As they took control of both chambers of Congress and the White House in 2025, Republicans faced a dilemma. They wanted to extend the tax cuts enacted during Donald Trump’s first term, a central priority of both the president and the party’s corporate and donor base. But because the tax extensions would blow a multi-trillion-dollar hole in the ten-year deficit projection, they risked losing the votes of fiscal hawks inside their caucus. 

So, Republicans went hunting for “pay-fors” to lessen the deficit damage. They axed tax credits for EVs and clean energy and decimated funding for Medicaid and SNAP. But in addition to these well-publicized cuts, they radically reduced federal student loan subsidies, including those for graduate students.  

Of course, they didn’t say out loud that they were reducing support for graduate education to finance tax cuts to the wealthy and corporations. Instead, they and conservative think tanks argued for the cuts on other grounds. First, invoking the so-called Bennett Hypothesis—named after the former Education Secretary, William J. Bennett, who articulated the theory—they claimed that federal student aid enables colleges to raise tuition, and that cutting federal funding will therefore force tuition prices down. Second, channeling arguments made by pronatalists at places like the Heritage Foundation, they said that young people, especially women, spend too long in graduate school, delaying marriage and childbearing, and that shrinking higher-education subsidies will boost the fertility rate. 

These arguments point in opposite directions. The first claims that cutting federal loan support will make graduate education cheaper and therefore easier to earn, the other that those cuts will make grad school harder to pursue. Regardless, both converge on the same policy outcome: less federal money for graduate education, more for tax cuts.  

The One Big Beautiful Bill Act (OBBBA), which passed in July, reduces federal higher education spending by roughly $284 billion over a decade, according to the Congressional Budget Office, largely by tightening graduate student lending. It eliminates the Graduate PLUS program, which had allowed students to borrow up to the full cost of attendance for graduate degrees. Instead, the legislation limits future loan amounts based on the type of graduate program: $50,000 per year and $200,000 total for “professional” degrees, $20,500 per year and $100,000 total for all others.  

To avoid a political fight about which degrees count as “professional,” lawmakers added a snippet of ambiguous language from an otherwise unrelated regulation. They directed the Department of Education to clarify the final definitions based on it. In November, a committee empaneled by the department released those definitions as a first step in writing the regulations that will implement the new law. Medicine, dentistry, pharmacy, veterinary medicine, optometry, osteopathic medicine, podiatry, chiropractic, theology, law, and clinical psychology were deemed “professional” and eligible for higher federal loan limits. Nursing, teaching, social work, physical therapy, physician assistant programs, and audiology were not. 

Such regulatory notices usually fly under the public radar, but this one hit a nerve. Roughly four million nurses and more than two million social workers, including teachers and therapists, read the rule the same way: as a declaration that their work does not count as a profession. Their unions and trade associations protested. A prairie fire of anger and ridicule spread on social media. National media outlets covered the controversy. Even The Onion weighed in (“White House Reclassifies Nursing as a Hobby”). 

“None of us anticipated the offense that would be taken by the term ‘professional,’” a member of the department’s rulemaking committee told me. In retrospect, however, it’s not hard to understand the anger. Nursing and social work are overwhelmingly female professions already facing shortages, burnout, and stagnant pay. Getting a raise in these fields often requires a master’s degree, and the Trump administration was putting up roadblocks. Nurses already absorb abuse from hospital administrators and arrogant physicians while doing the unglamorous work of keeping patients alive. To then be downgraded—symbolically and financially—by the federal government was seen as disrespect. “It’s just a smack in the face,” said Susan Pratt, a nurse who is also president of a union representing nurses in Toledo, Ohio. “During the pandemic, the nurses showed up, and this is the thanks we get,” she told the AP.

Public outrage has been so intense that, in December, a bipartisan group of lawmakers asked the Education Department to restore nursing to the list of professional degrees.  

If the new federal graduate school loan regime is proving to be a disaster politically, it is not much better as policy. Robert Kelchen, a higher education policy professor at the University of Tennessee Knoxville (and data editor of the Washington Monthly college rankings), notes that loan limits only make sense if they follow outcomes—either to prevent students from taking on unsustainable debt or to discourage enrollment in programs with poor repayment prospects. By those metrics, nursing stands out for the opposite reason. It has strong debt-to-earnings ratios, strict licensing requirements, sustained labor-market demand, and a clear social return. If taxpayers are going to subsidize any graduate profession, nursing is among the safest investments. 

Capping graduate degree loans at $20,500 annually might sound reasonable to conservative lawmakers trying to fill a self-created budget hole, but it makes less sense if you’re a working nurse or physical therapist entering an expensive, clinically intensive program in a high-cost area without family wealth. Pair that cap with the elimination of Grad PLUS and a tighter income-driven repayment regime, and the math will not work for many prospective nurses and teachers. Some will never apply. Others will turn to private loans. Many will walk away. 

Of course, there are universities charging outrageously high tuition for certain graduate degrees that don’t lead to commensurately high incomes; some of those programs were created precisely to take advantage of unlimited federal graduate student loans. As the Washington Monthly reported in 2024, the worst offenders are often elite schools. For instance, Northwestern University offers a master’s in counseling that saddles average graduates with $153,657 in debt, who go on to earn only $56,897 on average annually five years later. (By comparison, many regional public universities offer the same degree at a fraction of the cost, and their graduates earn more.) Lawmakers could have protected grad students from such predatory programs—and taxpayers from picking up the tab when those students can’t repay the loans—by directing the Education Department to limit graduate loans based on the average earnings of specific degrees or programs. Instead, they rushed through poorly worded legislation that blew up on the launchpad.  

Nor do their intellectual justifications hold up. The Bennett Hypothesis that higher federal student financial aid leads to higher tuition has been heavily studied, and evidence for it is mixed at best. Meanwhile, the pronatalist argument that reducing graduate education loan support will boost the birth rate isn’t looking so good, considering the damage likely to be done to the careers of many who deliver babies for a living.  

In one respect, however, the GOP’s gutting support for graduate education has been a success: it helped deliver the votes for nearly $5 trillion in tax breaks to corporations and the wealthy (and massive federal deficits to boot). Tens of millions of nurses, teachers, social workers, and their families are likely to remember that in the midterms. 

The post The GOP War on Nurses appeared first on Washington Monthly.

It’s July 7, 2025, and the “One Big Beautiful Bill” is now law. With it, President Trump has reshaped the domestic policy landscape—delivering front-loaded tax breaks while slashing Medicaid and scientific research, launching aggressive immigration crackdowns alongside flashy but fleeting baby bonds. In the first Washington Monthly Politics Livestream since the bill’s passage, contributing editor Anne Kim is joined by Executive Editor-Digital Matthew Cooper and Politics Editor Bill Scher to break down what just happened—and what comes next.

What does $3.3 trillion in new deficits mean for the future of fiscal politics? Will voters feel the pain before the midterms—or the benefits? Could tariffs and immigration raids backfire on Republicans? And what’s Elon Musk doing trying to start a third party?

Below is a transcript of their conversation, lightly edited for readability.

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Anne Kim: Hey, good morning, Matt.

Matthew Cooper: Good morning, Anne.

Anne Kim: So, Congress did meet its self-imposed July 4th deadline to pass President Trump’s signature domestic policy agenda. He had a showy signing ceremony at the White House with bombers flying overhead and the band playing the national anthem. For a while, it looked like the House Freedom Caucus—the so-called budget hawks—might balk at a bill that adds $3.3 trillion to the deficit. But that’s not what happened. Were you surprised the House Republicans and some Senate moderates caved?

Matthew Cooper: Frequent viewers will know I was a tower of Jello about whether this would pass. I thought it might not. But it makes sense—House Republicans are very afraid of Trump and of being primaried. Senator Thom Tillis dropped out of his reelection bid after Trump threatened a primary. Cause and effect? Hard to say, but it looked that way. They passed it, and now they own it. There are no Democratic fingerprints on it. My guess is it’s not going to get more popular.

