Here they go again. Remember the Reagan era when a rising tide lifts all boats was the sell and trickle down economics, aka Reaganomics was the official economic policy of the government? Well, we all know today just who really benefitted and how it really worked out for the middle class don’t we? Economic stagnation for most of us with wealth flowing to the very top.
Excerpt from The Washington Post:
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.
And even if the White House has rosy estimates about the economic impact of the tax cuts, the administration could run into trouble as any plan moves through Congress. That’s because Congress relies on tax analyses performed by the Congressional Budget Office and the Joint Committee on Taxation, which tend to have a more restrained view on the macroeconomic effect of tax cuts.
“We have some evidence about how big these effects can be,” said Donald Marron, a former CBO official who is director of economic policy initiatives at the Urban Institute. “They are not zero, but they are modest.”
President Trump believes the tax code is too complicated and tax rates are too high, and he has made overhauling the tax code one of his top priorities. But simply cutting taxes — lowering the rates that businesses pay and that individuals pay — is difficult for lawmakers because of congressional budget rules. Most Democrats will not support a tax plan that simply cuts tax rates, and Republicans have a narrow 52-to- 48 advantage in the Senate. (continue reading)
While the tax code is arguably too complicated, it is, cutting taxes by lowering rates on business and individuals is simply not going to achieve the long-term results Trump believes it will. Rather history has shown it will result in greater wealth concentration at the pinnacle of the economic pyramid and eventual stagnation for the middle class.