The gut punch to trickle-down economics hidden in the stimulus bill

The American Rescue Plan’s $1.9 trillion in federal spending is a shot in the arm to state and local governments. It will help keep essential workers on the job and get more, well, shots in arms.

But there’s more. A provision added to the bill at the last minute counters a movement that’s been hollowing out American society for decades.

“I don’t want to abolish government,” conservative strategist Grover Norquist famously once said. “I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.”

Starting in the Reagan era, Norquist and others like former House Speaker Newt Gingrich have led an anti-tax movement at all levels of government. Taxes have become more and more regressive. Tax cuts have been handed out like candy to corporations and the wealthy.

This latest round of federal spending puts a brake on such recklessness.

The provision prevents stimulus funds from subsidizing new tax cuts. For example, Florida won’t be able to use the money for its plan to cut corporate taxes. Iowa will have to find new revenue or wait until 2024 to phase out its inheritance tax.

This is a big deal. As we document in a new report, anti-tax ideology is often used to justify crippling cuts to public spending. Budgets for things like public health and education get slashed because, as it’s often said, “We don’t have any money.

Take Connecticut, featured in our report.

The state’s wealthiest residents pay far lower effective tax rates than those who aren’t as fortunate. Over the past decade, Connecticut has slashed spending on teachers, nurses, road maintenance workers, and other public employees by at least 21 percent. This contributed to it becoming the most unequal state in terms of race and class.

And yet Gov. Ned Lamont is refusing to raise taxes, even on the ultra-wealthy. He’s backing off a plan to increase public education spending. And he’s proposing a wage freeze for state employees.

What he should be doing is following lessons learned from the Great Recession. States that cut spending after 2008—like Connecticut—fared worse economically than those that increased spending. During the five years after the crisis, the incomes of the top 1 percent in Connecticut grew 17 percent. The incomes of everyone else dropped.

Connecticut does have money. Some of its residents and corporations can afford to pay more in taxes. Like CVS Health, the parent company of Aetna, one of the state’s biggest employers. The health care giant profited $973 million in the fourth quarter of last year alone.

But Lamont is doubling down on a failed ideology. “I have no interest in raising taxes,” he told business leaders in January.

Someone should tell him that even Grover Norquist doesn’t take his own medicine. Norquist’s Americans for Tax Reform Foundation gladly took COVID-19 small business relief funds last year. Good thing the federal government hadn’t been drowned yet.