Anne Kim: Let’s talk about what they now own. Polling showed a majority opposed the bill before it passed, but many didn’t know what was in it. Trump’s allies believe the front-loaded goodies—like no tax on tips and the misleading promise of no tax on Social Security—can win people over. Do you think this sell job will work, or will Democrats hang the bill around Republicans?

Matthew Cooper: If I had to guess, it’s going to be tough. A lot of the bill is just continuing current tax cuts, so most people won’t see much change. Some front-loaded goodies exist, but a lot of bad stuff kicks in early. They couldn’t push it all past 2026 or 2028. People will lose Medicaid coverage, there are serious Medicare cuts, and other program cuts. If the economy remains strong, Trump might not suffer politically. But if it dips, people’s opinion of both him and the bill will worsen.

Anne Kim: The Medicaid cuts fully kick in after the midterms. If Democrats control Congress in 2027, they could be blamed. The goodies expire in 2028. Did you get that misleading Social Security email?

Matthew Cooper: Yes. It gave the impression benefits are no longer taxed.

Anne Kim: Which isn’t true. It just expands the deduction to $6,000 for individuals and $12,000 for couples. It might help some seniors, but doesn’t exempt all Social Security benefits. Also, two-thirds of seniors already don’t pay income tax on their benefits because their incomes are too low. So, minimal benefit—lots of hot air.

Matthew Cooper: Right. Also, state-level pressure is growing. COVID funds are gone, economies are tight. Here in the Mid-Atlantic, D.C. and Maryland face big budget cuts. That will affect the states’ ability to contribute.

Anne Kim: Exactly. Work reporting requirements kick in after the midterms. States will have to prepare compliance systems, costing money and creating press headaches. Many will lose coverage due to reporting issues.

Matthew Cooper: Right. Money will go to contractors. Paperwork burdens will hit people with multiple jobs. This has unintended consequences.

Anne Kim: Substantively, this bill changes the economy, the role of government, and our fiscal health. What worries you most long-term?

Matthew Cooper: Cuts to scientific research. For 80 years, we’ve invested in grants for universities, leading to breakthroughs in space, tech, and biomedicine. With NIH cuts, top researchers may leave or stop working. That’s bad for the country. And the deficit—these are bigger than during the financial crisis or COVID. This should’ve been a time to reduce it. There’s a limit to borrowing if confidence in U.S. bonds erodes.

Anne Kim: In 2025, interest on the debt will be $952 billion—more than Medicaid ($607B) or the military ($883B). That’s like credit card interest crowding out spending.

Matthew Cooper: Yes, and rates may still rise.

Anne Kim: Bill, what’s the most damaging long-term impact of this bill?

Bill Scher: It’s harming our health insurance system and SNAP. Democrats will need to campaign on restoring them, which will require new spending. The debt adds pressure. Raising taxes on the rich is politically easy, but if they have to go beyond that, it gets dicier. At some point, Democrats will face a choice: be the party of good governance and take the political hit—or become like Republicans and just hand out benefits without paying for them. That could stress their coalition.

Anne Kim: Meanwhile, we’ve got these thousand-dollar Trump baby accounts for newborns—for just four years. Maybe not big enough to override criticism, but who knows?

Bill Scher: It’s hard for Democrats to oppose baby bonds. But because it’s a one-time deposit, upper-income families will benefit most—likely worsening wealth gaps. Democrats may try to expand it, and that’s more spending.

Matthew Cooper: Right. And unlike Clinton, Obama, or even Biden, future Democrats won’t have low interest rates or big majorities. Cleaning up this mess will be harder.

Anne Kim: But hey, tariffs will raise revenue, right?

Matthew Cooper: Unless we “cut great deals,” as Trump claims.

Anne Kim: Wednesday marks the end of the 90-day pause on the Liberation Day tariffs. Treasury Secretary Scott Bessent says there’s a reprieve until August 1. Trump promised 90 deals in 90 days. We have, maybe, two and a half?

Matthew Cooper: Yeah. Frameworks, discussions, concepts—no real deals.

Bill Scher: If tariffs stay high, they bring revenue—helpful for Democrats. But if they make groceries more expensive, that hurts Republicans. Democrats could then campaign to end tariffs—but replacing that lost revenue won’t be easy.

Matthew Cooper: Tariffs may raise revenue, but they’ll cause layoffs too—dockworkers, car dealers, others. Hard to see a positive outcome.

Anne Kim: Tariffs are taxes. They’re regressive and hurt lower-income consumers the most—especially for goods from places like Vietnam.

Matthew Cooper: And businesses that moved production to Vietnam now face high tariffs again. Trump frames it as American vs. foreign goods—but we can’t manufacture everything here, like coffee or electronics. Consumers will pay more.

Bill Scher: The bill also boosts ICE funding and ramps up immigration enforcement. Combined with tariffs and cuts, this attempt to nationalize the economy could trigger short-term calamity. Economists warn this approach isn’t viable. Immigrants help the workforce and don’t necessarily suppress wages. Democrats could make a strong case for interconnected markets and immigration.

Anne Kim: Let’s talk about immigration’s political cost. Interior enforcement is ramping up. Detention videos are circulating. One site—Alligator Alcatraz in Florida—was showcased in a bizarre government video. Thoughts?

Matthew Cooper: It’s cruel and not a real deterrent. People willing to walk through jungles won’t be scared by this. It’s just sadistic.

Bill Scher: Trump got away with harsh immigration rhetoric because people thought it didn’t affect them. That illusion is fading. In diverse states like Florida, this could backfire.

Anne Kim: Border crossings are at historic lows. Trump’s 3,000-arrests-per-day target means lots of wrongful detentions.

Bill Scher: That number requires interior deportations—likely of people working and contributing. Politically risky.

Matthew Cooper: And Trump’s trying to reassure farm owners, saying seasonal workers are safe. But he’s clearly planning for more mass enforcement.

Anne Kim: A New York Times article quoted Senator Ruben Gallego advocating for border security, deporting criminals, and a humane path to legal status. Is that a winning formula?

Bill Scher: That’s been the Democratic position for years. The 2020 debate moment on decriminalizing border crossings confused the issue. But Democrats want an orderly system—secure borders, asylum processing, and worker programs. That’s long been the stance.

Matthew Cooper: Right. Democrats can modify the “path to citizenship” idea if needed—make it about residency. Still, the broader point is that we need immigrants, even if that means dealing with some unauthorized entries.

Anne Kim: Quick final question: Elon Musk is flirting with a third party, the “America Party.” How seriously should we take it?

Matthew Cooper: Not very. Austerity politics won’t sell, especially from a billionaire.

Bill Scher: Perot got 19% in ‘92 and helped shape the debate. Musk could be a spoiler, but he lacks discipline. Perot had actual policy ideas; Musk doesn’t yet.

Matthew Cooper: Even pushing the major parties counts as success. But Perot had credibility Musk doesn’t.

Anne Kim: And deficit politics are a tough sell from someone who pumped Dogecoin. In ’92, it was tied to welfare reform. Not sure that link exists now.

Bill Scher: If Musk just pushes cuts for the poor, that’s a nonstarter. Perot’s message was about shared sacrifice, not just punching down.

Anne Kim: If you’re a cynical Democrat, you might welcome the spoiler potential.

Matthew Cooper: Oh yeah, it’s payday for consultants.

Anne Kim: What are you watching this week?

Matthew Cooper: NYC mayoral race—seeing if Cuomo drops out and whether the opposition to Mamdani can organize.

Bill Scher: The rescissions package due July 18. Big impact on FY26 appropriations. Could determine if we face a government shutdown.

Anne Kim: No such thing as a sleepy summer.

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The post Welcome to Trump’s America, Again appeared first on Washington Monthly.

With House and Senate Republicans still struggling to find consensus on a budget reconciliation bill extending and expanding the expiring tax cut package from Donald Trump’s first term, Representative Jason Smith made a surprising statement during a Fox News Sunday interview on May 4. 

Asked if “upper earners may face higher taxes,” the chair of the tax-writing House Ways and Means Committee replied: “There’s no problem to eliminate loopholes that the wealthy have benefited from to make sure that working-class Americans aren’t paying taxes on tips, seniors are having reduced taxes on their Social Security, and we’re not paying taxes on overtime.” 

