Why tax cuts won't generate as much economic growth as Trump hopes

Angelo Anderson
October 19, 2017

Meanwhile a quarter of households in the middle quintile would see their tax bills rise.

Tait was among a bipartisan group from the U.S. Conference of Mayors that released a study Monday from the Government Finance Officers Association showing that nearly 30 percent of taxpayers would face higher taxes if the deduction is eliminated.

That's because policymakers are caving to big-government advocates and other special interests.

There is no time like the present for Congress to act on tax reform. The resulting pressure to pay higher wages may in fact encourage business executives to spend money on better technology instead of hiring more workers. The administration removed the 2012 analysis from the Treasury Department's website after releasing its tax framework last month with Republican congressional leaders. The problem with this is that it would leave all the damaging compliance costs of the current system in place.

Economic policy analyst Stephen Moore said he worked on the original Trump tax plan, and one of the concerns addressed in the plan was the state and local deduction. Companies can move overseas far more easily than Americans, as can be seen by the wave of inversions over the past five years.

Larryhw/DreamstimeIn the quest for a better tax code, it shouldn't be hard to agree that a tax deduction that mostly benefits rich people and subsidizes high-tax state and local governments must go.

In addition to benefitting high-tax states, the state and local tax deduction benefits high-income taxpayers. Limiting the use of the deduction to people with adjusted gross incomes below $400,000 - a cap that has drawn support from Representative Peter King, a New York Republican, and Representative Tom MacArthur, a New Jersey Republican - would raise just $481 billion over a decade, according to the Tax Foundation. That's what we call a pro-growth reduction.

Constitutionally, Griffith said, the federal and state governments are sovereign, providing different benefits to citizens.

When you double tax capital-first, taxing corporations on their profits, and then taxing individuals when they receive a portion of those profits as capital gains or dividends-you reduce the amount of capital in the economy. There's also a strong and direct relationship between capital per worker and income per worker. The Tax Policy Center stated with the corporate rate cut that middle-class taxpayers would see under 10 percent of the benefit while the top 20 percent would see around 70 percent.

No one knows for sure why USA business investment has been so lackluster over the last decade.

The GOP tax plan does include an expansion of this credit, to be sure.

The projection is based on the assumption that companies will be more inclined to invest in the US with lower taxes, increasing the demand for workers and driving up wages. What the middle class needs is not meager tax cuts but a muscular commitment to robust public institutions created to benefit middle-income individuals. It is also not reasonable if having fewer taxpayers paying the income tax isn't matched with serious spending cuts. Trump has trumpeted his desire for bipartisan cooperation in passing the "biggest tax cut and reform package in the history of our country", and Senate Majority Leader Mitch McConnell (R-Ky.) has publicly urged Democratic support.

Unfortunately, some policymakers are getting bogged down in estimates that show the wealthiest Americans would benefit significantly more than middle-income Americans.

My general view is a corporate rate tax cut with move to territoriality would increase investment in the United States.

Other reports by Iphone Fresh

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