expression of "the general gratitude a candidate may feel toward those who support him." Any regulation of political contributions, Roberts went on, "must instead target what we have called 'quid pro quo' corruption or its appearance." 

Almost a half-century earlier, in a moment of honesty that eluded the Chief Justice, Louisiana Senator Russell Long observed that “the distinction between a campaign contribution and a bribe is almost a hairline's difference." Now, after decades of watching the dance of contributions and favors in the nation's capital--and this is not a partisan observation, as it was Bill Clinton who delivered financial services deregulation as his expression of gratitude for the contributions and support of the titans of Wall Street--a moment of quid pro quo corruption or its appearance as the Chief Justice suggested would appear to be upon us. Hundreds of billions, if not trillions of dollars of tax benefits are about to be bestowed on mega-donors who have showered hundreds of millions of dollars of political contributions on the GOP in anticipation of just this moment.

To give the GOP the benefit of the doubt, much of what is in the tax bill represents long-standing Republican priorities, including lowering the corporate tax rate, migration to a territorial tax system, simplification of the tax code, and the elimination of the estate tax. And perhaps if the legislators and donors alike--Collins being case in point on the subject--kept their mouths shut, the case for gratitude vs. bribery might be more credible. But they haven't, and their reliance on abject lies about the merits of the legislation only makes their case worse. It is Donald Trump, after all--along with this tone-deaf factotum, Steve Mnuchin--who continues to sell the bill as one that will deliver HUGE benefits for the middle class and little or nothing for the rich, while House Speaker Paul Ryan continues to claim that the legislation will more than pay for its $1.5 to $2.2 trillion cost, despite the lack of any evidence beyond the prattle of a few, long-debunked charlatans and cranks of the economics world.

To the naked eye, the looming tax legislation has elevated the art of gratitudinous conduct--what even John Roberts should recognize as a quid pro quo relationship--to new heights. The desperation emanating from members of Congress reflects what those donors have seized upon: that this is a moment when all their dreams can come true. The quid has been delivered; this is the moment to collect on the pro quo.

And there sits Chris Collins, a man reelected by 30 and 40 point margins in his last two races, shuddering as he is being shaken down by his donors. “Don’t tax you, don’t tax me, let’s tax the guy behind the tree,” is the aphorism of tax policy famously attributed to Senator Long, and is appropriate for Congressman Collins to consider. After all, as a member from a suburban district in a high tax state, his constituents are the people behind the tree when it comes to this legislation. With the elimination of the state and local tax deduction, only the wealthiest of his constituents--those in the highest tax brackets and with large estates--loom to be material beneficiaries of the proposed legislation.

Proponents of the tax cut legislation--particularly those from low-tax red states--love to point to the elimination of the state and local tax deduction as an issue of simplification and fairness, yet its blatant political calculus should be evident to all. The tax bill is projected to cost the U.S. Treasury trillions of dollars in lost revenue. As they searched for how to pay for it, the first place they looked--suppressing their conservative principles--was borrowing, as they redefined "balanced budget" to include $1.5 trillion in new deficit funding over the next ten years. The second place they looked was to the pockets of taxpayers in high tax, blue states.

Far from increasing fairness in the tax system, the elimination of that deduction will simply exacerbate the current situation, wherein residents of high tax states contribute far more to the federal government than their low tax state counterparts. Residents of New York--like those in Chris Collins' district--pay on average $11,594 in federal taxes, an amount exceeded only by their well-taxed compatriots in New Jersey, Connecticut, Massachusetts, Minnesota and Delaware. Eliminating the state and local tax deduction is estimated to generate $1 trillion to offset tax cuts--an amount that will be taken directly from the pockets of taxpayers in those states. Yet it will cost the GOP little as they round up votes for the tax cuts, as none of those states have a Republican senator.

In aggregate, New York taxpayers paid $55 billion more in income taxes to the federal government in 2016 than they would have if they paid the national average contribution of $8,800 per capita. New Yorkers contribute more--as they have for the past century--because the state's workforce is more economically productive. The workforce is more productive because New Yorkers are, on average, better educated. And New Yorkers are better educated because New York State spends more on K-12 and higher education--requiring higher taxes--than the average state. It is all connected.

