With Trump Tax Cuts, Soon Every American Can Live In Kansas

Trump won't fire Mike Flynn

Desperate for anything that he can call a win as his 100th day in office approaches, today the star of ‘Presidential Apprentice’ had his Treasury Secretary Steve Mnuchin unveil a proposal to radically reduce corporate tax rates.

Calling the administration’s plan “the biggest tax cut and the largest tax reform in the history of our country,” Mnuchin vowed to slash the tax rate on America’s most profitable companies from 39.5 percent to 15 percent.

It’s not clear that the plan will produce anywhere near as much economic growth as Mnuchin promises. Although the United States has one of the highest corporate tax rates in the world, the effective rate that companies actually pay is absurdly low, and not much higher than the global average.

Just two weeks ago, the Government Accountability Office found that “from 2006 to 2012, at least two-thirds of all active corporations had no federal income tax liability.” Since they are already paying zero taxes, the legislation is unlikely to lift their bottom lines or stimulate them to create new jobs.

What the Trump administration’s plan would do is explode the federal deficit.

Yesterday, the nonpartisan congressional Joint Committee on Taxation said the proposed cut would reduce revenue by $487.9 billion over ten years. The conservative Tax Foundation calculates it would lead to even more debt — about $2 trillion, or 5 percent of total federal revenue.

Speaking to CNBC today, Mnuchin promised the legislation would not create “a loophole to let rich people who should be paying higher rates pay 15 percent.” But depending on the details, Leonard E. Burman of the Tax Policy Center says the proposal could simply create “an enormous tax shelter” for the wealthiest Americans, including Donald Trump.

We have seen this movie before. What the White House wants to do is virtually the same magic trick that Ronald Reagan and George W. Bush tried with their own revisions of the tax system. Despite their changes, neither presided over a strong economy.

Mnuchin promises that deficits won’t balloon because the rate cuts will produce such massive new economic growth that tax receipts will actually rise. Known as “voodoo economics” in the 1980s, it is the same exact scheme that economist Arthur Laffer has pushed for 40 years without ever producing the promised results.

“There is not a shred of evidence to support the secretary’s pay-for-itself claim,” said Jared Bernstein, a top White House economics adviser under Mr. Obama. “Sure, significantly faster growth would spin off more revenues. But there’s simply no empirical linkage between tax cuts and growth that’s both a lot faster and sustained.”

Douglas Holtz-Eakin, a former Congressional Budget Office director who advised Senator John McCain’s Republican presidential campaign in 2008, was equally skeptical. “I can imagine cutting the rate to 15 percent,” he said. “I can imagine growing a percentage point faster. I can imagine raising $2 trillion in revenue. I can’t imagine them being one and the same policy.”

N. Gregory Mankiw, a Harvard University economist who was chairman of the President’s Council of Economic Advisers under the younger Mr. Bush, said tax cut supporters exaggerate the possible growth benefits while opponents overemphasize the budgetary cost. “A reasonable rule of thumb, in my judgment, is that about one-third of the cost of tax cuts is recouped via faster economic growth,” he said.

Most recently, the state of Kansas has slashed individual tax rates and altogether exempted 330,000 businesses from the state’s income tax. These changes were supposed to make the state’s economy roar like a lion, but today Kansas is dead last of the 50 states in terms of economic growth, with revenue declines requiring painful budget cuts that have drastically reduced the state’s competitiveness.

That’s what the Trump White House wants to do for all Americans. Aren’t you excited?

Tax cut voodoo cannot fail, it can only be failed. Like any good Mayan priest, Goldman Sachs alum Steve Mnuchin “knows” that budgetary blood must simply continue to flow down the temple staircase until the gods are appeased. Then, and only then, will the invisible hand bless America with miraculous revenue.

The richest Americans will do just fine; the rest of us will do all the bleeding.

Featured image via Gage Skidmore Flickr under Creative Commons license

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