Smith isn’t the only Republican suggesting revenue raisers that impact the wealthy. According to yesterday’s Punchbowl News, “senior Trump administration officials” are still “interested in” a “variety of tax provisions, including rate increases for wealthy Americans.” Rate hikes on the wealthy are still on the table despite Trump telling Time last month that “the only reason I wouldn’t support it is because I saw [George H.W.] Bush where they said, where he said ‘Read my lips’ and he lost an election.” 

Whether Republicans will do what had been unthinkable and support higher taxes on the wealthy, be it from broad rate hikes or narrow tax code changes, is far from certain. Punchbowl News noted that House Speaker Mike Johnson continues to oppose tax increases. As I wrote last week, tax cuts have long been central to the GOP identity, and the populist push for tax increases—apparently supported by Vice President J.D. Vance and others in the White House—has already begun to threaten party unity. 

Smith’s framing is common-sensical and populist, transparently designed to rob Democrats of the ability to skewer Republicans for yet another tax bill benefiting millionaires and billionaires. Smith is taking a cue from Steve Bannon, the former Trump adviser who maintains an outsized platform with his War Room podcast. Bannon told the The Washington Post about taxing the wealthy, “Politically, it’s game, set, match—it’s a no-brainer. This would destroy the Democrats.” 

Like most of what escapes Bannon’s mouth, that’s hyperbole. But a tax bill that, on net, increased taxes on the wealthy and decreased taxes on everyone else would more closely resemble a Democratic bill than a Republican one. And that would leave Democrats without their usual rejoinders. 

However, the keywords are “on net.” Exactly how much more or less the wealthy and the working class would pay depends on the details. 

Eliminating taxes on tips, Social Security, and overtime sounds like a policy that would largely help working-class households. But it does so the most for upper-middle-class households. The Institute for Taxation and Economic Policy (ITEP) explains that “lower- and moderate-income families are generally not positioned to make full use of these tax exemptions due to other exemptions and the income tax’s graduated rate structure.” 

The top one percent does not get much tips and overtime, but they get Social Security. Penn Wharton Budget Model found that for 2026, eliminating income taxes on Social Security benefits would give the bottom 20 percent nothing and the next-lowest quintile an average break of $15, while most of the top one percent would get $2205, with the top 0.1 percent getting $2450.  

The biggest beneficiaries of eliminating taxes on tips and overtime are not the top one percent but the top 20 percent (starting at about $157,000 in annual income). For overtime, according to ITEP, the bottom 20 percent would get back about $10 in 2026, while the top 20 percent would get an average of $1480. For tips, according to the Tax Policy Center, the bottom 20 percent could expect $730, and the top 20 percent $7,170. 

These estimates assume Trump’s tax proposals would apply to all taxpayers, regardless of income bracket. Republicans could cap the benefits to lower-income and middle-income families, though that could make the proposals an even tougher sell to anti-tax Republicans.  

And when calculating net tax benefits, we can’t forget Trump’s regressive tariffs. Regardless of how the tax bill details impact the wealthiest, any benefits to working-class families may still be negated by the taxes they will soon be paying when shopping. 

We don’t know specifics yet because Republicans are nowhere near reaching consensus on their budget reconciliation bill, and the chances of a total collapse are non-zero.  

Smith sounded more than a little desperate on Fox News Sunday when he said twice, “Failure is not an option” because otherwise, “every single American will face, on average, a 22 percent tax increase.” That is likely a tacit acknowledgment of what would happen if Trump’s first-term, officially temporary tax cuts expire, without even considering the higher consumer costs from the tariffs. Also on Sunday, Trump told NBC’s Meet the Press, “If it doesn’t get approved, it’s a 68 percent tax increase, and that’s what the Democrats want.” 

Trump and Smith may be correct that the prospect of owning a giant tax increase will pressure Republicans to find a compromise, however politically awkward. That Trump and Smith are resorting to such pressure at this stage of the process, on top of once sacrilegious tax increases being considered, betrays the tenuous state of intra-party negotiations—which involves trying to balance demands for severe spending cuts and extreme deficit reduction from rabid fiscal hawks with the political needs of vulnerable swing district congresspeople. However, even if some tax increases make it into a final bill, we’ll have to read the fine print to see if the wealthy really are being forced to bear a larger burden of our tax responsibilities.  

The post This Republican Just Cracked the Doors Open to Higher Taxes on the Wealthy (Or Did He?) appeared first on Washington Monthly.

“Presidential campaigns are like MRIs for the soul,” said David Axelrod, Barack Obama’s former campaign strategist. I believe a corollary is that the budget reconciliation process is like an MRI for the soul of a political party.  

The filibuster-proof process often begins with assumptions of party unity on major issues members and activists, only to discover fissures festering under the surface. 

In 2017, Republicans found out the hard way they were not united around repealing the Affordable Care Act. After that reconciliation bill dramatically failed on the Senate floor with John McCain’s famous thumbs down, Republicans recovered with passage of a different reconciliation bill on the issue that had long kept the GOP together: tax cuts. 

Eight years later, Donald Trump is again president, Republicans are again in control of both chambers, and they again struggle to reach a consensus around health care. The House budget resolution—nonbinding legislation but a necessary step in the reconciliation process—instructed the committee with jurisdiction over Medicaid to come up with $880 billion in spending cuts. But the Senate version did not follow suit, and several House Republicans signaled they wouldn’t vote for Medicaid cuts that large in the final bill.  

It is not surprising that Republicans still lack unity on health care. The Affordable Care Act remains popular, but improving health care is a complicated subject, and complexity is not a strong suit of the modern GOP. Trump ran in 2024 claiming to have only “concepts of a plan” regarding health care, an unintentionally farcical acknowledgment that there was little political upside in offering health care policy details.  

It is surprising that Republicans dove back into the health care thicket by making potentially unpopular Medicaid cuts a central focus of their budget reconciliation bill. And more surprising than that their other focus—taxes—is not uniting the party as it used to. 

The Washington Post reported earlier this week: 

President Donald Trump’s inner circle is weighing whether the White House should back raising taxes on Americans earning more than $1 million per year as part of the GOP’s 2025 tax legislation, according to two administration officials and three other people briefed on the matter.  

While the prospect of a tax hike has gotten a largely chilly reception among Republicans on Capitol Hill, Vice President JD Vance and budget director Russell Vought have expressed openness to the idea in internal administration deliberations and are viewed as supportive, said the people, who spoke on the condition of anonymity to describe private talks. Stephen K. Bannon, who served as the president’s chief strategist during his first term, has been publicly urging Trump to endorse the plan in part as a way to defang Democratic attacks on the GOP as the party of the rich. 

The Republican Party’s branding as the party of tax cuts has already been besmirched by Trump’s tariffs, which, in effect, are taxes on imported goods. But no Republican in Congress voted to impose those tariffs; Trump did it alone. The prospect of voting for an income tax hike is far more combustible for the Republican rank-and-file, so much so that Trump quickly put out the fire.  

Asked by a reporter on Wednesday if he supported a millionaire’s tax, Trump replied, “I think it would be very disruptive because a lot of the millionaires would leave the country.” This is a bogus excuse. The Wall Street Journal noted, “To escape taxation, wealthy Americans would need to renounce their citizenship and pay capital-gains taxes as if they sold their assets. Even if they did that and moved abroad, they would still pay U.S. taxes on U.S.-sourced income.” But Trump’s public rationale is less important than the position itself. He appears unwilling to instigate an intra-party confrontation over taxing the wealthy.  

However, the mere introduction of the idea may prove to be a fatal toxin injected into the party’s bloodstream. 

Low taxes are not just an issue for the Republican Party; it’s the defining issue. As I cited earlier this month, the late conservative commentator Robert Novak once declared, “God put the Republican Party on Earth to cut taxes. If they don’t do that, they have no useful function.”  

But Steve Bannon, the former Trump administration adviser and MAGA movement leader, has promoted a reorientation of the GOP away from the “donor class.” In January, Bannon told conservative New York Times columnist Ross Douthat, “I don’t want to increase taxes on the wealthy just because I believe in soak the rich. Maybe I do, but I would not want to be part of policy. I want to do that to get our financial house in order because we just can’t keep borrowing a trillion dollars every 100 days.”  