By his own words, Chris Collins is not motivated by his general gratitude toward those who have supported him, as John Roberts suggested in McCutcheon v. FEC; instead, Collins has described a world of quid pro quo. Taxpayers in New York's 27th Congressional District should take a hard look at the tax bill and realize that they are getting the short end of the stick. Then, they should ask why their member of Congress--to say nothing of their President--is out there fighting for those donors, rather than fighting for them.

Read it at the HuffPost.

Follow David Paul on Twitter @dpaul. He is working on a book, with a working title of "FedExit: Why Federalism is Not Just For Racists Anymore."

Artwork by Jay Duret. Check out his political cartooning at www.jayduret.com. Follow him on Twitter @jayduret or Instagram at @joefaces.

Sweet home, Alabama.

It is appropriate that what may be a defining moment in the Republican Party civil war revolves around a senate race in Alabama. Alabama is where it all began. It is where, fifty years ago, the GOP embarked on a path that transformed the political landscape of the country and brought the party to its current straits. To a person, the leadership of the GOP in Congress find the GOP Senate candidate Roy Moore to be deplorable, but it remains to be seen if the party base in Alabama--once devoted Democrats, now bound heart and soul to the GOP--share their view.

Fifty years ago this coming February, Alabama Governor George Wallace broke from the Democratic Party and launched his independent bid for the Presidency. The tension between southern Democrats and the national Democratic Party had been building for decades. The Democratic Party had been the party of the agrarian south dating back to its founding by Thomas Jefferson. It was the party of southern slaveholders leading up the Civil War, of the Jim Crow south after Reconstruction, and it continued to dominate southern politics through the New Deal. By the middle of the 20th century, things began to change, however, as growing Democrat support for civil rights increased disaffection with the national Democratic Party among southern Democrats.

Richard Nixon won the presidency in 1968, with 43% of the vote--edging out Democrat Hubert Humphrey by 500,000 votes, or 1/2 of 1%--while George Wallace won 9.9 million votes, representing 14% of the vote. In the wake of a second close presidential contest, Nixon--who had lost the 1960 presidential race by 110,000 votes to John F. Kennedy--was determined not to face a third close election in 1972, and seized on the disaffection of the Wallace voters.

As documented by Nixon strategist Kevin Phillips in his 1969 book, The Emerging Republican Majority, Nixon's ensuing Southern Strategy was implemented with the intention of 'trading' the traditional GOP support among black voters and New England and Midwestern liberal Republicans for the traditionally Democrat southern and working class white voters who had supported the Wallace candidacy. Despite the tendency to view the Southern Strategy in starkly racial terms, Phillips observed that Nixon did not need to make major shifts in traditional GOP rhetoric to win a larger share of southern and rural voters, as the turmoil of the 1960s and the Democratic Party shift to the left on cultural issues provided the GOP with a natural opening. Nixon ran on a law and order platform, and he and his running mate, Spiro Agnew, shared a natural affinity with Wallace voters in their disdain for the cultural turmoil of the 1960s, and the role and power of the national media.

The strategy worked. In the 1960 presidential race, Nixon won 50% of the popular vote, including 51% of the white vote and 32% of the black vote. Twelve years later, in the 1972 contest, Nixon and the GOP took 68% of the white vote and 13% of the black vote. Eight years later, in the 1980 Presidential campaign, Ronald Reagan sharpened the GOP racial appeal with his embrace of state's rights on the eve of his nomination, and his embrace of what his campaign strategist Lee Atwater would later describe as barely disguised racial code.

A half a century later, the political landscape has been transformed. Historically part of the "solid south" of the Democratic Party, Alabama is now seen as forbidding territory for Democrats. Once the most powerful force in the Democratic Caucus, the last white Democrat in Congress from the old south finally succumbed in 2014. On the other side of the aisle, Susan Collins of Maine is the last remaining Republican Senator from the Northeast, which was once a stronghold of the national Republican Party,

Alabama's long history in the Democrat camp is barely remembered by Alabama voters today, as they grapple with the Roy Moore controversy. Voters there who suggest that voting for a Democrat is unimaginable seem unaware that when Jeff Sessions was elected to replace Democrat Howell Heflin twenty-one years ago, he was only the second Republican elected to the Senate from Alabama since Reconstruction; or that current Republican Senator Richard Shelby was originally elected as a Democrat, but switched parties in the mid-1990s.

