Thursday, February 2, 2017

President Trump - Part 2 - Improving the Economy - Tax Cuts

President Trumps two big ideas to boost the economy are:

1. Spend lots of money on infrastructure

2.  More tax cuts, particularly for the wealthy.

This blog addresses the efficacy of  further tax cuts. 

President Trump says tax cuts are the answer.  Reduce government income in the hope the tax cuts generates enough economic activity to increase tax Revenues.

The notion tax cuts will boost the economy enough to control our National debt and make everyone better off has been repudiated by history.  

This Republican ideology is rooted in Ronald Reagan's tax plan sold to the public with the memorable slogan, "a rising tide raises all boats".

When Reagan took office individual tax rates were as high as 70% on people with very high incomes.  In 1981 he pushed Congress to cut the top rate to 50%, then in 1986 it was brought down to 28%.  Republicans claim those tax cuts both created more jobs and increased Government revenues, both of which assertions fly in the face of the actual facts.  According to a later Congressional Budget Office study the Reagan years created fewer jobs than imagined and greatly aggravated government debt.
For details link to https://www.washingtonpost.com/news/fact-checker/wp/2015/04/10/rand-pauls-claim-that-reagans-tax-cuts-produced-more-revenue-and-tens-of-millions-of-jobs/?utm_term=.2c8bc2e9ff34

During the 1990's the Clinton administration raised some taxes over the objection of Republicans in Congress, then when Republicans took control of both houses of Congress in 1995 they pushed through legislation to again cut taxes, in particular to Capital Gains taxes that benefit the wealthiest and encourage speculation.  Once George Bush arrived we had both a tax phobic Congress and President so 2003 saw major additional tax cuts, even as we were going to war (the start of the current explosion in the National Debt).

President Reagan's tax ideas have dominated Congress for the last 35 years.  Have all the tax cuts over the years paid for themselves and made everyone richer?  There is no room for any answer other than an emphatic No.

Our National debt has climbed relentlessly since the Reagan tax cuts and is approaching the levels we saw after the Great Depression and WW II.  

The wealthiest are vastly richer and the bottom 50% significantly poorer while the rest of us are stuck about where we were in 1980 (but with a much bigger per person national debt).  The rising tide raised the wealthy, mired the middle income folks in the mud and swamped working folk.
  
The Reagan tax cuts occurred in the best of all possible circumstances.  In 1981 this country was coming down off the highest interest rates in modern history, the highest inflation rates in modern history and were entering into a period where the biggest percentage of the population in history were moving into their most productive years.  Never in history had each productive worker been balanced by fewer non productive citizens (kids and retired folk).  Thus the Reagan tax cuts failed to control the National debt in the best possible circumstance, a time when pent up economic energy was ready to explode.

Contrast that with the current situation.  We are coming off the lowest interest rates in history, virtually no inflation, anyone with ambitions to borrow money could do so very cheaply for the last half decade, but new business start ups are falling each year.  The biggest chunk of our population are those moving into retirement.

We need tax increases, not tax cuts.
We need to suck it up and accept the formula that reduced our Great Depression \ WW II debt from 1950 to 1980. We need tax increases on the wealthiest Americans.  During period from 1950 to 1980 the highest tax brackets took 70 to 90% of every extra dollar of very rich folks income.  Yet that was a time of high growth and low income inequality.  Right now rich folks pull as much money as they can out of businesses and spend it on non-productive assets that increase their relative wealth.  Because of the high tax rates from 1950 to 1980 rich folks left their money in businesses and reinvested in productive activity that employed people.

That is the historical path we should be following.


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