aside GOP Insider Admits He Created Myth That Tax Cuts Equals Economic Growth

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The republican President Donald Trump and the US congressional representatives are hard at work in trying to pass a tax reform bill/ tax cuts. So far, the outline of the bill is short on details. However, what we know so far is that the planned tax cuts will be a benefit for the wealthy. We do not have enough data to determine how the middle class or the poor will see any advantages or be bamboozled by it.

This looks a like the republican legislators recent attempts to pass their repeal/ replace healthcare bill for Obamacare with a pack of lies. What it will not do, is reduce the deficit. My question is, with the predicted tax cuts being over a trillion dollars, how does the US congress budget for badly needed infrastructure investments as the president promised  without blowing up the deficit? Where are the republican deficit hawks?

Here is the rest of the story…

On September 28, 2017, Bruce Bartlett penned the following commentary for the Washington Post,  “I helped create the GOP tax myth. Trump is wrong: Tax cuts don’t equal growth.” (“The best growth in recent memory came after President Bill Clinton raised taxes in the ’90s.”) “Bruce Bartlett was a domestic policy adviser to President Ronald Reagan. He is the author of “The Benefit and the Burden: Tax Reform — Why We Need It and What It Will Take.”

Excerpts:

“The Reagan tax cut did have a positive effect on the economy, but the prosperity of the ’80s is overrated in the Republican mind. In fact, aggregate real gross domestic product growth was higher in the ’70s — 37.2 percent vs. 35.9 percent.”

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“Moreover, GOP tax mythology usually leaves out other factors that also contributed to growth in the 1980s: First was the sharp reduction in interest rates by the Federal Reserve. The fed funds rate fell by more than half, from about 19 percent in July 1981 to about 9 percent in November 1982. Second, Reagan’s defense buildup and highway construction programs greatly increased the federal government’s purchases of goods and services. This is textbook Keynesian economics.”

“Third, there was the simple bounce-back from the recession of 1981-82. Recoveries in the postwar era tended to be V-shaped — they were as sharp as the downturns they followed. The deeper the recession, the more robust the recovery.”

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“Finally, I’m not sure how many Republicans even know anymore that Reagan raised taxes several times after 1981. His last budget showed that as of 1988, the aggregate, cumulative revenue loss from the 1981 tax cut was $264 billion and legislated tax increases brought about half of that back.”

“Today, Republicans extol the virtues of lowering marginal tax rates, citing as their model the Tax Reform Act of 1986, which lowered the top individual income tax rate to just 28 percent from 50 percent, and the corporate tax rate to 34 percent from 46 percent. What follows, they say, would be an economic boon. Indeed, textbook tax theory says that lowering marginal tax rates while holding revenue constant unambiguously raises growth.”

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“But there is no evidence showing a boost in growth from the 1986 act. The economy remained on the same track, with huge stock market crashes — 1987’s “Black Monday,” 1989’s Friday the 13th “mini-crash” and a recession beginning in 1990. Real wages fell.”

“Strenuous efforts by economists to find any growth effect from the 1986 act have failed to find much. The most thorough analysis, by economists Alan Auerbach and Joel Slemrod, found only a shifting of income due to tax reform, no growth effects: “The aggregate values of labor supply and saving apparently responded very little,” they concluded.”The flip-side of tax cut mythology is the notion that tax increases are an economic disaster — the reason, in theory, every Republican in Congress voted against the tax increase proposed by Bill Clinton in 1993. Yet the 1990s was the most prosperous decade in recent memory. At 37.3 percent, aggregate real GDP growth in the 1990s exceeded that in the 1980s.”

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“Despite huge tax cuts almost annually during the George W. Bush administration that cost the Treasury trillions in revenue, according to the Congressional Budget Office, growth collapsed in the first decade of the 2000s. Real GDP rose just 19.5 percent, well below its ’90s rate.”

“We saw another test of the Republican tax myth in 2013, after President Barack Obama allowed some of the Bush tax cuts to expire, raising the top income tax rate to its current 39.6 percent from 35 percent. The economy grew nicely afterward and the stock market has boomed — up around 10,000 points over the past five years.”

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STEVEN MNUCHIN

“Now, Republicans propose cutting the top individual rate to 35 percent, despite lacking evidence that this lower rate led to growth during the Bush years, and a drop in the corporate tax rate to just 20 percent from 35 percent. Unlike 1986, however, this $1.5 trillion cut over the next decade will only be paid for partially by closing tax loopholes.”

“Republicans’ various claims are irreconcilable. One is that the rich will not benefit even though it is practically impossible for them not to — those paying the most taxes already will necessarily benefit the most from a large tax cut. And there aren’t enough tax deductions, exclusions and credits benefiting the rich that could be abolished to offset a cut in the top rate.”

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“Even if they had released a complete plan — not just the woefully incomplete nine-page outline released Wednesday — Republicans have failed to make a sound case that it’s time to cut taxes.”