Against that history and backdrop of strident partisanship, Roy Moore is loath to step aside. Faced with charges of sexual misconduct, he is largely ignoring his Democrat challenger. Instead, he has chosen to strike a stance of defiance against the national media and political elites that resonates deeply with Alabama's history. By choosing to define his political opponent in the race as the Washington Post and Mitch McConnell--while framing himself as standing up for Christian and traditional southern values--he is appealing to Alabama's history of resentment toward federal dictates, and to animosities between the agrarian south and northern power that dates back to the formation of the republic.

Those in the GOP who are looking to Donald Trump to bail the party out and demand that Roy Moore step aside seem to miss the fact that Donald Trump is Roy Moore. Not, as many have suggested, with respect to his sexual deeds or misdeeds, but as a politician who stood against the Republican Party and triumphed by channeling the resentments of voters against the powers that be. Trump put his credibility on the line against Roy Moore once before--against his own instincts--when he deferred to Mitch McConnell and endorsed current Senator Luther Strange, who lost to Moore in the primary. One has to imagine he will be loath to make that mistake again.

The chasm between the Alabama Republican Party and national Republicans is only growing wider. As Roy Moore has stood his ground, GOP leaders in Congress--who thought they had taken an ethical stance in choosing to believe Moore's accusers and demanding that Moore step aside--have found themselves being excoriated by Moore and his allies as political elites allied with the national media. Like déjà vu all over again, we are watching Roy Moore channel George Wallace, and Moore's allies rally Alabamans to his cause.

A half-century after Wallace left the Democratic Party, it is like nothing has changed. Except this time, Roy Moore's man is sitting in the White House. Meanwhile, those in the GOP who thought they were taking the high road are left to wonder: Did the Republican Party absorb the southern Democratic Party, or was it the other way around all along?

Read it at the HuffPost.

Follow David Paul on Twitter @dpaul. He is working on a book, with a working title of "FedExit: Why Federalism is Not Just For Racists Anymore."

Artwork by Jay Duret. Check out his political cartooning at www.jayduret.com. Follow him on Twitter @jayduret or Instagram at @joefaces.

Our lost $18.4 trillion, and the lessons for tax reform.

“The government is promoting bad behavior.” These were Rick Santelli's words on the floor of the Chicago Mercantile Exchange in the opening moments of a rant that would launch the Tea Party movement. Santelli then turned to his audience of commodity traders and railed against public policies that promoted over-leveraging and led to the 2008 financial collapse, for which the public was forced to pick up the estimated $12.8 trillion tab. Add in the $5.6 trillion cost of U.S. wars over the past decade and a half and you have a tidy sum exceeding $18.4 trillion. An amount equivalent to a full year of the U.S. GDP down the drain. Then there are the lives lost, the bodies mangled, the personal bankruptcies, the family futures destroyed, and the dreams that died in the face of lost opportunities and pervasive cynicism. And, of course, the deep damage to our national psyche, the comity of our politics, and public faith in our institutions.

These things are not Donald Trump's fault. The wars and the financial crisis are the context of our disorder, and to take our eyes off them and focus instead on Trumpism and Resistance is to miss the point and fail to seize the moment. The promise of massive federal income tax cuts for the middle class is a palliative for the real suffering that working families have borne. And, as has become evident, those tax cuts are an illusion. Instead, Trump's promise of massive tax cuts to his loyal and trusting supporters has become the stalking horse for massive tax cuts for the wealthiest Americans.

In its desperation to pass some form of tax legislation, the normally deliberative process has given way to cutting individual and corporate rates, and then looking for ways to offset the cost by eliminating deductions. Gone is any notion of tax reform as a process for thinking through what we tax, and why.  If real tax reform were under consideration--rather than simply tax cuts to the donor class--there are steps that could be taken that would make America a better and safer place for the working class and middle class families that live paycheck to paycheck and send their children off to fight our wars. These are reforms that reflect, if nothing else, the lessons learned from the $18.4 trillion price tag of the past decade and a half of our misfortune.

First, tax reform should end subsidies for and incentives to over-leveraging at the corporate and household level. 