(Bannon also told Douthat that he supports “significant spending cuts, starting in defense.” In keeping with his supposed working-class allegiance, “Medicare and Social Security are off to the side.” On his podcast in February, Bannon offered a mixed message on Medicaid cuts: “Get into that discretionary spending. Get into the Pentagon. Get into Medicaid. You got to be careful because a lot of MAGAs on Medicaid … You just can’t take a meat axe to it though I would love to.”) 

Bannon could be discounted as just a loud guy with a podcast. But as the Washington Post story suggests, he appears to have a sympathetic ear with Vice President Vance, who is positioned to shape the post-Trump GOP. The Post reported: “Vance’s openness to higher taxes in some circumstances has provoked alarm among some conservatives given his strong position to claim the GOP presidential nomination in 2028. In 2023, Vance said he opposes further cuts to the corporate tax rate, which the president’s 2017 tax law lowered from 35 percent to 21 percent. While in the Senate, Vance also explored bipartisan measures to close tax loopholes for large businesses.” 

And a few members of the House suggested they were willing to raise taxes on the wealthy. NBC News reported that Freedom Caucus member Chip Roy of Texas said in an interview, “he’s open to any policies that prevent new deficits, including allowing higher tax rates.” Representative Andy Harris, the Freedom Caucus chair, told Fox News, “Before the Tax Cuts and Jobs Act, the highest tax bracket was 39.6%; it was less than $1 million. Ideally, what we could do – again, if we can’t find spending reductions – we say, ‘OK, let’s restore that higher bracket, let’s set it at maybe $2 million income and above’ to help pay for the rest of the president’s agenda.” 

These voices don’t come close to representing most of the House Republican Conference. Speaker Mike Johnson surely was speaking for the majority when he told Fox News on Wednesday, “I don’t think we’re raising taxes on anybody. What we’re trying to do is prevent the largest tax increase in U.S. history.”  

The second sentence was likely a passive-aggressive shot at Trump’s tariffs, revealing the intra-party tensions and intellectual incoherence, threatening the party’s fundamental identity. Bannon argues for higher taxes on the wealthy to reorient the party away from the “donor class” and toward the “working class.” But Bannon is a huge supporter of Trump’s tariffs, which are regressive tax hikes that are disliked by a majority of all Americans.  

Both sides of the GOP tax divide are trying to do the impossible. Bannon’s populists want to balance the budget, but, as Bannon told Douthat, “we’re not going to do it on the back of the little guy.” So he supports spending cuts and tax increases on the wealthy, but also tariffs and, to some degree, Medicaid cuts.” Traditional Republicans like Johnson want to balance the budget, but they refuse to raise taxes on the wealthy, which pushes them towards politically dangerous, draconian spending cuts for popular programs like Medicaid and (for some) Social Security and Medicare. On Wednesday Bannon, recognizing that he has likely lost the argument for a tax increase on the wealthy, vented on his podcast, “The simple math is: Unless you raise the taxes at the upper bracket, the math doesn’t work.” 

Both camps seem to have forgotten the politically astute lesson from former Vice President Dick Cheney: “Deficits don’t matter.” Cheney’s running mate, George W. Bush, didn’t worry about deficits, pushed through traditionally conservative tax cuts, and tacked on a not-so-conservative expansion of Medicare to cover prescription drug costs en route to a re-election victory in 2004—the only time a Republican presidential candidate won an outright majority of the popular vote since 1988. (Then, in his second term, Bush tried to privatize Social Security, and his popularity sank.)  

Prioritizing extreme deficit reduction forces Republicans to take positions that in one way or another threaten their coalition of business-class and working-class voters. This is why a budget reconciliation bill isn’t quickly and neatly falling into place.  

In the worst-case scenario, Republicans’ reconciliation bill effort will collapse, and in the ugly aftermath, their intra-party rifts will harden into existential schisms. More likely, a reconciliation bill with tax cuts of some sort will be stitched together, and a veneer of unity will remain for the time being. But Republicans will have to worry about how long that unity can last.  

The last major party to disintegrate was the Whig Party, which formed in opposition to Andrew Jackson’s aggressive exertions of executive power. Once Jackson was long gone and slavery became the dominant political issue, the Whigs no longer had a reason to exist, and so they didn’t.  

Since the Civil War, Republicans and Democrats have found ways to adapt to changing political circumstances—hot wars, cold wars, economic crashes, civil rights movements—and stay relevant. Today’s Republican Party is in a delicate position because the changing political circumstances are its own president and his allies violating its longstanding principles and losing public support in the process.  

In recent years, the GOP coalition has been held up by trust in Trump’s economic know-how, devotion to tax cuts, and culture war fearmongering. The faction of “Never Trumpers” during the first Trump administration wasn’t significant enough to prevent Trump’s takeover of the GOP. But the first Trump administration delivered a significant tax cut package and a few Supreme Court justices, to boot. This time, Trump’s tariffs have undermined the first two pillars, and the open discussion of tax hikes on the wealthy further destabilizes the second.  

Is culture war fearmongering enough to justify and sustain a party’s existence? If not, then it won’t. 

The post Budget Reconciliation Could Be the Beginning of the End of the Republican Party appeared first on Washington Monthly.

Champions of a future billionaire wealth tax can breathe a small sigh of relief after Tuesday’s Supreme Court argument in Moore v. United States. Additionally, those worried that the justices could be eager to blow up the current federal income tax system can sleep better, too. While juris doctors don’t take the Hippocratic Oath, the justices’ questions suggest that the Court’s liberals and conservatives are adopting a “first do no harm” approach regarding the tax code.

Less is Moore

What’s at issue is what constitutes income and when the federal government can tax it—a pivotal question for many concerned about growing wealth inequality in the United States and one that puts the 16^th Amendment, the Progressive Era measure that led to the nation’s first federal income tax since the Civil War, in the spotlight.

In the case before the Supreme Court this week, the petitioners, Charles and Kathleen Moore, are a well-off married couple from Washington State who filed a lawsuit in 2019 seeking a $14,729 tax refund. A year earlier, they reluctantly paid that amount as a one-time tax on profits accumulated over a decade by a foreign corporation based in India, where Mr. Moore held a controlling stake. Having to pay the money addled him—so much so that he decided to challenge the law on constitutional grounds. In a short video posted by the Competitive Enterprise Institute—the free-market, pro-business organization providing the couple with legal support—he asked in a pitched voice, “If you haven’t received any income, how can you be required to pay income taxes?”

It seems like a reasonable question—but only if you know nothing about how the federal government has raised taxes for over a century. There is a long history of Congress attributing profits a business earns to its owners, even when those owners never receive a penny. For instance, partners get taxed on partnership income even when not distributed. Similarly, income from what’s called an S-Corp is attributed to its owner. The same goes for limited liability companies (LLCs) that select so-called pass-through taxation, even when money is not distributed to them. Congress has, since at least the 1930s, sought to tax U.S. shareholders on portions of the earnings of foreign corporations in which they own shares. Furthermore, to get very wonky, even Moore admitted that there’s also something called Subpart F, which has been around since the John F. Kennedy presidency that allows for taxation of certain income of foreign corporations, even when it is not paid to the U.S. owners. In other words, just like the Moores.

The couple contends that they had no income to be taxed because the foreign corporation never paid them any dividends. Instead, the company, KisanKraft, which sells farm equipment to small farmers in India retained the earnings in India to expand the business. They argue that this made the tax on their investment a federal tax on property, something not authorized under the 16^th Amendment. (If you own land, for instance, the federal government cannot tax you on its value until you do something to extract money from it, like sell it. In contrast, the income you receive from renting out your home is taxable.) The Moores claimed that the 16^th Amendment required the “realization” by them of the income KisanKraft earned before they could be personally taxed. The taxpayer has actually to receive the money, they argued. Both the trial court and the 9^th Circuit Court of Appeals disagreed with the Moores.

