General Discussion
Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsRepublicans pushing that same old VooDoo crap
Trumps treasury secretary: The tax cut will pay for itself
The Trump administration plans to rely on controversial assumptions about economic growth to offset steep cuts to business and individual tax rates, a chief architect of the plan said Thursday.
Treasury Secretary Steven Mnuchin said the economic growth that would result from the proposed tax cuts would be so extreme close to $2 trillion over 10 years that it would come close to recouping all of the lost revenue from the dramatic rate reductions. Some other new revenue would come from eliminating certain tax breaks, although he would not specify which ones.
The plan will pay for itself with growth, Mnuchin said at an event hosted by the Institute of International Finance.
Assuming economic growth based on changes to the tax code is known as dynamic scoring, and many conservatives embrace its use when arguing for lower rates. But estimating the future economic impact of tax cuts is very difficult to do, as it requires policy makers to rely on economic forecasts that are often imprecise.
more
https://www.washingtonpost.com/news/wonk/wp/2017/04/20/trumps-treasury-secretary-the-tax-cut-will-pay-for-itself/?utm_term=.c5f8965acf38
And when the budget collapses into huge deficits, they will be back saying we 'must' cut Social Security and Medicare. Guaranteed.
spanone
(135,781 posts)and enriches the rich.
Phoenix61
(16,992 posts)And it worked out exactly the way you would think it would. It tanked.
Qutzupalotl
(14,285 posts)with the same results: a ballooning debt and deficit with no real boon in economic activity.
unblock
(52,113 posts)of course a real model would need to be quite complex, but the intuitive model is not far off:
say the top tax rate goes is cut from 40% to 38% (and similarly for other brackets).
that actually results in a 5% decrease in tax revenue assuming no extra growth in the economy ($38 is 5% less than $40).
so the economy would have to grow by roughly 5% to offset this effect. 38% of $105 is roughly the same as 40% of $100 ($39.90 vs. $40.00).
so the biggest, albeit geeky, argument as to why the laffer curve idea fails is that swinging the economy by 5% is absolutely huge, and no real economist believes that a tiny tax cut from 40% to 38% is going to make anything remotely like that kind of a difference to the economy.
the laffer curve is somewhat reasonable in theory, but the relevant tax rates are nowhere near what we have. imagine cutting taxes from 95% to 90%. again this is close to a 5% decrease in tax revenue (actually about 5.26%), but this time take-home pay goes from 5% to 10%, i.e., people and businesses make *double* the money. this might well have a huge positive effect on the economy. unsurprising, as pretty much everyone would agree that 95% is too high.
but the math just doesn't support cutting taxes when the rates are as low as they already are.
n2doc
(47,953 posts)see:
Tax Cuts Don't Lead to Economic Growth, a New 65-Year Study Finds
...
But it does suggest that there is a lot more to an economy than taxes, and that slashing taxes is not a guaranteed way to accelerate economic growth.
That was the conclusion from David Leonhardt's new column today for The New York Times, and it was precisely the finding of a new study from the Congressional Research Service, "Taxes and the Economy: An Economic Analysis of the Top Tax Rates Since 1945."
Analysis of six decades of data found that top tax rates "have had little association with saving, investment, or productivity growth." However, the study found that reductions of capital gains taxes and top marginal rate taxes have led to greater income inequality. Past studies cited in the report have suggested that a broad-based tax rate reduction can have "a small to modest, positive effect on economic growth" or "no effect on economic growth."
https://www.theatlantic.com/business/archive/2012/09/tax-cuts-dont-lead-to-economic-growth-a-new-65-year-study-finds/262438/
Laffer was wrong.