As has been well documented, the 2008 economic collapse followed a period of massive over-leveraging--the taking on of excessive debt--at the corporate and household levels. At the corporate level, debt has been used for decades as a tool for increasing economic value, by companies, private equity funds and others. This over-leveraging in the corporate sector increases financial returns to corporations and stockholders during good times, but increases risk and vulnerability to all of us who end up paying the price when the house of cards collapses, as we learned in 2008. Corporate over-leveraging does not occur by happenstance, however. Rather, it is a specific response to incentives in the tax code, which makes debt far more attractive for funding new investments than raising equity. Simply stated, interest paid on debt is deductible from income on a pre-tax basis--which means that the federal government provides a subsidy to any company that raises funds through borrowing--while dividends are paid on an after tax basis.

At the household level, the inducements to borrowing are similarly grounded in the tax-deductibility of mortgage payments vs. the payment of rent from after tax dollars, and the stimulation of consumer credit through home equity loans. Home ownership has long been touted as the cornerstone of national social policy, but in the years since the 2008 financial collapse years, the disadvantages of home ownership have become apparent. In a world where no job is forever, labor mobility--the ability to pack up and move--has increasingly become critical to families seeking economic opportunity. As housing values collapsed in the wake of the financial crisis, families in many communities found themselves immobilized by having whatever wealth they thought they had saved over the years bound up in homes that they could not sell.

Second, a tax on imported petroleum products should fund a portion of our military expenditures.

Since the creation of CENTCOM in the 1970s, the U.S. has affirmed its policy priority of protecting access to Middle East oil for the advanced industrial world. While we have become a petroleum exporting nation in recent years, the domestic price of oil continues to be set by international market forces. Therefore, even if we are energy independent with respect to access to oil, we remain dependent on world events with respect to oil prices. If a continuing U.S. military presence in the Middle East and other energy producing regions of the world is part of the price of assuring stability in global energy markets, then it would be appropriate for some portion of our $600 billion defense budget to be internalized into the price of petroleum products. Failing to do so has the dual impact of encouraging spending on oil by allowing consumers to pay only a portion of the true cost of delivering gasoline to the pump on a reliable basis, as well as undercutting the development of alternative energy sources by keeping petroleum prices artificially low.

Third, tax reform should reverse incentives to the financialization of the U.S. economy, including the brain drain from productive sectors to the financial services sector.

Over the past half century, the financial services sector of the economy has grown as a share of national income. In the wake of Clinton-era deregulation of the financial services sector, this growth exploded, with the development of an endless array of new financial products and loosely regulated hedge funds. Along the way, the carried interest exemption in the federal tax code--which allows many in the financial serviced industry to pay the far lower capital gains tax rate on their ordinary income--attracted many of the brightest minds into finance. This combination of deregulation and tax code incentives has magnified financial returns within the financial sector, even as it has increased the financial risk exposure to the economy, and undermined innovation and invention in other, more productive areas.

Donald Trump promised massive tax cuts for his disaffected working class voters and to end the carried interest exemption that buttresses the fortunes of hedge fund billionaires, but now that a tax bill is actually under consideration, those promises have fallen by the wayside. Treasury Secretary Steve Mnuchin continues to complain that it is hard to not cut taxes for the wealthy in any tax cut plan for the simple reason that they pay most of the taxes. But, in fact, it is not difficult at all. If you don't want to cut taxes for the wealthy, all you have to do is not cut taxes for the wealthy.

As Rick Santelli pointed out, the government supports bad behavior. Donald Trump won the presidency in large measure because of anger over some of that bad behavior, and the price that working families bore--and continue to bear--for the past decades of war and economic dislocation. Tax reform can't change the past, but if we learn from that past, it can be part of creating a better future. Reduce the risks to the economy by reducing the incentives to over-leveraging that are built into our tax code. Reduce the risks of war revolving around global oil dependence by internalizing the cost of defending energy supply lines into the price of oil, and allow the markets for energy alternatives to benefit along the way. And stop the special treatment of the finance sector that serves no one's interests except for a very small, very privileged few. These are tax reforms that would benefit working families, and the rest of us as well.

Read it at the HuffPost.

Follow David Paul on Twitter @dpaul. He is working on a book, with a working title of "FedExit: Why Federalism is Not Just For Racists Anymore."