Undaunted, the Moores appealed to the Supreme Court. Many experts panicked in June when the Court agreed to hear their case. If the tax the Moores paid was unconstitutional, then what about all those other categories? It would end the tax world as we know it and could be a roadblock to many forms of taxation trying to close the loopholes that allow billionaires to avoid paying taxes by buying assets that grow in value on paper but never selling them. By borrowing against their financial assets to get cash to spend, they can avoid paying taxes on that money. Plus, by using complex estate planning techniques, even their heirs can squeeze money out of the assets they essentially inherit tax-free. It is this buy-borrow-die approach that Senator Ron Wyden is trying to stop with his “Billionaires Income Tax” bill he introduced last week.

Follow the Money

You may wonder why the Supreme Court took the case since there were no divergent opinions among circuit courts to settle. And you might ask why there were numerous counsels of record, including lead counsel Andrew Grossman, a partner from the white shoe firm BakerHostetler. As Watergate leaker “Deep Throat” apocryphally said, the answer is: “Follow the money.” We’re talking sums, not in the tens of thousands but in the hundreds of billions.

Here’s that bigger context, pared down to the essentials with a tad of color to keep you awake (this is tax-related, after all). In the flurry of legislation before the holiday adjournment in December 2017, Congress passed, and President Donald Trump signed the Tax Cuts and Jobs Act (TCJA) with its $1.9 trillion in tax cuts that primarily benefited big corporations and the very wealthy. Included in this package was a reduction in the corporate tax rate from 35 to 21 percent. These tremendous cuts were supposed to be offset by new revenue. One large revenue raiser the Republicans wrote into the law was a mandatory repatriation tax or MRT. This was not a new tax; instead, Congress said enough is enough. We allowed you to defer paying taxes for decades on accumulated profits offshore. Now pay up. The MRT promised to deliver some $340 billion to the Treasury on corporate profits piled up offshore through foreign corporations controlled (and often wholly owned) by American conglomerates. Could it be that the Republican drafters of these provisions had a good sense they would be challenged and possibly struck down by the Court in a bait-and-switch maneuver?

The name-brand corporations most impacted by the MRT included Apple, Microsoft, Pfizer, Johnson & Johnson, and Google. At the top of the list, according to the Institute on Taxation and Economic Policy, Apple has already paid more than $37 billion in repatriation tax, and Microsoft has paid more than $18 billion. While these big players challenged the law at the Supreme Court this week, they will reap the windfall if it were struck or pared down.

Supreme Arguments

Grossman, on behalf of the Moores, argued to the Court that the MRT was a tax on property ownership, a direct tax under the Constitution that would need to be apportioned to the states in proportion to their population.

Within minutes, it was clear that the argument was a loser. Other than Justice Samuel Alito, who rarely spoke during Grossman’s argument, the others didn’t buy it. Chief Justice John Roberts concluded that the corporation Charles Moore invested in had realized income. Justice Sonia Sotomayor seemed wary of the effects on corporations and income distributed to shareholders or partners. And Justice Amy Coney Barrett seemed to agree. Justice Elena Kagan wondered how his theory would continue to allow four long-standing types of taxation where the taxpayer did not receive income. She also reminded Grossman of the “century-old history” of Congress taxing American shareholders on their income from foreign corporations.

Trump appointees echoed the sentiment. Justice Brett Kavanaugh agreed on distinguishing the MRT from the long-standing taxing income from foreign corporations: “The only real wrinkle, I think, here is that it goes back and captures prior years’ income.” And Justice Neil Gorsuch was of no help to Grossman. Like Roberts, he said there was no question the corporation had realized the income. The only question was that of attributing that income to the Moores. Given that Congress always decided attribution, he suggested this was not a Constitutional question but a statutory one. And Justices Sotomayor, Barrett, and others also wondered whether looking back to attribute 30 years of income to shareholders might raise due process concerns.

Justice Ketanji Brown Jackson asked Grossman whether, even if he convinced the Court that both the 16^th Amendment’s definition of income requires realization and that the MRT does not meet that realization requirement, wouldn’t he also have to prove that it was a direct tax, as opposed to an “excise tax” (imposed for the privilege of doing business) which even calculated based on income, was permitted at the federal level before the 16^th amendment, even without apportionment? From there, the newest justice gave hints that she might remand the case to the 9^th Circuit to decide that question. In this, the reticent Alito found his opening to ask Grossman whether the excise tax argument was in the question presented and if it was preserved. Grossman answered no in an attempt to close the door on saving the MRT if that was the only narrow way to do so.

Setting Limits without Killing a Billionaire Wealth Tax

Though a so-called billionaire wealth tax was never mentioned explicitly during arguments, the prospect was implied when conservative justices raised concerns about the “far-reaching consequences” of siding with the government in this case. Solicitor General Elizabeth Prelogar’s responses ruled out only one form of wealth tax. She agreed with Kavanaugh that a tax on the value of real property (like your home) or personal property (such as a yacht) at a point in time is a direct tax and would need to be apportioned based on population, something that would make it a non-starter.

The justices seemed more sympathetic to Prelogar, but several pushed her for a limiting principle. Alito and Gorsuch asked what would stop Congress from taxing people on unrealized gains in the value of real estate, for example, something states do. Prelogar would not rule that out. However, she emphasized that such a tax was not unlikely and difficult to assess and collect. Plus, she explained, it might not stand up to a challenge as it is not supported by historical tradition. She also noted that the first tax passed by Congress after the 16^th Amendment was ratified in 1913 involved taxing shareholders on unrealized gains. As for the due process concerns in retroactively taxing 30 years of income, Prelogar reminded the Justices that the 9^th circuit below had already rejected that argument and that the Moores’ counsel had not raised it here.

What to Expect When You Were Expecting Chaos

Watching oral arguments at the Court—live, as I did—it seems that most of the justices are likely to determine that there was a realization of income by the foreign corporation Moore had a controlling stake in and that it’s appropriately within Congress’s role to decide whether to attribute that income to him. I’d also bet that the majority will simply elide the question that the Moores and other supporters hoped they would answer, namely whether the 16^th Amendment to the Constitution requires income realization.

That doesn’t mean the Roberts Court will instantly rule against the Moores and also uphold the mandatory repatriation tax. For those of us concerned about growing inequality and persistent tax-dodging efforts of the overclass, upholding the law is probably the best outcome. It might not be that simple, though, as the Court may choose to remand the case to the 9^th circuit to determine whether looking back 30 years to capture deferred profits to tax is fair as a matter of due process. Nevertheless, with a limited ruling, sidestepping a thorny question about what income is under the 16^th Amendment, the Court will avoid, at least for now, barring a future Congress from enacting a billionaire wealth tax on unearned income. Given how the Court has been eager to overturn decades of precedent in regulatory and other cases to help major corporations, this kind of restraint (if it comes to fruition) ought to count as a victory.

The post A Taxing Question for the Roberts Court appeared first on Washington Monthly.

Florida Governor Ron DeSantis has entered the presidential race, presenting himself as a conservative culture warrior and an exceptionally competent chief executive. That he’s become a culture warrior, however insincere his motivations, is a plain fact. But DeSantis’ story of gubernatorial competence is a Disney-esque fairy tale.  

He brags about leading the nation among big states in economic growth but leaves out that it’s one of the worst—perhaps the worst—states for inflation. 

He points to Florida’s number one ranking in population growth, skipping over that (as I’ve written before) the state’s growth rate on his watch is no different than his predecessor’s. 

He crows about putting “points on the board” by racking up legislative wins. Sure, he’s aggressively exploited the vast Republican majorities in Florida’s statehouse. But mere enactment is not competence. The more pertinent question is whether DeSantis has shown the foresight to use those majorities to craft good legislation that helps his state prosper. Or did he use them to pass legislation that looks good to Republican presidential primary voters but will backfire on Florida voters? 

One example has already received plenty of attention: the law that took from Disney—the largest single-site employer in Florida—control of the local governing district that encompasses Walt Disney World Resort, the most visited theme park in the world. The global, iconic company, which celebrates its centennial this year, had the temerity to express opposition to the DeSantis law effectively banning discussion of sexual orientation and gender identity in classrooms from kindergarten to third grade. So, DeSantis, who got married at Disney World, exacted revenge.  

