Again, the Trump/Ryan tax cuts will not pay for themselves.

One of the absurd canards that Paul Ryan and others in today’s GOP try to claim is that their tax cuts will “pay for themselves”, as huge increases in incomes and economic growth would make up for the loss of tax revenues that would otherwise happen, and won’t require spending cuts to keep the deficit from growing out of control.

The Tax Policy Center took a look at the tax plan that recently passed Ryan’s House of Representatives (a bill backed by all 5 Wisconsin Republicans in the House, by the way), and found that just like Ben Stein told us 30 years ago, this tax plan will not “pay for itself”.

Sure, the Tax Policy Center says that the House bill would boost the economy because of more disposable income being available. But that boost would be limited because the tax cuts are so heavily slanted toward the rich (who spend less of their incomes) and because the economy is already in a good place without any juice needed from tax cuts.

The legislation would increase aggregate demand, and therefore output, in two main ways. First, it would reduce average tax rates for most households over the first few years after enactment, increasing after-tax incomes. Households would spend some of that additional income, increasing demand for goods and services. These economic benefits would be modest because most tax reductions would accrue to high-income households, who spend a smaller share of any increases in after-tax income than lower-income households. Second, by allowing businesses to elect to immediately deduct (expense) new investment over the next five years, the legislation would encourage firms to increase their near-term investment, further increasing demand. The boost in demand would raise output relative to its potential level for several years until higher interest rates and prices cause output to return to its long-run potential level. Because the economy is near full employment, the impact of increased demand on output would be smaller and diminish more quickly than it would if the economy were currently in recession.

Another point by the TPC is that any help that comes to corporations due to this package would come into capital over actually paying workers, and that investment would likely go down in later years.

Largely because the plan would reduce the corporate income tax rate and temporarily allow businesses to expense investment, the legislation would increase the after-tax returns to saving and investment significantly. That would encourage saving, foreign capital inflows, and investment.

Although the legislation would increase incentives to save and invest, it would also substantially increase budget deficits unless offset by spending cuts. Higher deficits would push up interest rates, which would tend to discourage investment. Thus, while the plan would initially increase investment, we estimate that rising interest rates would eventually negate the incentive effects of lower tax rates on capital income and decrease investment below baseline levels in later years.

As a result, the TPC says that while GDP might be boosted by 0.6% in 2018 with this tax cut package, that increase fades quickly, and while overall we’d stay ahead over the next 10 years vs doing nothing, we’d actually be looking at lower growth starting in 2019.

And the TPC notes that this tepid stimulus would come nowhere near making up for the losses in revenue that would result. This means the federal budget deficit would increase by a total of $1.266 trillion by the end of 2027, even if we account for the added economic growth that would result from the tax cuts.



The Tax Policy Center's analysis doesn’t even account for a few items that likely will make this tax cut even worse for the typical American. The first is that because the rich and corporate are so preferred with this tax cut, that it would encourage even more profit hoarding and wage suppression than we see today, increasing the crippling inequality and stagnant incomes that have led a large amount of Americans to feel very little of the prosperity this country has allegedly had over the last 40 years in this country.

The next problem is that the tax package will likely depress home prices due to the larger standard deduction making it less likely that people will see tax benefits from owning a house (as mentioned in this post). Just go back to 2006-2008 and find out what happens when a bubbly housing market and stock market declines. That boost of 0.6% in GDP doesn’t mean much if the economy is in recession.

And the last item to be worried about is the second part of the “tax package two-step” that makes it especially harmful on poorer and working-class Americans. The higher deficits are likely to lead to calls to reduce spending to get the balance sheet in line, and Ryan and other GOPs in Congress are champing at the bit to use that as an excuse to cut benefits for Social Security and health care- programs that have kept tens of millions of older and lower-income Americans out of poverty for the last several decades.

Not only that, but cutting benefits and other governmental spending to “get the deficit in line” would reduce economic output, and counteract any (already-fading) added growth that the tax cuts might give in a few years. It also could lead to fiscal problems at the state and local level, since some of the cuts could be in the form of aids sent down to other levels of government.

But with Republicans, the economic calamity that might follow would be a feature and not a bug. It would allow for injury of vulnerable people that they otherwise couldn’t do in isolation, and would tie the hands of Democrats that will be forced to clean up from the mess the elephants cause.

God, I hate these vandals. This tax scam and the GOPs backing this voodoo need to go down in flames, along with the oligarch slime that are the only ones that seem to be in favor of this failed regressive garbage.