Artwork by Jay Duret. Check out his political cartooning at www.jayduret.com. Follow him on Twitter @jayduret or Instagram at @joefaces.

Killing blue state tax deductions is a bad idea.... for red states.

The success of proposed tax reform legislation is a life or death issue in the minds of many Republicans, and the success of that legislation may well hinge on the votes of Republican members of Congress from high tax, blue states. At issue is the ability of taxpayers in those states to deduct state and local taxes on their federal income tax returns. Eliminating that tax deduction is worth an estimated $1 trillion as a revenue offset to cuts in tax rates. That trillion dollars comes from the pockets of taxpayers in high tax states, for whom losing that deduction well turn the proposed nominal cuts in income tax rates into a tax increase. Republicans members in those states are being asked to fall on their sword for the broader interests of their party and their President, even if their constituents must pay a price.

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Last month, the Senate went on record on a party line vote supporting the repeal of the state and local tax deduction. In language that is more Bernie Sanders than Mitt Romney, West Virginia Republican Senator Shelley Moore Capito argued that the state and local tax deduction disproportionately benefits the wealthy and would be better spent on tax relief for the working class. It was a framing of the issue that should have caused GOP traditionalists to cringe. Only in the nation's capital, after all, would taxing less of people's hard earned money be considered spending. That money, Republicans used to insist, does not belong to the government. Congressman Peter King--a Republican from high tax New York--tried to strike a middle ground, suggesting that the deduction for state and local taxes should be means-tested--available to middle class taxpayers but not to the wealthy.

King might have mastered the new world rhetoric of the GOP as the party of the working class, but he is going to have to bone up on his math. The typical middle class taxpayer cited over the past week as the Tax Cuts and Jobs Act was introduced is a household earning $59,000 or thereabouts. A quick glance at the IRS tax tables suggests that those households pay an average federal income tax rate of 2.6%. According to Empire Center data, the middle quintile of taxpayers living in New York City--the area of the state with the highest taxes--pay around 5.5% in combined state and local taxes. That would translate into around $3,245 on their $59,000 of income. A deduction of those taxes against a federal return at a 2.6% federal income tax rate would generate a whopping $84 in tax savings, or $7.03 per month.

Capito and King are missing the larger point that should be part of this discussion. Describing the state and local tax deduction as a subsidy or giveaway to wealthy people in blue states ignores both what it is that those high-tax states do with those tax revenues, and how their proclivity to tax and spend directly benefits low tax states like West Virginia. As a representative of one of the poorest states in the country, Shelly Moore Capito, in particular, might consider paying more attention to why people in those blue states tend to be wealthier, despite paying higher taxes, while those in her state continue to struggle.

If the repeal of the state and local tax deduction goes into effect, public finance analysts fully expect that it will place greater pressure on higher tax states to reduce taxes and roll back spending, as taxpayers in those states will effectively see a tax cut for the rest of the country translated into a tax increase for them. While this is exactly the impact that many Republicans in Congress would like to see, there are potentially significant consequences for both the low tax states as well as the high tax states as the impacts reverberate through the economy.

As things stand--and as the low federal income tax rate paid by a New York middle income household illustrates--the progressive federal income tax system raises the lion's share of federal revenues from wealthier taxpayers, as the top 20% of taxpayers pay approximately 90% of the federal income tax. Looking at the same data on a state-by-state basis, one sees that the wealthier states pay a similarly disproportionate share of federal income taxes relative to the less wealthy states. To be specific, the ten states that contributed the most on a per capita basis (DE, MN, MA, CT, NJ, NY, OH, IL, MD, RI) contributed a combined $236 billion more in federal income taxes than the average, while the lowest contributors (WV, MI, NM, SC, AL, AZ, ME, MO, HA, OK) contributed an aggregate $126 billion less than the average.