The 44-year-old governor was so proud of his retribution that “The Magic Kingdom of Woke Corporatism” is a chapter in his bestselling campaign book. But DeSantis was sloppy. In February, Disney signed a contract with the outgoing local government to preserve its powers, and a hapless DeSantis didn’t realize he’d been had for weeks. The new board, all gubernatorial appointees, nullified the contract in April. But Disney sued DeSantis in response and canceled a planned $1 billion office complex and relocation of 2000 employees to Florida. If Mickey Mouse can give DeSantis the runaround, Republicans may ask, how will he do against Xi Jinping? 

At a time when states vigorously compete for corporate investment, blowing this much, risking more, and not even succeeding at your original aim is flatfooted at best. 

One of DeSantis’ seeming successes is actually a big screw-up: his $1.1 billion tax cut enacted in May 2022.  

What’s so bad about tax cuts? After all, they are standard Republican fare and usually popular. And the way DeSantis structured the bill was politically clever. Florida has no individual income tax, so he reduced the sales tax on middle-class items, including diapers, kids’ clothes, books, gas, “Energy Star”-certified appliances, hurricane-resistant windows and doors, and contractor tools. The governor’s office sold it as “the largest middle-class tax relief package in the history of the state.” 

The package certainly was clever enough to help DeSantis win re-election last November. Every cut I cited above was temporary, some of which were one-time tax “holidays” timed just before the election—such as the October-only gas tax holiday. (Fun fact: The gas tax holiday tab was covered by Joe Biden’s American Rescue Plan Act.)  

But the package also included some permanent tax cuts not made with the middle class in mind. The Tallahassee Democrat reported the “tax cut package also included favors for businesses, who often double as campaign donors. A sales tax exemption on tickets to the Daytona 500, valued at $6 million, is included, along with $5.8 million on tickets to Formula One Grand Prix races, with a $7.5 million aquaculture break that could largely go to one company, Atlantic Sapphire, which is salmon-farming near Miami. A $300,000 exemption on green hydrogen machinery and equipment is likely to mostly help Florida Power & Light.” A NASCAR lobbyist literally wrote the Daytona 500 provision, which is not expected to help ticket buyers; NASCAR can still raise prices and pocket what would have gone to the state in sales tax revenue. 

Even worse, DeSantis’s tax cuts goosed the state economy amid high inflation. In fact, DeSantis sold the tax package as an antidote “against inflationary policies imposed on us by the Biden administration.” But depending on overall economic conditions, tax cuts can fuel inflation, just like government spending—both pump more money into the economy and people’s pockets, making it easier for businesses to set higher prices.  

Guess what happened? As of today, two of the five worst American metro areas for inflation are in Florida: Miami and Tampa. (Note that the federal Bureau of Labor Statistics does not publish state inflation data. The primary inflation metric economists track is the Consumer Price Index for All Urban Consumers, which BLS tracks on a citywide, not statewide, basis.)  

Nationally since June, the year-to-year inflation rate has been slashed nearly in half, from 9.1 to 4.9 percent. But it’s only gone down from 10.1 to 9 percent in Miami. In Tampa (from May 2022 to March 2023), it’s 11.3 to 7.7 percent. That’s way above the national average.  

Despite stubborn inflation, DeSantis is poised to sign another $1.3 billion tax cut bill, with more temporary breaks and some permanent extensions, such as for diapers and other baby products. As with car race tickets, such breaks only pay off for consumers if retailers don’t offset the tax cuts with higher prices.  

Short-term politics, not long-term prosperity, is the throughline of the DeSantis record.  

He banned nearly all abortions by signing a six-week ban. He gratuitously attacked the very successful New College (see the Washington Monthly’s Aalia Thomas‘s investigation) and carpet bombed diversity initiatives on all state campuses. He expanded his initial so-called “Don’t Say Gay” kindergarten-to-third-grade classroom restrictions through high school. This enthralls right-wing Republican primary voters but sets off a brain drain as young talent flees Florida for more tolerant terrain. And if Florida’s workforce shrinks while old retirees keep pouring in, that’s a recipe for a tight labor market and more inflation.  

Last year, you probably heard when DeSantis duped 48 Venezuelans seeking asylum in Texas into boarding a plane bound for Massachusetts, promising them jobs and financial aid, then dumping them without advance notice to the state’s Republican governor or anyone else at a Martha’s Vineyard community center. (Most of the migrants had “humanitarian parole” status, meaning the people DeSantis hijacked were not even undocumented.) As with Disney, this stunt has led to a lawsuit that Florida taxpayers must pay to defend. 

An undeterred DeSantis is planning more flights from Texas after the Florida legislature approved an additional $12 million for the legally dubious program this month. (The original flights were paid for with interest earned from federal COVID-19 relief funds, prompting a federal probe.) But other aspects of the anti-immigrant bill may exact a far greater toll on the Florida economy.  

The bill requires Florida employers with at least 25 employees to use the E-Verify system to check the immigration status of new hires, orders hospitals to ask patients about their immigration status and bans the undocumented from driving a vehicle even if they have a valid out-of-state license.  

Keep in mind that the Florida economy is heavily reliant on immigrants. According to data compiled by the Migration Policy Institute, about a quarter of Florida’s 10 million employed workers are foreign-born, about one-eighth are non-citizens, and about 5 percent are undocumented. A 2020 analysis by the pro-immigration group FWD.us estimated that an E-Verify mandate on all employers (with no small business exemption) “would result in some 140,000 workers lost, with a net loss of 253,500 jobs in Florida, $10.66 billion in lost earnings, and $1.25 billion in lost state and local tax revenues” with “hospitality, agriculture, construction, health care, and retail industries … particularly hard-hit.”  

That analysis was done before the current inflationary spike. This month, Rollins College professor of political science Julia Maskivker spoke to WUSF about the new E-Verify policy and how Florida businesses are reacting: “What is wearing [on] the business lobby … and also consumers, is that the inability to freely hire the most productive or … fitting people for the job will have repercussions on many things: taxes, the prices of things, of food, of hotel rates, of transportation services, construction supplies, all kinds of things. And we already live in a world in which inflation is a worry for many of us, so this would not necessarily help in that regard.” 

Of course, there are legitimate arguments for a system like E-Verify to ensure that America’s laws are followed, and workers are not exploited. But to implement it without economic disruption requires a transition period during which the undocumented would have the opportunity to gain legal status. But the new Florida law, signed by DeSantis on May 10, goes into effect on July 1. That could shock the state economy, as could threats by some Latino truckers to boycott Florida. 

Perhaps there is hope for Florida. Considering how DeSantis’s presidential campaign has been going in the run-up to yesterday’s announcement, his chances of being the Republican nominee appear slim. So maybe by next spring, DeSantis will retire his presidential ambitions, return home, and end his gubernatorial tenure on a more competent note.  

The post Ron DeSantis is Not a Competent Governor appeared first on Washington Monthly.

As the United Kingdom faces the threats of double-digit inflation, prolonged recession, declining living standards, and widespread labor strikes, Kwasi Kwarteng, the chancellor of the exchequer, finds himself the most hated man in London. At the same time, Prime Minister Liz Truss, who appointed him, is probably the most hated woman.

As soon as the official mourning period for Queen Elizabeth II ended, the new Conservative Party government unveiled its economic plan, popularly known as “Trussonomics,” to be administered by Kwarteng, a veteran MP who served as former Prime Minister Boris Johnson’s secretary of state for business, energy, and industrial strategy. The announcement of the fiscal plan, featuring £45 billion in unfunded tax cuts—with the promise of more to come—sent stock markets reeling, interest rates soaring, and the pound tumbling to a record low against the dollar because it was widely feared that a tax-cutting spree would only fuel inflation by adding more stimulus to an economy that the nation’s central bankers are desperately trying to cool.

Following a political backlash among her strongest supporters, Truss did a 360° and scrapped the tax cut idea. Kwarteng said the proposed cuts had become a “distraction,” a laughable understatement. He tweeted, “We get it, and we have listened.”

