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A tax cut designed for economic contraction, not growth

  • Except for a short-term boost in capital spending, there are few reforms that will push growth above its current trajectory.
  • There is unlikely to be an increase in consumer demand that would justify businesses increasing their capital spending, save for the tax break.
  • Adhering to strict supply-side principles, Treasury is, very simply, stating (once again) that tax cuts pay for themselves.
Over a hundred protesters met at Greeley Square in Midtown Manhattan on November 27, 2017 and marched along 34th Street behind a Not One Penny of Tax Cuts for the Rich banner, with Tax Scam signs, Not One Penny signs and giant checks made out from Medicaid or Medicare to billionaires or corporations, to raise awareness against the irresponsible tax plan that cuts Medicare and increases healthcare costs for older New Yorkers.
Erik McGregor | Pacific Press | LightRocket | Getty Images
Over a hundred protesters met at Greeley Square in Midtown Manhattan on November 27, 2017 and marched along 34th Street behind a Not One Penny of Tax Cuts for the Rich banner, with Tax Scam signs, Not One Penny signs and giant checks made out from Medicaid or Medicare to billionaires or corporations, to raise awareness against the irresponsible tax plan that cuts Medicare and increases healthcare costs for older New Yorkers.

You have to give the U.S. Treasury Department some credit for keeping its economic analysis of tax reform proposals short and sweet.

One whole page of exhaustive and comprehensive work shows how an as-yet unreconciled, unfinished, unscored bill will boost federal tax receipts by a net $300 billion over the next 10 years.

It's apparently good enough for government work.

The Treasury's one-pager would likely be given an "F" in any college economics course for thoughtlessness, carelessness and recklessness, not to mention intellectual laziness, when it comes to projecting the impact of the tax reform proposals currently under consideration.

The Senate's plan was so hastily prepared, for instance, that it re-introduced a corporate alternative tax, eliminated the research and development tax credit, lifted the top marginal tax rate (according to The Wall Street Journal) to above 100 percent for some companies and, generally, raises taxes on middle and lower income groups.

How that stimulates economic growth is a mystery to me, but the Treasury says it'll happen, so who am I to argue?

My personal take on tax reform is that it may very well be the first tax cut plan in modern American history to result in economic contraction, rather than growth.

Except for a short-term boost in capital spending, there are, as far as I can tell from what has been written thus far, few "reforms" that will push growth above its current trajectory.

And, again, individuals are unlikely to see a boost in their disposable income, hence, there is unlikely to be a large increase in consumer demand that would justify businesses increasing their capital spending in the first place, save for the tax break.

Treasury Secretary Steven Mnuchin's agency, without explanation, says in the one-page summary put out on Monday that half of the additional revenue generated by projected average annual 3 percent growth over the next decade will come from higher corporate tax revenue and from higher small business tax revenue.

Adhering to strict supply-side principles, Treasury is, very simply, stating (once again) that tax cuts pay for themselves.

It is a claim for which there remains no empirical economic evidence and has never truly been attempted in isolation of other stimulative measures that have long accompanied tax cuts, such as low interest rates, increased government spending or accelerating global growth.

This administration does not appear to take economic analysis seriously in any way, shape, or form. Recall that the president's first "blue print," or guiding principles, for tax reform were also only a page long, barely a laundry list of things to do on taxes.

Similarly, Monday's "analysis" shows very little respect for budget math and makes the Reagan "rosy scenario" look frugal by comparison.

A political "win" for the White House and Congress is not the same as an economic win for the American people. There has been far too little thought put into tax reform, just as there was no replacement for the Affordable Care Act when Congress attempted to repeal and replace it.

Certainly, a small number of measures in the current tax reform proposals would be beneficial to a select group and that has been reflected in stock prices, though less so in consumer and business confidence measures and in public opinion polls.

This government would be far better off buying some bitcoin futures and hoping the price will appreciate enough to pay off the national debt.

It makes about as much sense as Monday's budget summary from the nation's highest-ranking Treasury official.