D.M, edited and modified by Henry Kincaid-
The Trump administration supposedly promises that its tax reform will actually ‘Make America Great Again‘; high paying jobs and intense investments into the American economy will supposedly become a common sight again, as it was in the ‘golden age of capitalism’, the glory days of American excess in the 1950s through to the early 70s. But will the Trump tax plan actually keep its promises?
Unfortunately, it most likely won’t, and a big reason for this is the fact that the United States is not a developing country that’s suffering from a lack of industrial infrastructure.
Tax cuts for the rich may help third world countries where consumption may be too high for their deficient industrial base to satisfy the fast growth in demand for goods intended for consumption, but this isn’t the case in developed nations. As much as it may sound unethical, sometimes it is necessary to increase income inequality in order to release enough resources into the economy. These costly resources will be used as a means of investment rather than being consumed, which, in turn, will allow business owners to develop the economy, however; that would only apply to developing countries, and is not the correct approach for industrialized and developed countries like the US.
This isn’t the case because it will somehow sabotage the federal debt and the deficit, like how some Democrats keep predicting, but rather because the debt is a minor issue here. America is a country with its own sovereign currency, and while it has massive debt, it has no debt which is denominated to foreign currencies, thus it can never go broke involuntary, unlike what you may hear from Republican congressmen all the time.
As Alan Greenspan said once during a congressional committee:
“There is nothing to prevent the federal government to create as much money as it wants and give it to somebody”.
While there are definitely negative implications to such a move, the lack of any physical standard to which the US dollar must be held up to means that, theoretically, the only way to run out of dollars would be to run out of the materials required to create the notes.
The question is, how you set up a system which assures that the real assets (resources) are created to allow spending to occur (in a non-inflationary manner)?
The main problem with the Trump tax plan is that while such a plan could, theoretically, help a developing third world country (tax cuts for the rich and corporations combined with proper industrial policy), it may not necessarily help a developed country to maintain a healthy growing economy; in fact, it may even cause harm.
Developed countries usually have the opposite problems of third world countries; the growth in consumption is usually low, relative to the ability of their industrial base to satisfy the growth in consumption. This is especially the case when the wages are stagnating, and the middle-class households are as deep in debt as they are now.
That’s why regressive tax cuts, such as this, increase the already-high income inequality, and why they have serious negative implications, especially in the US, an extremely polarized, developed society where there are many people still living in extreme poverty. Subsequently, higher income inequality will force poorer households to go deeper into debt in order to sustain economic growth, and it may even lead to a bubble because the rich, who will enjoy benefits from the tax cuts, will most likely invest their newly gained money into the stock market, which can lead us to the next recession. This is all the while America will be suffering from further crumbling infrastructure, poisoned water, severe poverty, and high crime, as well as high tuition fees and only a proportion of the population with adequate medical insurance.