The False Promises in President Trump’s Tax Plan

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Christopher DeLorenzo

As they return to Washington this week from their August recess, House Republicans on the Ways and Means Committee have their work cut out for them. Their job is to draft a major tax-cut bill for Congress to pass, ideally by year-end, to avoid closing out 2017 without a single big legislative win. The policy objective is to steeply cut tax rates for businesses and wealthy individuals. The political aim, and the point of President Trump’s speech last Wednesday, is to persuade the men and women in the Trump working-class base that a tax cut for the wealthy would be good for them, too.

It would not be, and to pretend otherwise, as Mr. Trump did, is to substitute propaganda for discourse. Mr. Trump’s claim that tax cuts will propel economic growth and lift wages ignores the consensus view of economists, which is that multitrillion-dollar tax cuts, as envisioned by Mr. Trump, are not a stable or reliable way to do either.

The president’s claim also defies history. Wages have long stagnated, despite tax cuts in the 1980s and 2000s, while profits, shareholder returns and executive pay have soared. Profits, whether lifted by favorable economic conditions, by tax cuts or by both, have not translated into employee raises and have instead been used for other purposes. One is to buy back stock, which lifts share prices and, by extension, executive compensation. Following a huge one-off corporate tax cut in 2004, big piles of corporate cash were also used to pay dividends to shareholders, settle legal issues and finance severance packages for layoffs.

Of all the ways that corporations have spent their profits recently, business investment has generally been low on the list. Higher wages have been even lower, if they make the list at all. It would be foolish to expect anything different if a new set of tax cuts increased corporations’ already healthy profits. Any advantages for middle-class Americans would amount to crumbs from the banquet table.

Then, too, there is the budget issue. Mr. Trump has proposed cutting the top corporate rate from 35 percent to 15 percent, a point he emphasized on Wednesday despite warnings from his economic advisers that a cut that sizable would cause the deficit to explode. Separately, he and his advisers have also proposed ending taxation on the foreign profits of American…

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