Source: Wallethub.com

More important than who contributed what is why these disparities are so stark. The ten highest contributing states have a gross domestic product per person that is 46% higher on average than the lower contributing states. Higher GDP equates to higher personal incomes, which puts people in a higher tax bracket under a progressive tax system. Shelly Moore Capito, a senator from the lowest contributing state, might want to explore why these differentials are so significant--and based on historical data so enduring--and what the lessons might be for West Virginia beyond seeking greater "tax relief" for her constituents. Her constituents, after all, pay next to nothing federal income taxes--$3,600 on average (most of which is the payroll tax) compared to $14,970 for their counterparts a couple of hundred miles to the east in Delaware--and one has to imagine that a few dollars more a month from the federal government would have less impact on their lives and futures than figuring out how it is that their brethren in Delaware have been doing so much better than them, decade after decade.

While it is easy to confuse correlation with causation, the scatterplot above illustrates the correlation over time between state education rankings--which reflect investment in K-12 and higher education over time--and household incomes. The cohort of economically successful states noted above spend on average 27% more per capita on education, and--as illustrated in the graphic below--have achieved higher levels of educational attainment across their populations, which is critical to both state economic development and the sustainability of family incomes over time.

Data Source: US Census Bureau

Among the most damaging trends within today's Republican Party is the decline in support for higher education. Over the past two years, support for higher education has declined sharply among Republicans from the 60% range to the mid-30s. This decline is arguably less about the value of higher education itself than it is about the knee-jerk shifts in attitudes within the GOP across a number of issues--the decline in support for free trade, the decline in support for Bob Corker and increased affection for Vladimir Putin, to name a few. It reflects a herd mentality that is as destructive as it is disturbing. Just keep staring at the graph below that tracks the relationship between educational attainment to unemployment: education, not tax cuts, is the key to the economic future and resiliency of the middle class.

Unemployment Rate by Educational Attainment 
Source: Macrotrends.

There may be great satisfaction for many in the GOP in eliminating the state and local tax deduction, and in particular in seeing the cutbacks that will ensue in both higher education and K-12 funding. For Republicans in Congress, it is both a way to offset the costs of tax cuts that they have promised to deliver, and at the same time snub their noses at the profligate ways of high tax liberalism--to say nothing of sticking it to the liberal professoriate who have emerged as a pet peeve of the GOP. But in a world of progressive income taxation, red state Republicans have been free riders on the backs of those profligate blue states, who now do the heavy lifting when it comes to the funding of the federal government. Over the near term, the impact of eliminating the state and local tax deduction may be to increase revenues from high tax, blue state America, but if the longer-term consequence is to undermine education funding and economic growth in those states, it would be a pyrrhic victory. After all, the only thing worse for taxpayers who resent rich people--and rich states--is a world without them, when everyone else is forced to pay the bills.

Read it at the HuffPost.

Follow David Paul on Twitter @dpaul. He is working on a book, with a working title of "FedExit: Why Federalism is Not Just For Racists Anymore."

Artwork by Jay Duret. Check out his political cartooning at www.jayduret.com. Follow him on Twitter @jayduret or Instagram at @joefaces.

The Republican Re-election Act.

Paul Ryan can call it tax reform all he wants, but Donald Trump is not fooled. Asked by Ryan and House Ways and Means chairman Kevin Brady to come up with a name for the bill, the branding wizard-turned President replied with “The Cut Cut Cut Act.”

Donald Trump may be a long-time New York City Democrat, but once he decided to run for President, he picked up the Republican playbook and took it to heart. For the past several decades, the GOP election strategy has focused on a small number of high-impact issues--notably pro-gun, pro-life, religious liberty, and the like--but none came to define the Republican brand as much as tax cuts. From the outset of his campaign, Trump promised "the biggest tax cuts ever." Forget tax reform, that is for policy wonks who were on debate teams in college, tax cuts are an easy pitch to the Republican base in 140 characters or less.

According to Brady and Ryan, the legislation introduced this week is about delivering an estimated $1,200 in income tax relief to lower and middle class American families who are weary of the complexities and burdens of the tax code. It is notable, however, that the income tax rate for the "average" household with an income of $59,000 is approximately 2.6%. If the proposed increases in the standard deduction and tax credits go into effect, those families should end up with a negative tax rate--meaning that after tax credits they will get back more than they paid in. Lower middle class households already take out more than they pay in, as, before the proposed changes, the average income tax rate for the second quintile of households is negative 1.2%. The problem all along for GOP tax cutters promising middle class income tax relief is that the middle class--much less the lower middle class--barely pays the federal income tax.

