Government by the Rich, for the Rich

The much maligned Tax Cuts and Jobs Act (TCJA) is regarded by most Americans as a naked effort by the Republican Party to reward its key donors, among them the wealthiest of Americans. Public polling has consistently been negative for this “reform” legislation. The law’s modest temporary tax relief for the middle class is just window dressing. The public has simply disregarded this window dressing and correctly assessed the stink from what has been served up to them.

The TCJA is an enormously complex law, with poorly understood provisions the effect of which won’t be known until well after the law takes effect. Since the tax code has a profound effect on the behavior of individuals and businesses, and hasn’t been revised since 1986, a major revision should be thoroughly debated in the light of day. But to do that would have permitted the TCJA’s ugly flaws to be exposed and for opposition to solidify. So in adopting the TCJA Republicans jettisoned any pretense of democracy.

There were no public hearings. Some of the law’s provisions were added at the very last minute. The Congressional Budget Office had no time to evaluate the Republicans’ flimsy claim that increased business activity spurred by the tax cuts would raise substantial new tax revenues. The Bill was available for review roughly three days before the final Senate vote. The Democrats, who were not opposed to revisions to the corporate tax structure and might have made reasonable suggestions, were shut out of the process. This is how the Republicans govern.

One wonders why a massive tax cut was so important for Republicans in the first place, particularly in the face of negative public polling. The Trump Administration is riding the wave of economic recovery that began well before Trump took office. National unemployment is hovering around 4%, generally regarded as full employment. Corporations are already sitting on $2.3 trillion in cash reserves. They do not need massive tax cuts to free up cash for investment. The answer is that big donors are furious about not receiving the big tax cuts that were promised when the Republicans repealed Obamacare, which they failed to do.

Nobel-prize winning economist Paul Krugman has argued in the New York Times:

A large part of the answer [for why a huge tax cut was so important] is that many Republicans now see themselves and/or their party in such dire straits that they’re no longer even trying to improve their future electoral position; instead, it’s all about grabbing as much for their big donors while they still can. Freedom’s just another word for nothing left to lose; in the GOP’s case, that means the freedom to be the party of, by, and for oligarchs they always wanted to be.

Krugman can be intemperate at times, but he seems to be on to something. At all the key forks in the policy road, the Republicans have rewarded themselves and their rich friends. The TCJA represents a huge redistribution of wealth from the poor and middle class to those in the upper income brackets who hardly need it.

By far the largest impact of the TCJA will be the reduction of corporate tax rates. These reductions will themselves be responsible for nearly $1.5 trillion in reduced tax revenues. The Republican argument is that corporations will use this new cash to increase business capital investment, hire new workers and raise wages. But there is nothing in the TCJA that requires a business to use the tax cuts in this way. Many businesses have said they will use the money for non-productive uses like increased dividends and share repurchases. These uses only serve to increase the value of the corporation’s stock in the hands of those who own it.

Who benefits when the value of corporate stock goes up? Only 52% of the American public owns any stock whatever, even in retirement accounts, and those owners surely won’t be found in the bottom half in wealth and income. President Trump is fond of bragging about how the stock market is breaking records. Can’t you just hear the Champagne corks popping in all the nation’s homeless shelters?

In my next post, I will detail how the rich will directly benefit from the TCJA at the expense of the rest of us. Certainly, this statute ought to be one of the first things on the agenda of any new Democratic majority in Congress to reverse. In fact, instead of just undoing this bad law, the TCRA may unleash the Democrats to make substantial changes to the tax code to benefit affirmatively those whom the Republicans have, for now, shut out.

Industrial Development in West Virginia

In early November 2017, West Virginia economic development officials announced a memorandum of understanding with China Energy, said to be the world’s largest energy company. The deal would involve an $84 billion investment in various West Virginia energy projects over a twenty-year period. These projects would focus on power generation, chemical manufacturing and underground storage of natural gas liquids and derivatives.

The central project would be the development of an “Appalachian Storage and Trading Hub,” which in simple terms would be an underground storage cavity into which natural gas would be pumped. Development officials have long argued that easy access to natural gas products via the hub and pipeline infrastructure would attract investment from the chemical and plastics industry.

The potential for more fossil fuel and petrochemical development has set off the predictable debate between environmentalists and progressives on one side and business interests on the other. The first volley came in an opinion piece in the Charleston Gazette-Mail on December 3, 2017, by Lissa Lucas, a candidate for the House of Delegates from Ritchie and Pleasants Counties. She argued

I can’t help but compare this [potential Chinese investment] to Antero’s $275 million dirty “investment” in my county, which has resulted in a frack dump upstream of the only public drinking water intake in the county, destroyed roads and an invasion of 600 freight trucks a day on a small community, in exchange for a handful of jobs that may not even go to local people.

