The tax bill passed by former President Trump and the Republican-run Congress was a good example of trickle-down economics as unquestioned dogma.
Conventional wisdom has accepted the idea that tax cuts and deregulation will eventually trickle down to everyone else, even though it has been shown that this will happen through decades of leadership by both political parties.
Tax cuts were the epitome of trickle-down in Washington, DC. It handed hundreds of billions of dollars in tax cuts to America's wealthiest people and corporations under the false premise that the economic benefits would translate to economic benefits for everyone else.
It didn't work. Economics never works. The $4,000 annual raise that former speaker of the House Paul Ryan promised American households never materialized. The wealth created for the richest Americans from those tax cuts likely wound up overseas, because the Trump tax cuts didn't increase investments in American business.
The tax plan was supposed to pay for itself with economic growth, but it never materialized. The Congressional Budget Office found that corporate tax revenue fell after the tax cuts were passed.
The harm that the tax bill has done to the economy is still being untangled. In his new book, "Only the Rich Can Play: How Washington Works in the New Gilded Age," David Wessel, an economist and director of the Hutchins Center on Fiscal and Monetary Policy, documents a clever tax-cut mechanism written into the law that escaped attention until recently.
In the latest episode of the "Pitchfork Economics", Wessel explains how the "opportunity zones" were created in the bill as a way to develop the economy in nearly 9,000 targeted areas around the country.
Poor and underdeveloped locations around the country that could benefit from a massive influx of cash were identified as opportunity zones, and wealthy people and corporations could claim their investments in opportunity zones as a tax cut. The policy was tucked into the tax bill without much fanfare, and the requirements for federal watchdogs to study and report on economic results of the opportunity zones plan were stripped from the bill before it passed.
"After governors designated opportunity zones from a list of census tracts that the law made eligible, almost any investment in a property or business in a zone qualified," Wessel wrote in the New York Times.
Thanks to a recent investigation into tax records, a pair of economists provided a partial view of how nearly $19 billion in investments into opportunity zones worked out. Wealthy Americans and corporations only invested in about 16% of the existing opportunity zones, according to the authors of the report. Wheeler and Kennedy said that the majority of zones that received funds were "neighborhoods with pre-existing upward trends in population, income, and home values, and declining shares of elderly and nonwhite residents."
A Ritz-Carlton hotel and condo complex in downtown Portland, Oregon, and a Virgin Hotel in New Orleans are some of the recipients of opportunity-zone funds. Self-storage facilities, which do not create any jobs, are getting money. College kids who show up as poor in the census count are ineligible for luxury student housing.
In other words, the opportunity-zone program used the excuse of investing in thousands of low-income communities around the country, many of which happen to be nonwhite communities that have been ignored by politicians and business leaders for generations, to create a huge flow of untaxed money into a
It's a damning reminder that trickle-down economics is a feature of the tax code and not a bug, and that the wealthy few are the only ones who benefit.
The Trump tax cuts prove that the idea that rich people are the true job creators is false.
For the first time in 40 years, mainstream politicians are talking about investing broadly in the American people through programs like affordable childcare, paid family leave, and worker-friendly laws.
If they follow through on their promises, they could finally upturn trickle-down's hold on the economy by proving that it's the consumer spending of working Americans that creates jobs and grows the economy from the middle.
