Are the Democrats ready to win in 2020?

That’s My View

Karl Rove, the Republican strategist and Svengali, who master-minded the two presidential victories of George W. Bush, once stated, “To win in politics, you must successfully attack your opponents’ strengths; don’t spend time opposing his weaknesses”.

Less than a year away from the November presidential election, it is clear that Donald Trump’s main strength is the powerful American economy. His weaknesses, both as a man and as president, are legion and daily on display. Strangely, with rare exceptions, the Democratic candidates seem unwilling or incapable of taking Karl Rove’s advice. And yet, there is much to attack.

Although the analogy is far from perfect, Oscar Wilde’s The Portrait of Dorian Gray comes to mind. As most readers will know, Wilde’s protagonist presents an ageless image to the world while, hidden from public view, the portrait deteriorates with the passing years.

Stock markets in the United States are at record highs. Unemployment, at 3.5%, is at its lowest level in living memory. Recently, the USMCA was ratified by Congress to replace, although not to modify significantly, NAFTA. In addition, the United States and China have agreed to a Phase 1 trade deal, which should helpfully reduce uncertainty, but which, in many respects, is much ado about nothing.

The Trump economy is certainly not a house of cards. On the other hand, it is vulnerable in many respects, not least from a political perspective. A brief review will highlight major gaps between Trump’s 2016 campaign promises and the current reality. It will also demonstrate that, in many important areas, the current strength confirms trends which began during the second term of President Barack Obama.

By far the most important of Trump’s legislative achievements has been the 2017 tax cuts. For at least eighteen months the effects, which many economists have described as a “sugar high”, were positive for the American economy. More recently, a different picture is beginning to emerge.

In reality, and notwithstanding Republican spin, the benefits of the tax cuts were massively directed to big corporations and the wealthy. As a result, the past three years have seen significant growth of inequality in both income and wealth in America. In fact, based on its GINI coefficient, the United States is the most unequal among the major industrial nations.

The tax cuts did not produce, as Trump claimed they would, an average annual benefit of $4,000 for each American family. Furthermore, as studies from left and right have demonstrated, for most Americans the benefits have been wholly or largely eliminated by the effect of Trump’s tariff wars, principally with China.

“60 of America’s largest corporations not only paid no federal income tax

but, in many cases, received billions in tax rebates.”

What is perhaps less well known is that following passage of the legislation by Congress, the real work of putting flesh on the legal skeleton, being done by the relevant agencies of government, was subjected to massive lobbying on behalf of special interests, who managed to dramatically reduce the impact of the law’s apparent effects. As a result, in 2018, some 60 of America’s largest corporations, such as Amazon, IBM and General Electric, not only paid no federal income tax but, in many cases, received billions in tax rebates.

On an individual basis, a recent major study has demonstrated that the 400 richest Americans paid a lower overall tax rate – federal, state and local – than any other income group. Whereas the comparable rate in 1950 was 70%, and in 1980 it was 47% it is now 23%. Today, it is not only Warren Buffett who pays a lower tax rate than his secretary; it is everyone in the top 1%.

For the last several decades, the American tax system has become “radically less progressive”. At the same time, in terms of income, developments have dramatically benefitted the top earners. For example, in 1965 the ratio of income of top CEOs to the typical employee in their firms was 20 to 1. By 1989, that ratio had increased to 58 to 1, and in 2018 it had become 278 to 1! Again, considering only major corporations, from 1978 to 2018, CEOs’ average remuneration, all elements considered, rose 1007%. During the same period, the improvement in the income of the typical worker was 11.9%.

Although, arguably, the number of Americans living below the official poverty line has fallen, there are 500,000 homeless people in America’s cities, almost half of its citizens live paycheque to paycheque, the number of uninsured or under insured healthcare recipients has increased, as has the number of people working two jobs who continue to need food stamp benefits. At the same time, in New York City, there are a significant number of private schools where the annual tuition fees, from kindergarten through Grade 12, exceed $50,000.

“Elizabeth Warren’s proposed ‘wealth tax’ has been tried and failed in several countries.”