Nonetheless, marketing the GOP plan as a tax cut for lower and middle class families is critical, even if it can be more accurately described as a welfare system that funnels cash to those households. There is nothing inherently wrong with this--cashflow relief is cashflow relief, after all--but in a country where disdain for the government and those who benefit from government programs has been carefully cultivated as a GOP Election Day strategy, some frank discussion might be in order. Some of the current anger in our politics toward people seen as takers and leeches on the system--central to the rise of Trump--might be lessened if many of those who are angry come to recognize that they too are getting help in getting by.

For weeks now, Paul Ryan has been defending the $1.5 trillion cost of the proposed tax cuts, insisting that there would be no negative deficit impact of the tax cuts. This, too, is central to the marketing of the plan. "We are convinced," Ryan argued, "and the models are really clear, people will change their behavior, businesses will change their behavior if taxes change. That $1.5 trillion number is in the mid-range of the growth we expect. We believe that we will get faster economic growth that will exceed this $1.5 trillion. So we don't anticipate a big deficit affect from this tax reform."

The notion that there are models suggesting the deficit-neutrality of tax-cut legislation is widely derided among professional economists--Republicans and Democrats alike--with the notable exception of the usual collection of charlatans and cranks. Bruce Bartlett--one of the architects of Ronald Reagan's original tax cuts--has for years railed against Republican revisionist history that those tax cuts--or any similar income tax cuts--pay for themselves. If Ryan has models that suggest otherwise, it is just a product of someone tinkering with the algorithm to get the desired result. However, given the anti-elite, anti-academe tenor of the moment, criticism from professional economists of legislation endorsed by this President will only add intensity to the support for the legislation among the Republican base.

No doubt, Ryan is looking to provide political cover for his members with his specious tax-cuts-pay-for-themselves rhetoric, but one has to wonder why. It seems unlikely that he will get much pushback in the Republican Caucus regarding the deficit impacts of tax cuts, for the simple reason that there is likely to be little pushback from the Republican base. An Economist/YouGov poll published last month suggested that 58% of Republicans now support tax cuts regardless of deficit impacts, as compared to 39% of Democrats, and one cannot imagine that Ryan intends to relay on support from across the aisle. Members of his caucus understand that passing tax cuts--and preferably massive tax cuts as the President is demanding--has become a political imperative, however the economics shake out.

Nonetheless, it is worth reflecting for a moment on the circumstances underlying the economic promises that are being made. First and foremost, all of the usual rhetoric about cutting spending to pay for tax cuts has gone by the wayside. In the current era of mob rule, few GOP members of Congress--including members of the Freedom Caucus who long claimed that their single reason for being in Washington was to end deficit spending--are likely to be swayed against the tax cut plan on account of another trillion dollars or two of borrowing. They have seen the price paid by those who go against the President and they want no part of it. Furthermore, as the graph here illustrates, for the past half-century, federal outlays have hovered around 20% of GDP, regardless of spending caps and sequesters, tax policies and rates. Spending moderated slightly during the Reagan and Clinton years, while rising a bit during both Bush presidencies. It spiked upward when GDP dropped in the wake of the 2008 financial crisis, before trending back down to 20% as the economy recovered. If anything, spending is likely to trend upward over the course of the current administration, given the President's interest in growing both military and infrastructure spending, and his lack of interest in entitlement reform. Faced with those facts--and the overriding political imperative of producing a tax cut bill--Ryan is choosing the only path forward available to him if he is to give a nod to fiscal prudence: a "model" that shows that cutting taxes will not reduce revenues.

Second, the national unemployment rate of 4.1% is currently near the lowest level in a half-century. This begs the rationale for massive tax cuts, which are traditionally seen as an economic tool for stimulating growth at times of high unemployment. Donald Trump and House Republicans have been particularly vocal about the urgency of boosting economic growth above the current 3% range. The simple fact is that the United States economy is outperforming much of the advanced industrial world in its recovery from the 2008 global financial collapse, though in the current climate of anger and complaining few are inclined to stand their ground on how well things are going.