 “Nor have they signaled that they’ll commit to a viable process. It’s worth remembering that the first version of the ’81 tax cut was introduced in 1977 and underwent thorough analysis by the CBO and other organizations, and was subject to comprehensive public hearings. The Tax Reform Act of 1986 grew out of a detailed Treasury study and took over two years to complete.
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GARY COHN/ STEVEN MNUCHIN/ PRESIDENT TRUMP

“Rushing through a half-baked tax plan, in the same manner Republicans tried (and failed) to do with health-care reform, should be rejected out of hand. As Sen. John McCain (R-Ariz.) has repeatedly and correctly said, successful legislating requires a return to the “regular order.” That means a detailed proposal with proper revenue estimates and distribution tables from the Joint Committee on Taxation, hearings and analysis by the nation’s best tax experts, markups and amendments in the tax-writing committees, and an open process in the House of Representatives and Senate.”

“There are good arguments for a proper tax reform even if it won’t raise GDP growth. It may improve economic efficiency, administration and fairness. But getting from here to there requires heavy lifting that this Republican Congress has yet to demonstrate. If they again look for a quick, easy victory, they risk a replay of the Obamacare repeal fight that wasted so much time and yielded so little.”

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7 comments

  1. Gronda, I just placed a comment on Jill’s post with a smaller reference to this myth. Thanks for writing this. In a true test, if tax cuts could entirely be paid for by economic growth, then we should go to 0%. Reading research from folks like The Concord Coalition, Committee for a Responsible Budget, Fix the Debt, etc. a tax cut at best can achieve some growth given the circumstances, maybe about 1/4, but to say the pay for themselves in growth is a misrepresentation. There have been at least four studies, prior to Kansas’ experiment, that said trickle down economics does not work. Per the New York Times, Senator Mitch McConnell had a study done by the nonpartisan Congressional Research Service (that said the same thing) buried just before the Romney/ Obama election.

    Then came Kansas where a experiment similar to what is being proposed by the President was done. It failed terrible and the state had to raise taxes to pay for things. I have heard some say look at what my state did in NC. Yet, the General Assembly masked a tax cut with other fee increases and deduction eliminations, where revenue increased. Retirees, in particular, said now where is the tax cut you were talking about?

    We can ill-afford a $2 Trillion increase in our debt. We already have a $20 Trillion problem. We cannot reduce this debt with spending cuts – the math does not work. We need revenue increases – that means tax increases. And, this so called responsible folks are going to increase our debt by $22 Trillion.

    The next time you here someone say we need a balanced budget amendment, tell them that is not enough, we need more revenue than expenses. Keith

    • Keith: You provided the actual solution for our debt problem with these words: ” we need more revenue than expenses.”! Too bad the fools we keep electing to office in our local, state and national elections fail to realize that you can not borrow your way out of debt! It still amazes me when talking to people that they fall for the politicians using percentage of income when saying how much they intend to cut taxes. I suppose that most Americans are illiterate and unable to do simple math allowing them to realize that a 1% cut in taxes on a wealthy individual is much larger than a 10% cut for the average working person.

      • Thanks. The sad truth is anyone can get elected pledging to cut taxes. That is not what is needed. Simpson-Bowles Deficit Reduction Plan had $2 in spending cuts to every $1 in tax increases. We need both. Keith

    • Dear Keith,

      You are right on. The truth is that we cannot afford this tax cut bill. I am for tax reform which is different. For example I am for tax cuts for businesses with the carried interest loophole being eliminated. If any tax cuts are done to stimulate the economy, it should be targeted for middle class and the poor because they are the ones who will spend the monies. We know that we will be facing at a minimum, a trillion dollar infrastructure bill.

      I’m with you on the Simpson-Bowles bill. This was the way to go. What happened to all those deficit hawks? They’ve disappeared.

      Hugs, Gronda

  2. I will be brief on the subject for I have lectured at length to many people in many places often without invitation and risk becoming a bore on the topic.
    Suffice it to say I agree with you Gronda and you Keith.
    My years in the UK taxation authority resulted in the inescapable conclusions;
    1. Tax cuts benefit those who do not need tax cuts and have the opposite on those who need every penny they can scrape together.
    2. Simplifying the tax system is a coded reference for creating for loopholes for those who can afford loopholes.
    3. Indirect taxes place a heavier burden on those on lower incomes.
    4. Paying tax is a civic responsibility avoidance even by means of the law is reprehensible.

    • Dear Roger,

      You are right on the money. Now if I were to win a million dollars, I would graciously pay my taxes and count myself as being fortunate and blessed. It is hard for me to fathom why these rich folks begrudge this obligation / civic responsibility because they have been blessed. They are no more deserving than the poor guy who works 2-3 jobs to take of his/ her family.

      The rich or the greedy will try to paint poor folks as being dependent on hand outs. What I find reprehensible is a man or woman working at least 40 hrs per week at a job without earning a living wage to where they need government assistance as in the form of food stamps.

      The purpose of the republican tax cut bill is so patently obvious. It is a tax cut for the rich.

      Hugs, Gronda

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