“The tax bill Senate Republicans are championing would give large tax cuts to millionaires while raising taxes on American families earning $10,000 to $75,000 over the next decade, according to an analysis by the Joint Committee on Taxation, Congress’ official nonpartisan analysts,” the
Washington Post reports.
“President Trump and Republican lawmakers have been heralding their bill as a win for hard-working Americans, but the JCT report casts serious doubt on that claim. Tax hikes for households earning $10,000 to $30,000 would start in 2021 and grow sharply from there. By the year 2027, Americans earning $30,000 to $75,000 a year would also be forced to pay more in taxes even though people earning over $100,000 continue to get substantial tax cuts.”
Stan Collender: “If it’s enacted, the GOP tax cut now working its way through Congress will be the start of a decades-long economic policy disaster unlike any other that has occurred in American history.”
“There’s no economic justification whatsoever for a tax cut at this time. U.S. GDP is growing, unemployment is close to 4 percent (below what is commonly considered ‘full employment’), corporate profits are at record levels and stock markets are soaring. It makes no sense to add any federal government-induced stimulus to all this private sector-caused economic activity, let alone a tax cut as big as this one.”
“This is actually the ideal time for Washington to be doing the opposite.”
“If it’s enacted, the GOP tax cut now working its way through Congress will be the start of a decades-long economic policy disaster unlike any other that has occurred in American history.”
“There’s no economic justification whatsoever for a tax cut at this time. U.S. GDP is growing, unemployment is close to 4 percent (below what is commonly considered ‘full employment’), corporate profits are at record levels and stock markets are soaring. It makes no sense to add any federal government-induced stimulus to all this private sector-caused economic activity, let alone a tax cut as big as this one.”
“This is actually the ideal time for Washington to be doing the opposite.”
As a student of economics I could not agree more with the foregoing quote. In fact I have said precisely the same thing in other threads here.
The republican economists have obviously not taken into account long range social effects of the tax plan. I'm certain they were not asked to. They have correctly said that if the tax cuts are sufficiently paired with government spending cuts, the net affect will not be inflationary. The intention is that upward pressure on bank reserve accounts due to tax cuts will be balanced by downward pressure from reduced spending. This is modern textbook economics and accounting. But as we know, the road to hell is paved with good intentions. If tax legislation anything close to what is proposed passes, we will be on the road to Dante's Inferno; not to a conservative paradise where everyone gets exactly what they deserve, and no worthy person is left wanting.
The Republican leadership is quickly learning that only waist deep cuts to essential Government programs can satisfy their economist's equation. And that, as we've learned from long observation and practice, will not happen. Politics will intervene. Spending will not be sufficiently reduced to compensate for the additional money left on the private side. There will be upward pressure on reserve accounts that the Fed will try to counter by open market bond sales. This is the Feds normal way of exercising control over the Fed Funds Rate, which is necessary if the rate is to rise at a measured pace. Treasury spending, however, will not be sufficiently reduced; it simply can't be without disastrous social consequences. The Fed will be swimming upstream against increasing bank deposits in a hapless attempt to fight inflation indirectly via controlled upticks in the Funds rate. Any student of economics will predict inflation that will challenge even the nearly limitless resources of the Federal Reserve to prevent the future economy from landing with a thud.
By far the most effective tool against inflation is for the government to generate surpluses. This is so effective that if repeated several years in a row it guarantees a recession. This, however, is a tool not available to the Fed. Only congress can wield it. And in any case the generation of surpluses is generally unwise.
The middle ground would have the introduction of at least three more upper tax brackets with the top marginal rate approaching 50% for AGI exceeding a few million.* That would in part balance a modest decrease in the lowest marginal bracket. Consumption would be stimulated, growing employment and adding dignity to a large segment of the population. Taken together these policies would produce a balance, lifting all boats including the wealthy's and aid, rather than hinder, the Fed's efforts to maintain a nearly stable dollar and full employment. Everyone wins, and importantly the rate at which wealth disparity grows does not accelerate as it would under the Republican plan, which is socially destabilizing.
Sadly those at the helm are trying to steer toward Dante's inferno, which is to the long range advantage of no one and only benefits, in the short run, a tiny fraction of the population; it's that pay to play fraction of the Republican's constituents. That we understand, and so does the Republican leadership! In the long run, assuming social and financial stability is worth something, even the small, fortunate segment of society that would greatly benefit initially from the Republican plan would benefit as much from a better balanced plan. But when up against natural human instincts of those in power, a balanced plan that would put modest emphasis on the demand side is a hard sell . All we can do is hope opposing forces are sufficient to prevent the immediate greed of a few from triumphing over the best, long run interests of the many.
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* Changes in the way unearned income is taxed is essential. Tax revenue needed to offset rate reductions in the lowest one or two brackets is reduced by taxing unearned income at lower rates. Changes in unearned income taxation can be affected by adding brackets to unearned income tax rates, or alternatively by losing the distinction between earned and unearned. Taxing unearned income at lower rates than earned is a conspicuous feature of supply-side economics. Supply side economics was a feature of feudal times rediscovered and popularized as a fad in the late twentieth century. Although discredited, supply-side economics, like a Zombie, refuses to die.