U-6 Unemployment Rate: Macrotrends.net

Many people have argued--as the President did when he was a candidate--that the official "U-3" unemployment rate understates the employment challenges facing the economy. Those people often point to the higher "U-6" rate that includes underemployed and "marginally attached" workers. The U-6 rate spiked at around 17% in the aftermath of the 2008 collapse, and now hovers around 8%. This is not unusual, however, as the graphic here illustrates. The U-6 rate has always floated somewhat above the official rate, with a spread to the U-3 rate that widens as economic conditions worsen and narrows as things improve; with a steadily improving economy, the spread between the U-3 rate and the U-6 rate is now narrowing exactly as one would expect. The truth is that companies across the country already cannot find workers. These tight labor market conditions beg a simple question: where are all the excess workers supposed to come from if tax cuts pass and the economy heats up further. Trump boasts about the lowest unemployment rate in nearly a half century and seems oblivious to the implications of that statement for his tax cut promises of new jobs.

Unemployment Rate by Education: Macrotrends.net

Third, the most significant factors affecting individual employment prospects and family income sustainability remain largely within the domain of individual choices made over the course of a lifetime. Educational attainment and the willingness to relocate for economic opportunity have long been the primary determinants of economic well-being, and have been central to long-standing GOP principles of self-reliance and personal responsibility. One of the tragedies of the rise of Trump as the avatar of the new Republican Party has been his willingness to undermine the importance of that message, both encouraging workers to stay where they are and rely on him to bring their jobs back, and contributing the growing Republican disdain for higher education. As the graph above illustrates, the linkage between educational attainment and family incomes and economic resiliency is clear. In his book Hillbilly Elegy--which became a bible of sorts for Republican understanding of the plight of its rural white working class base voters--J.D. Vance observed that his family members who went back to school or moved to regions of the country with better job prospects both fared well, while those who stayed put in eastern Kentucky and blamed others for their fate did not. When considering their plight, he suggested that they only needed to look in the mirror to find the source of their problems.

Finally, there is the "jobs" element of the Tax Cuts and Jobs Act: the corporate income tax cuts. This element of the tax cut plan can perhaps best be described as a solution in search of a problem. The prospect of corporate tax cuts--along with a relaxing regulatory environment--have sparked a dramatic rally in the stock markets and galvanized support across the business community for the Trump administration. But unlike flagging household incomes, corporate profits are already at historically high levels in both absolute dollars and as a share of national income, as illustrated here. The prospect of a reduction in the statutory corporate tax rate from 35% to 20%, as well as a tax holiday on overseas profits and full expensing of capital investment, only looms to bolster further profit growth.

The jobs argument for the proposed tax cuts centers on the administration's contention that corporate tax cuts will translate into increased worker wages. Specifically, they are arguing that the proposed $200 billion corporate tax cut will produce a $4,000 to $6,000 hike in average worker take-home pay. Looking at the low end of the projection, $4,000 per worker pencils out to $400 to $600 billion annually, or two or three times the value of the proposed tax cut. The presumption is that with a new, lower statutory tax rate, global capital will pour into the United States, manufacturing will be reborn, and, ultimately, employee wages will be bid upward. After decades of seeing wages decline as a share of national income--as illustrated here--America will be made great again.

That analysis has sparked a raging debate among economists, both as to the basic premise that corporate tax rate cuts lead to meaningful wage increases--which is largely based on experiences of small economies--and historical evidence that suggests that the primary beneficiaries of past corporate tax cuts tend to be shareholders and corporate CEOs and board members. As The Economist magazine pointed out, the administration analysis also seems to ignore the interaction among various provisions in the proposed legislation. Allowing the full expensing of capital equipment--combined with continued, historically low interest rates--may be the real game changer, rather than the cut in the statutory tax rate. Companies faced with tight labor markets will have every incentive to invest in robotics and artificial intelligence to reduce their overall need for workers, rather than boosting their pay, producing an effect at odds with what the administration is promising.

But this is all conjecture, and should not be an obstacle if the GOP keeps its eye on the prize. Even if the economics have not always played out as predicted, tax cuts have always worked as a political strategy. That is where the real algorithm lies, in the politics.


Read it at the HuffPost.

Follow David Paul on Twitter @dpaul. He is working on a book, with a working title of "FedExit: Why Federalism is Not Just For Racists Anymore."

Artwork by Jay Duret. Check out his political cartooning at www.jayduret.com. Follow him on Twitter @jayduret or Instagram at @joefaces.