Listening may not be enough. While the inflation rate slowed slightly in August to 9.9 percent, the fastest pace in 40 years, it is projected to reach 11 percent this month. The Bank of England, the U.K.’s equivalent of the Federal Reserve, says it will not hesitate to increase interest rates further.

To buoy the sinking ship, the bank had to wade into the financial markets, buying up to £5 billion a day of “gilts,” or long-term British treasuries, to restore stability. (The name gilt comes from the once-gilded edges of the Treasury bonds.)

All of this should be a warning to the U.S. It’s not just that an unraveling U.K. economy can hurt America’s. The Republican Party, were it to gain control of Congress this year, and the presidency in 2024, would pass tax cuts—just like Truss and Kwarteng proposed—possibly with the same market-roiling effects. Of course, 2025 is a long way off. Still, the chaos in London is a reminder that similar GOP policies could set off similar economic turmoil here. While the pond separates British and American conservatives, their highest priority remains an atavistic urge to cut taxes. Truss’s government uses the phrase “supply-side reforms” with the zeal of Arthur Laffer, a former Reagan economic adviser and tax cut cheerleader.

Meanwhile, six in 10 British voters think Kwarteng’s supply-side budget was unfair, making it the worst rating of a fiscal event since 2010. Henry Mance, writing in the Financial Times, skewered Kwarteng’s plan: “His plan wasn’t just clear. It wasn’t just bold. It was kamikaze—or should we say, kami-Kwasi. Less Britannia Unchained, more Britannia Unhinged.” London’s financial community was equally skeptical. Mark Dowding, chief investment officer at BlueBay Asset Management, told the FT, “The market is asking ‘how are you going to pay for this?’ There’s almost a sense in which that question hasn’t been given a jot of consideration.” And Quentin Fitzsimmons, a portfolio manager at T. Rowe Price, said that the government’s strategy was to “go for broke,” leaving government bonds and the currency as “casualties.” Currency option traders warned that even more intervention would be necessary to halt the pound’s downward trajectory.

When Truss ascended to the premiership, many top Tory benchers expected her to appoint a heavyweight as finance minister. Instead, the mountain labored and brought forth a lamb.

Such was the case when Kwarteng attended a private champagne reception on Friday, September 23, hours after delivering his mini-budget. There, hedge fund managers, who would gain from a crash in the pound, egged him on to commit to his plans—a move that would benefit them, as they’re betting against the pound. Sure enough, the pound sank to its lowest level, $1.03, the following Monday, September 26, only to reverse course after the Bank of England waded into the bond market. After the reception, at least two prominent hedge fund bosses told their colleagues that Kwarteng was “a useful idiot.”

It didn’t help that on his first day in office, Kwarteng took the reckless step of firing the seasoned first permanent secretary, Tom Scholar, leaving the top two civil service posts under his watch vacant. This blunderbuss approach contributed to his declining support in Parliament and among the public.

It didn’t have to be this way. Kwarteng has an impressive academic background: Eton; a first at Cambridge in classics and history; and a year at Harvard’s Kennedy School. He holds a PhD in economic history from Cambridge, as well. But, when asked about the “Barber Boom” (and bust) of the 1970s—an important episode in British economic history named after a previous chancellor who went on a tax-cutting spree that turned out poorly—he responded, “All I remember was the financial crash of 2008.” His doctoral thesis, “Political Thought of the Recoinage Crisis of 1695–7,” and coauthorship of a book about traffic congestion shored up his academic credentials but didn’t seem to have prepared him for a moment that requires more common sense than posh degrees. The first Black Briton to hold one of the “Great Offices” in the UK government, such as foreign minister, Kwarteng looks to an uncertain political future.

To be fair, it’s not all Kwarteng and Truss’s fault. The public is to blame, too. Their approval of Brexit, albeit narrow, in 2016 sowed the seeds of economic chaos. It’s when the relationship between the Bank of England and Treasury first soured. Indeed, a 2018 government analysis showed that British economic growth under Brexit would be stunted by 2 to 8 percent over the next 15 years. Recent studies have argued that Brexit has exacerbated Britain’s cost of living crisis. Regarding Brexit, the editorial director of the Financial Times, Robert Shrimsley, wrote: “What was once an economic slow puncture is now an audible hiss.”

Kwarteng’s sacking may prove inevitable. Yes, after the humiliating about-face on taxes, Truss said she would “stand by her man,” as Kwarteng indicated he had no plans to resign or reverse his field. But Kwarteng’s past three predecessors have lasted, on average, just over a year.

For 30 of the past 43 years, the Conservatives have governed Britain. But now, recent polls show Labour with a 17-point lead over the Tories, its biggest advantage since 2001. The next general election isn’t until January 2025, so there’s technically enough time for the Truss government to recover. However, an earlier vote of no confidence would grease the skids of its exit. The way things are going, that seems possible. It would end the streak of Conservative Party prime ministers and serve as a sober warning to conservative politicians on this side of the Atlantic. Tax cuts can cut both ways.

The post Great Britain’s Conservatives Are Screwing Up The Economy appeared first on Washington Monthly.

One of the ways that Republicans demonstrate that they are the “post-truth” party is that, when Democrats are in office, they prioritize federal deficit reduction, but when they’re in charge, the deficit soars. Right on cue, the Wall Street Journal reported back in October that the federal deficit was about to reach $1 trillion.

A strong economy typically leads to narrower deficits, as rising household income and corporate profits help boost tax collections, while spending on safety-net programs such as unemployment insurance tends to decline.

The U.S. economy has been growing for 10 years as of July, the longest economic expansion on record. Yet annual U.S. deficits are on track to exceed $1 trillion starting this year, due in part to the 2017 tax law, which constrained federal revenue collection last year, and a 2018 budget deal that busted spending caps enacted in 2011.

When even Rupert Murdoch’s paper credits the Republican tax cuts as a contributor, you can take that one to the bank. Steve Benen put together a helpful chart to demonstrate what has happened to the deficit over time.

The blue bars during the Obama years were a result of the Great Recession when federal revenues plummeted, the demand for safety net programs like unemployment insurance rose, and one-time stimulus spending was required to kick-start the economy. But as the Wall Street Journal pointed out, we are now in the midst of the longest economic expansion on record, which means that the deficit should be shrinking. Instead, it is ballooning. In a world where truth mattered, that would mean the end of the Republican line about how tax cuts pay for themselves.

When Republicans were negotiating among themselves over their tax cut plan in 2017, they made it clear that their main goal was to reduce corporate tax rates. At the time, they complained that, at 39 percent, corporate tax rates in the U.S. were among the highest in the world. What they didn’t want you to know is that the effective corporate tax rate (what was actually paid after all of the loopholes were incorporated) was around around 29 percent, right in the middle of the pack for industrialized countries.

After a full year of implementation, the Institute on Taxation and Economic Policy documented the effects of the Republican tax cuts, which lowered the corporate tax rate to 21 percent. Here are their key findings.

* The 379 profitable corporations identified in this study paid an effective federal income tax rate of 11.3 percent on their 2018 income, slightly more than half the statutory 21 percent tax.

* 91 corporations did not pay federal income taxes on their 2018 U.S. income. These corporations include Amazon, Chevron, Halliburton and IBM…

* Another 56 companies paid effective tax rates between 0 percent and 5 percent on their 2018 income. Their average effective tax rate was 2.2 percent.

The richest corporations are now paying an effective tax rate of 11.3 percent, while most of the huge monopolies are paying nothing at all. Rather than trickling down, those reductions are causing the federal deficit to soar.

Meanwhile, Republican Majority Leader Mitch McConnell went on a spending spree—literally bragging about his efforts to buy off Kentucky voters with what Mitt Romney once referred to as “free stuff” (emphasis mine).

Senate Majority LeaderMitch McConnell (R-Ky.) is delivering more than $1 billion worth of federal spending and tax breaks to his Kentucky constituents, just in time for Christmas and ahead of a potentially tough reelection campaign…

McConnell’s wins in the spending legislation included coal miners’ pension benefits; $410 million for the construction of the new Robley Rex Veterans Affairs Medical Center in Louisville; $314 million for cleanup of Paducah Gaseous Diffusion Plant, a $40 million increase over last year’s funding level; a tax break for spirits distillers worth an estimated $426 million in 2020 alone; and $65 million for the construction of the Forage Animal Production Lab at the University of Kentucky.

