The Administration’s Investment in Social Division

We witnessed a stunning irony this past week: a rebellion against the Republican tax cut by its greatest beneficiaries. This came in the form of a stock selloff as evidence materialized that the tax cut and a budget agreement in Congress would together propel budget deficits past $1 trillion from fiscal year 2019 onwards.

Deficits of this magnitude represent a return to fiscal conditions during the 2008/9 financial crisis – except that the economy is now growing steadily rather than contracting and the spike in deficits comes on top of an accumulation of federal debt attributable to the financial crisis itself. Massive deficits were warranted in the aftermath of the financial crisis; they make no economic sense today. However, they may prove politically useful for the current administration and the Congressional majority.

In response to rising deficits of their own creation, Republicans are now primed to follow up their massively lopsided tax cuts with their well-rehearsed mantra: “we have a spending problem.”

This message is designed to lay the groundwork for cuts to social welfare spending. For anyone genuinely concerned with deficits and debt, the exclusive focus on one side of the budget ledger (spending) while ignoring the other (revenue) is entirely dishonest. Nonetheless, the catchphrase has also been deployed at the state level in places such as Kansas  and Montana.

Purveyors of this rhetorical trick turn their critical attention to growth in mandatory spending for Social Security, Medicare and such items as “food stamps” (the Supplemental Nutritional Assistance Program, or SNAP); we should fully expect an assault on these and other programs that benefit vulnerable populations.

Even before the tax cut, U.S. federal tax revenue relative to GDP was low both by historical standards and in international comparison. If 2017 tax revenue was simply equal to the average share of GDP for the past 40 years, there would have been an additional $62 billion of tax revenue. If we exclude the historically low revenue years of the financial crisis – 2009 and 2010 – the implied loss of federal revenue is $91 billion. By itself, this would pay for a full year of the Supplemental Nutritional Assistance Program, which assists about 43 million Americans living on the edge of poverty to stave off hunger.

Even more stark is the share of U.S. tax revenue in international comparison. In 2016, tax revenue from all levels of government was 26% of GDP in the U.S., versus an average of 34.3% for all 35 Organization for Economic Cooperation and Development (OECD) countries. Of these countries, the U.S. ranks 31st. Only Turkey, Ireland, Chile and Mexico raise smaller shares of revenue relative to GDP.

Why the higher tax revenue in most wealthy countries, especially European democracies? Do citizens in these countries simply enjoy paying taxes more than Americans?  Of course not. But these countries invest in social cohesion, which is why even center-right political parties, such as Germany’s Christian Democrats, have long supported sustained social welfare spending. U.S. governments do not make this investment. Instead, American society operates under the myth that social cohesion will emerge from the inclusiveness of the “American Dream.” That myth has been shattered, and American society is in desperate need of renewed investment in social cohesion.

That investment is not forthcoming. Instead, the deficits conjured by the current administration and the Republican Congress will serve as a pretext for an assault on social welfare spending. The most vulnerable will pay the price.

Worse, divisiveness has become a conscious political weapon of the current administration and congressional majority. In their hands, the U.S. government is no longer investing in the long-term future of American economy and society; it is investing in social division.