If the Democrats cannot successfully campaign for office in the face of these, and many other, indicators of the ravages of inequality, including rising levels of addiction, depression and suicide, frequently in areas of the country where Trump was successful in 2016, they do not deserve to govern. The answer is not the kind of “wealth tax” proposed by Elizabeth Warren, which has been tried and failed in several countries. However, part of the answer is equitable increases in effective tax rates for individuals and corporations, together with the elimination of the most egregious “tax expenditures”, the current euphemism for loopholes.

It is worth comparing some of Donald Trump’s 2016 campaign promises with the reality of the past three years. He promised growth rates of 4, 5 and even 6 percent. Although in the year after the tax cuts, growth reached 3%, not the Himalayan levels he promised, more recently growth has levelled at an average of 2% annually, not historically unusual, and comparable to rates during Obama’s second term.

The unemployment rate, which has fallen steadily for almost ten years, has dropped from 4.7% at the end of the Obama presidency to its current of 3.5%. Interestingly, on a monthly basis, more jobs were created during the second Obama term than during the first three years of the Trump presidency. Recent indicators suggest that the rate of growth in jobs has slowed, perhaps not surprising given the general state of the economy, and that the number of job openings has also fallen. The available data also demonstrates that whether one looks at growth in wages and incomes, or at increases in the levels of American stock markets, the trends during the second Obama term and the first three years of the Trump presidency are similar.

Historically, the Republicans have been the party of fiscal responsibility, although more in theory than in practice. That ideological position has been completely abandoned, not only by Trump but also by the party. In his 2016 campaign Trump, taking for granted his re‑election, promised to eliminate the national debt in eight years. That, of course, was campaign hyperbole. However, one might reasonably have expected that, in the years of a strong and growing economy, the annual deficit and the overall debt would be contained. Quite the opposite has happened.

During the first three years of the Trump presidency, the national debt has grown by some $3,000,000,000,000 to an astronomical level of $23 trillion. Annually, based both on a shortfall in tax revenues and dramatic spending increases under Trump, the deficit has reached almost $1 trillion.

Given their history and ideology, controlling the national debt and the deficit are not the most obvious areas for the Democrats to attack Trump. However, both Presidents Bill Clinton and Barack Obama, during their second terms, made significant efforts to control government finances. Interestingly, in Canada, it was the Liberal government of Jean Chrétien, with Paul Martin as Finance Minister, which reined in our government excess; sadly, Justin Trudeau is singing from a different hymn book.

Candidate Trump promised the rebirth of the coal industry. In fact, giving pleasure to environmentalists, it is dying. There have been several major bankruptcies in the industry. Coal-fired power plants have been shutting as the shifts to natural gas, solar and wind power accelerate. Coal mining regions continue to struggle.

Candidate Trump promised that job growth in the manufacturing sector would explode during his presidency. After an initial boost to investment, largely the result of the tax cuts, the manufacturing sector has begun to struggle. Steel mills have been closed, jobs have been lost in many “manufacturing” states and economists suggest the sector has been in “technical recession” since 2019. To some extent, the present situation is the result of factors beyond the control of any president, for example, low global oil prices, a strong dollar and slowing global growth. However, a number of important companies, especially exporters such as Caterpillar, blame Trump’s trade policies and, especially, his tariffs. The latter are paid primarily by American businesses and consumers, not by the Chinese.

As I write this, the impacts of the Phase 1 trade deal with China are not fully known; however, some things are clear. There will continue to be tariffs on some $360 billion of imports from China. While China has agreed to purchase an additional $200 billion of American exports, it has made similar, unfulfilled promised in the past. While there is to be increased protection of American intellectual property and technology, China has refused to limit its ability to subsidise its local companies. As with government spending, trade protectionism is a difficult area for the Democrats to attack, as they have never been true free traders. However, they should be able win support in farm states, where Trump’s subsidies went largely to rich farmers and agri-businesses, while levels of bankruptcy and suicides amongst small farmers have tragically risen.

Although they are clearly among the voices critical of Trump, recent articles in The Washington Post and The New York Times entitled “Trump’s economic record is one big con” and “Trump has betrayed his voters”, provide additional ammunition for the Democrats. What they must do, to win in a major way in 2020, is to persuade 2016 Trump voters, especially in “battleground” states, of the following truth, “Fool me once, shame on you. Fool me twice, shame on me”.