She made two important points. First, natural gas collection and storage is dangerous. This was later confirmed in the Washington Post on December 13, 2017, which reported that a huge natural gas collection and distribution hub in Austria exploded the day before. Lucas pointed out that West Virginia is simply not prepared for industrial disasters now, much less those we would risk from the Appalachian Storage Hub. Second she argues that instead of further investments in fossil fuel extraction, West Virginia should be investing in “renewable tech” like solar panel manufacturing.

The response came in the December 5, 2017, Gazette-Mail from Mark Sadd, a Charleston lawyer representing energy and development clients. He first attacked Lucas as advancing a “reactionary” point of view because she rides “this broken progressive horse of politics and policy.” He argued that the new Republican majority in the Legislature has thrown off these progressive shackles, which he blames for decades of sluggish growth.

[Lucas’] damning rhetoric omits the possibility that politicians of opposing views genuinely believe that mineral extraction, though messy and polluting, on balance creates more advantages than disadvantages for their constituents and the greater society. For West Virginians, it enriches thousands of households with royalty income hitherto unrealized and fills government coffers through severance and other tax revenue.

He closed his piece by making this bold but incorrect assertion: “there is mounting evidence . . . that a strategy of lower taxation, privatization, deregulation and legal reform . . . is working for West Virginia.”

These two opinion pieces are great examples of the depth of our culture war. Since no details of the China Energy deal are available, and it may never happen, neither of these commentators is able to make any factually grounded arguments pro or con. They have both simply reacted reflexively, expecting the worst because of the opponent on the other side of the debate. Lucas sees greedy corporations and foolish politicians; Saad sees anti-progress environmentalists and progressives.

Saad is correct on one thing — environmentalists and progressives often automatically oppose any industrial development, no matter how it might contribute to prosperity. There is no way this can be a winning strategy. Instead we need to evaluate carefully any proposed industrial development and learn to welcome the best among them. These are not always going to be the clean tech kind Lucas advocates, but often they will be.

What should this evaluation entail? Here are some things to consider. What tax incentives are necessary to secure the development? These incentives frequently reduce property taxes on the developed property in hopes that income tax revenues over the long term will be more valuable. But this depends on how long the development will be in productive use and how many new jobs are created. Where will the development be located and how will it mesh with the existing culture and economy of the place? How will the true costs of operation be internalized into the development? Taking Lucas’s example of destroyed highways, how will the proposed development clean up its own mess instead of requiring the taxpayers to do it? What are the environmental risks and how likely are they? How realistic is an industrial disaster? How many West Virginians will be employed? For how long? In what jobs? The list is long.

In the Eastern Panhandle, we have recently had the same sort of debate over the proposed Potomac River Pipeline, which would provide natural gas to Morgan, Berkeley and Jefferson Counties. Opponents argue that the law now makes the ratepayers responsible for reimbursing Mountaineer gas for construction of the pipeline. They also point out that Mountaineer Gas would have the power of eminent domain to take private lands for the construction of the pipeline. And they argue that there are two pipeline incidents in the U.S. every day, including the 2012 Columbia Gas pipeline explosion in Sissonville, West Virginia, that destroyed several homes and melted an 800-foot section of I-77. Separately, the Pipeline and Hazardous Material Safety Administration reports that between January 2010 and November 2017, our natural gas transportation system leaked 17.55 billion cubic feet mostly of methane gas.

Taking the opposite position in the Martinsburg Journal, former Jefferson County Development Authority Executive Director John Reisenweber and Authority President Eric Lewis exhorted us to “build it now.” I think it fair to say that neither of these two gentlemen has ever met a development project he didn’t like. In the article they pointed out that natural gas is far more environmentally friendly than other fossil fuels. They further minimized the risk of accident by noting that there are already a dozen gas pipelines under the Potomac. But their major point was that the lack of natural gas has prevented industrial development in Jefferson County. Here we get to the nub of the issue.

Two of the factors to consider with respect to any industrial development project are where it will be located and how it will mesh with the existing culture and economy of the place. Putting aside the arguments about safety and environmental risk involved with a pipeline, do we need industrial development in Jefferson County? I think the answer is no.

Our unemployment is the lowest in the state and well below the national average. Our per capita income is the highest in the state. Our economy is based solidly in tourism, recreation, agriculture and government employment. A factory might be right for Berkeley, which has a history of large industrial installations and will soon be home to a gigantic Proctor & Gamble plant. But smokestacks are clearly not right for Jefferson. This view is not anti-development, it is simply opposed to the wrong kind of development for us. And since the industrial development that a gas pipeline would bring would be wrong for Jefferson County, we don’t need to decide who is right about a pipeline’s environmental impact or safety.