Trading Off Health Care For Unnecessary Supply Side Tax Cuts

Republican members of the House of Representatives have taken the first step – a budget resolution – to cut taxes. The final bill will likely extend some of the regressive the tax cuts that Congress enacted under President Trump in 2017, also known as the Tax Cuts and Jobs Act (TCJA). The extension of expiring tax cuts would go to high-income households, who already sit on record high amounts of money that have not spurred innovation and growth. Extending these tax cuts would then rob the U.S. Treasury of the resources necessary to fund the government’s operations, including Medicaid and SNAP, among others. This isn’t theoretical. Cuts to vital programs for many seniors like Medicaid and SNAP are in the same bill in the House of Representatives. If enacted, House Republicans would take away health care and food from the most vulnerable, including struggling retirees, to help pay for some of TCJA extension, while still leaving large increased budget deficits.

The TCJA followed a basic but faulty supply side logic. Cutting taxes for high-income people and corporations supposedly will leave them with more money. The argument goes that high-income households are more likely to save the money than lower-income households. Those additional savings will lower the price – interest rate – on money that banks can lend out. Similarly, cutting taxes for corporations will mean that they can more easily recover money from an investment project, which will incentivize more investments in new technology, manufacturing plants, fuel efficient car parks and so on. It will also reduce demand for loans since they keep more of their own money, reducing interest rates. Lower interest rates will spur investments and set off an economic growth spurt. That investment burst will raise demand for workers and increase their productivity, both of which will lead to the benefits of the tax cuts to trickle down to workers in the form of more jobs and higher wages. In fact, Trump’s leading economist, Kevin Hassett, argued that the 2017 tax cuts would give workers a bump of $4,000. The logic never played out that way in reality.