Tax Magic and Deficit Spending Battle

As a federal funding deadline nears yet again without a plan on the table, we’re starting to see bits appear. Nothing indicating a coherent strategy in spite of the campaign beginning almost two years ago. One of those bits is a Trump intent to cut corporate tax rates to 15%.

Steven Mnuchin, Secretary of the Treasury, claims this proposal would “pay for itself” through economic growth. He said a growth rate of 3 percent was achievable. Experts throw cold water on that idea, since there is no evidence that tax cuts pay for themselves.

The Tax Policy Center estimated in November that Trump’s 15% proposal, coupled with a repeal of the corporate Alternative Minimum Tax, could reduce revenue by nearly $2.4 trillion in the first decade.

To put that in context, that’s about $240 billion a year — which is almost as much as the $304 billion the government spent last year on income security programs such as food stamps, unemployment benefits and child nutrition.

The Republican chairman of the Senate Finance Committee seems to believe such a deep cut might not be well received by Mr. Trump’s party because of its potential to increase the deficit. So even this Republican’s concerns indicate the likelihood of the tax cuts to pay for themselves is about the same likelihood I expect Mexico to pay for the wall.

Pay attention this week. It will be interesting to watch the debate as the Senate and House majorities (both GOP) wrestle with their own critiques of deficit spending during the past 8 years and their double pronged approach to avoid a government shutdown (self imposed by their refusal to consider any budget put forth by President Obama in his last year) and their desire to give a legislative win of any type to this Administration in its first 100 days.

While we look on consider Mark Thoma’s perspective which I covered here during a debt ceiling debate in September 2013. He breaks the battle out for what it is…and it is not about tax revenue, spending, and the debt in spite of all the jargon:

“Politicians and the press often make it seem as though the long-run debt is the real issue, but if that were true we’d be hearing a lot more about using tax increases to close the budget gap. After all, our tax burden is not all that high relative to other countries, and there are ways to raise taxes that do not harm economic growth.”

This fight is really about folks who have and make a lot of money not wanting to pay tax at the expense of those less fortunate. Let’s face it, those businesses run by multi-million dollar/year CEO’s function off the national infrastructure just like all the rest of America. Thoma’s work, linked in his quote above, is a great read, well supported, and places this attempt to cut tax rates for the big boys in proper perspective.


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