“I was directly responsible — directly responsible — for these items,” McConnell declared at the press conference.

He also secured a tax break for Kentucky’s thoroughbred horse racing industry, $16.5 million for the Department of Agriculture to implement the pro-hemp provisions McConnell got into the 2018 farm bill and $61.3 million for new military construction projects at Fort Campbell.

We can have reasoned debates about federal deficits, taxes, and spending programs. But the naked lies from Republicans demonstrate that their approach has nothing to do with what is best for the American people. They have made it abundantly clear that their priorities are all about more money for the wealthy elite and an obvious power grab for those in office. It is beyond time to bust the myth that the GOP is the party of fiscal responsibility. They are nothing if not reckless and irresponsible.

The post Republicans Are Fiscally Reckless and Irresponsible appeared first on Washington Monthly.

President Trump’s tax and tariff policies form the heart of an economic program that he’s promised will help average Americans. The hard data, however, show that he’s actually imposed substantial costs on about 70 percent of Americans.

That’s because of both the growing burdens imposed by both the tariffs and the tax changes that provided no relief to the nearly 43 percent of U.S. households that paid no income tax before, less than nothing to five percent whose taxes went up, and not much to an additional 22 percent of Americans whose small tax benefits are dwarfed by the negative income effects of Trump’s tariffs.

It may get even worse. If the president goes ahead in December with his plan to increase and expand tariffs on imports from China, 80 percent of the country—roughly 102 million households with 258 million people—will be worse off under his economic program.

The tariffs directly raise the prices for thousands of foreign and U.S.-made goods produced with Chinese or European parts. The U.S. companies that sell those goods lose some business; and as we pay more for some products, we have less left to pay for everything else. So, consumers cut back and businesses follow suit, forcing them and their suppliers to cut the hours their employees work or their jobs—setting off another round of cutbacks by households that squeezes more companies and workers. On top of all this, retaliatory tariffs on U.S. exports by China and the European Union trigger similar cutbacks by American companies and workers. His trade program dampens our Gross Domestic Product (GDP), loses jobs, and lowers incomes and wages.

For most Americans, those costs exceed any savings they can incur from the president’s tax changes. It’s a reminder of just how dramatically his tax program favors the high-income bracket. To begin, 42.7 percent of “tax-paying units” (households and spouses filing separately), covering 154 million people in 2018, got little or nothing from Trump’s tax cuts, because their incomes were too small to trigger income tax liability before those changes. Trump’s decision to cap people’s deductions for their state and local taxes also turned his tax program into a tax increase for five percent of households, living mainly in high-tax blue states.

Additionally, the 2017 tax changes provide so little for the lower 40 percent of tax-paying households that Trump’s tariffs wind up swamping those meager tax benefits. Across the bottom quintile, or 20 percent of taxpayers, the tax benefits averaged just $60 per-household in 2018, and the benefits for the next 20 percent of taxpayers amounted to $380. Trump’s tariff program costs the average household an estimated $690 in foregone income.

That estimate is based on the Tax Foundation’s calculations that Trump’s current tariffs have shaved $62.5 billion per-year from our GDP, and that foreign tariffs imposed in retaliation cost our GDP another $25.6 billion. GDP may just be a particular way of measuring the value generated by the economy, but almost all of it ultimately translates into people’s incomes.

The rest is arithmetic.  Trump tax changes such as the expanded standard deduction did raise the share of households whose incomes are below the threshold for the federal income tax from 42.7 percent to 44.4 percent.  That leaves 55.6 percent of households paying some income tax in 2018, so each 20 percent of them represent 11.1 percent of all U.S. households. So, the president’s economic program has cost another 11.1 percent of tax-paying households $630 in 2018. An additional 11.1 percent will pay $310 more in 2018.

There are also the 42.7 percent of households with incomes too low to trigger any income tax liability before Trump’s tax changes and the five percent who saw their taxes go up under those changes.  Both of those groups bear the full $690 net costs from his tariffs.  Adding it all up, Trump’s economic policies have imposed significant net costs on 69.9 percent of American households, or roughly 89.2 million households with 226 million people. What’s more, the ripple effects of Trump’s tariffs cost Americans in other ways. Using Tax Foundation data, his tariffs—and retaliation by our trading partners—have cost the economy 272,864 jobs and dampened people’s wages by $25.6 billion or $246 per working household.  Moreover, tariff payments by U.S. business jumped $35.7 billion from 2016 to 2018.  Economists expect that almost all of those payments are passed along in higher prices. Even if U.S. businesses pass along just three-fourths of those payments, Trump’s tariffs have directly cost an average household $282 in higher prices for goods and commodities.

And, if Trump carries out his threat to double down on his tariffs this winter, the annual impact on GDP will nearly double from $88.1 billion to $167.8 billion. As that lost GDP results in lower wages and incomes, Trump’s tariffs will cost the average household an estimated $1,315. At that rate, those costs will overwhelm the $930 in average tax savings claimed by the third income quintile of taxpayers, adding another 11.1 percent of households to the 69.9 percent who already are net losers. When the president asks voters for another four years, he will have to explain how his signature economic policies have left the vast majority of them worse off.

The post Trump’s Economic Program Has Left Most Americans Worse Off appeared first on Washington Monthly.

NPR’s Rachel Martin conducted an exit interview with Sen. Claire McCaskill, who lost her Missouri Senate seat to Republican Josh Hawley last month. While McCaskill said some things that ring very true—like the fact that Republicans are digging themselves a very deep hole in their defense of Donald Trump—here are the comments that are getting the most attention.

In an interview with Morning Edition host Rachel Martin, McCaskill characterized her loss as a “failure” of the Democratic Party “to gain enough trust with rural Americans,” and she predicted her party will struggle to win other seats as long as President Trump remains in office.

“This demand for purity, this looking down your nose at people who want to compromise, is a recipe for disaster for the Democrats,” she said Thursday in her Capitol Hill office. “Will we ever get to a majority in the Senate again, much less to 60, if we do not have some moderates in our party?”

While she’s right that a Democratic Senate majority will have to include some so-called “moderates,” critiquing her party for not being willing to compromise is both untrue and a deeply troubling statement, given the reality of the Republican Party these days.

It is important to recognize that Democrats have been willing to compromise when doing so would not mean abandoning their primary commitments. For example, they worked tirelessly on a bipartisan compromise to protect DACA recipients, only to be thwarted by Trump’s demand for xenophobic immigration policies in return. The president’s intransigence on those issues was even problematic for a lot of Republicans.

We are about to witness several more examples of the willingness of Democrats to compromise. Many of them have been working with Republicans on the incremental steps included in the latest criminal justice reform legislation. Additionally, there was some good news on the compromises reached on the Farm Bill. Work requirements for food stamp recipients are out and legalization of industrial hemp is in. Both bills are likely to garner a significant number of votes from Democrats. It is even possible that some will vote in favor of Trump’s NAFTA 2.0.

Where Democrats have been unwilling to compromise is on things like tax cuts skewed to benefit the wealthy, the repeal of Obamacare, and confirmation of Brett Kavanaugh to the Supreme Court. As noted above, they were also not willing to sign on to Trump’s xenophobic immigration policies. On all of those things they drew a line—understandably.

McCaskill’s suggestion that Democrats have been unwilling to compromise reeks of the kind of thing we heard from major media outlets during Obama’s presidency when Republican obstructionism was painted as a “both sides are to blame” issue. In both instances, we see an embrace of right wing talking points.

Beyond that, there is very good reason to question the proposition that if Democrats had compromised even more, that would have garnered more votes for McCaskill in rural Missouri. It is pretty clear that she won re-election in 2012 because she faced a horrible candidate in Todd Akin. That was not the case with Josh Hawley, who is young, articulate, and had already won state-wide office as attorney general.

Democrats should stop adopting right wing talking points and continue to embrace compromise when it benefits the American people, not in an attempt to simply score political points.

The post When Should Democrats Compromise? appeared first on Washington Monthly.