Thursday, April 27, 2017

The Two Things That Trump's Tax Cuts Will NOT Do

(This cartoon image is by Mike Konopacki at

Donald Trump has finally outlined his tax cut plan, and it's even worse than expected. It includes a bevy of tax cuts for the rich and corporations (lowering top rate to 35%, lowering corporate rate to 15%, lowering capital gains rate to 20%, eliminating the estate tax applying to inheritances over $5 million, etc.), and very little for anyone else (doubling the standard deduction while eliminating most other deductions).

If you're rich, or own a business, then you'll probably love Trump's plan. If you're not, then you won't get much of a tax cut (if anything at all).

When rolling out this massive tax cut for the rich and corporations, the Trump administration made two claims -- neither of which is even remotely true.

The first is that the tax cut will pay for itself (i.e., be revenue neutral) by stimulating the economy. That is the same old lie that Republicans have been telling for generations to try and justify giving themselves (and their rich cronies) a tax cut. Reagan claimed it was true when he cut taxes, but it just added $1.4 trillion in deficits (a 142% increase). Bush II also claimed it was true, and it added $3.2 trillion in deficits. Tax cuts do NOT pay for themselves. That is just magical and wishful thinking. Cutting government revenues always grows the deficit (and the national debt) -- and Trump's massive tax cuts for the rich will balloon the deficit beyond all previous presidents.

The second is that the tax cuts, especially the huge tax cuts for corporations and other businesses will create new jobs. There is no empirical evidence for this. Tax cuts (or raising taxes) don't have an effect on job creation. There have been times of rapid job growth when taxes were high (such as 1950's and 60's) and times of low job growth when taxes were low (Bush II administration).

There is only one thing that spurs new job creation -- a significant increase in the demand for goods and services. A good business person will hire new workers when it is necessary to meet a rise in the demand for his/her goods or services. They will not do it just because they have a lower tax rate (while demand remains the same) -- because hiring unnecessary workers would just cut into the profits they make.

Demand is not increased by giving corporations and the rich a tax cut. They already have the money to buy what they want/need, and increasing the amount they have will not increase their demand for goods/services. Demand is increased when the masses have more money to spend (especially among lower income families who have to spend that extra income to meet their needs).

The one thing in Trump's proposal that might have an effect on demand is the increase in the standard deduction for taxpayers, but that small decrease in taxes is unlikely to have a substantial effect on demand.

This tax cut plan will not pay for itself, and it will not create a huge number of new jobs -- but I think Trump and his Republican buddies know that. Those are just lies they tell to try and placate the middle class while giving most of the cuts to the rich, the corporations, and Wall Street.

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