Skip to comments.Do the Math. Tax Cuts Are Bound to Increase the National Debt
Posted on 10/16/2017 10:33:33 AM PDT by SeekAndFind
WASHINGTON -- Speaking to a group of workers in Harrisburg, Pennsylvania, President Donald Trump said Wednesday that his proposed tax-cut package "will be rocket fuel" for the U.S. economy.
It was Trump's sly way of reinforcing a message that the White House has sent since it first rolled out a framework for the tax cut in April. The message: Instead of adding to the $20 trillion national debt, the GOP tax cut will pay for itself; there's no need to produce some $5 trillion in savings over the next decade to pay for the cuts.
Treasury Secretary Steven Mnuchin uttered that mantra after the rollout when he told the Institute of International Finance, "The plan will pay for itself with growth."
The current package would lower the corporate tax rate from 38.9 percent to 20 percent and lower personal income taxes; the top rate would fall from 39.6 percent to 35 percent. That should mean a bigger deficit, right?
No, supporters maintain, because the package would eliminate a number of deductions, and that would broaden the tax base and generate some new revenue. The rest would come from growth as corporations, spurred by tax cuts, buy more equipment and hire more workers.
The Committee for a Responsible Federal Budget supports tax reform but has observed that tax cuts in 1981 and the early 2000s widened deficits and figured that for every dollar in cuts, economy activity would have to produce $5 to pay for itself. Don't hold your breath on that score.
"I think that very few economists would agree that the revenue loss would be fully offset with revenue growth," budget expert Alan Viard of the right-leaning American Enterprise Institute told The Hill.
The Tax Policy Center estimated that the framework would increase the federal deficit by $2.4 trillion in its first 10 years.
There are two caveats that go with any estimate. The first is that the plan drafted by GOP leaders offers few details. While the nine-page framework boasts three new tax rates -- 12 percent, 25 percent and 35 percent -- it does not delineate what the tax brackets would be.
The second caveat is that it is not clear or even likely that Congress will stick with provisions that would remove tax deductions, such as the deduction for state and local taxes, in order to finance lower tax rates. The state and local deductions add up to $1.3 trillion over a decade, according to the Joint Committee on Taxation. Already the pressure is on lawmakers from high-tax states such as New York, New Jersey and Maryland to refuse to support the package unless the GOP leadership restores the status quo.
With Trump in the Oval Office, all of a sudden GOP senators and representatives don't see deficit spending as being wasteful as they framed it under President Barack Obama. Also, GOP lawmakers have little incentive to try to cut spending, given that Trump never has been a fiscal conservative and likely would oppose cuts.
No budget hawk, Trump campaigned on not messing with Social Security. "We're not going to raise the age and we're not going to do all the things that everybody else is talking about doing. They're all talking about doing it, and you don't have to," he said on the campaign trail. "We're going to bring our jobs back."
In office, Trump has become even more inclined to magical thinking when it comes to other people's money.
Trump told a gathering of truckers in Harrisburg that the stock market grew by $5.2 trillion since he won the election -- "that's a quarter of the $20 trillion that we owe." Then Trump apparently multiplied the $5 trillion by the four years of his first term and figured, "I've increased the value of your U.S. assets by more than the $20 trillion that we currently owe."
Wrong, responded Patrick Newton of the Committee for a Responsible Budget. "Stock market gains benefit investors. They do not pay down the debt."
Republicans aren't all wet when they talk up the dynamic powers that tax cuts can have. The GOP plan would allow corporations to write off equipment purchases in the year they are made -- an incentive to buy equipment. A lower tax on corporate profits overseas could convince CEOs to return offshore dollars to the United States.
But can it make a rabbit disappear? In a recent phone call for "Not One Penny" -- a Democrat-leaning group that opposes the GOP plan -- venture capitalist Nick Hanauer scoffed at the notion that tax cuts for wealthy individuals will increase dynamism and growth.
"It is extraordinary that they continue to try to sell this nonsense to the American people," he said. He likened the approach to "giving whiskey and car keys to teenage boys."
When investors sell appreciated stock, it does get taxed and that does help the nation’s fiscal stance, which is worse than the 20 trillion dollars that’s out in public debt.
Tax cuts that stimulate growth do result in increased tax revenues that can pay off as much as 20% of the tax cut amount over time. Whether these particular tax cuts would lead to growth is harder to say. We are near full employment, the Fed is raising rates. If we started to see growth overheating they would just raise rates faster.
The main economic effect of the currently proposed tax cuts would likely be higher interest rates rather than higher GDP growth.
Nope.... Tax cuts create more tax payers and over a period of 10 years more tax revenue. It goes up and not down.
We cannot tax ourselves into prosperity despite what this writer thinks.
Do I gotta say it?
Saunders is the alleged house “conservative” at the San Francisco Chronicle.
Which means she’s merely Left of center, not batshit crazy.
Regan cut taxes and the economic boom was so strong that it took Clinton 8 years to kill it, in spite of his tax hikes.
Revenue to the treasury increased as a result of both tax cuts.
So what? If you only focus on the national debt you are only gonna kill yourself. Don’t worry, be happy!
Tax cuts are NOT a static “math” assessment!
Tax cuts are a DYNAMIC economic assessment!
Consumer decisions are INVESTMENTS weather you are the end consumer or a producer at any level.
Taxes are a component in any expenditure.
When the tax costs are lower, more money is available for PRODUCTIVE investment.
Not if Trump passes a 10% tax on all advertising:
...TV (MSNBC, NBC, etc.),
...Radio (ABC, CBS, etc.),
...Newspapers (NYT, WP, etc.),
...Magazines(Time, Newsweek, etc.
...Internet (Facebook, Google, etc.)
When the MSM starts to complain, remind them that it’s for the children.
Do the math. If you want to lower debt, cut spending.
The John Maynard Keynes/FDR Idea Of "Tax & Spend" to Prosperity NEVER WILL WORK! Never Has Worked!!
Initially there is a jump in the debt but once they kick in the revenue jumps quickly. If you control your spending you will be fine. The problem is congress can’t control it’s spending. Normally I would say the Democrat congress but the Republican congress is just as bad.
For Pete's Sake!!!! A tax cut is NOT an expense, therefore you don't "pay for it".
Only in the world of leftists is the government "allowing" you to keep more of the money you earn something that needs to be paid for.
You have hit on the fundamental truth: we're not "undertaxed". We're "overspent".
She’s wrong. Does not adequately account for revenue from a much larger GDP. The CBO also ignores this as it scores using static figures.
Reagan’s second year after tax cuts had 7+ percent GDP growth.
True. Plus, stock market gains help the retirement plans, mostly belonging to public employees and seriously underfunded.
Right, because the effect of the tax cut follows the cut when money for investment and growth accumulates in the economy.
Years ago I saw a comparison between the number of times a dollar turns over in the real economy vs how many time it turns over when sent to the government in taxes.
Amazing difference in that transactions in the real economy either pay peoples salary or purchases goods (which in turn pays peoples salary).
It was Trump's sly way of reinforcing a message that the White House has sent since it first rolled out a framework for the tax cut in April.
This is from the White House transcript.
This huge -- (laughter) -- tax cut -- two words, "huge" and now "rocket." Can you believe it? I have (inaudible.) Rocket! You know what we're talking about, folks, don't worry about it. It will be rocket fuel and it will be rocket fuel for our economy.That is anything but sly. Quite refreshing, I'd say.