Paul L. Caron

Thursday, December 19, 2019

Wharton: Weighing The Costs And Benefits Of A Middle Class Tax Cut

Knowledge@Wharton, A Middle-class Tax Cut: Weighing the Costs and Benefits:

WhartonWharton’s Jennifer Blouin speaks with Wharton Business Daily on Sirius XM about the potential for “Tax Cuts 2.0” by the Trump administration.

In the run-up to the 2020 Presidential elections, the possibility that the Trump administration might offer a middle-class tax rate cut to 15% has set economists and other experts weighing the costs and benefits of such a move as well as its political implications.

To be sure, a tax rate cut to 15% for middle-income individuals would impose a higher burden on the federal debt, which is already weighed down by the 2017 tax cuts for corporations and individuals, according to experts at the Penn Wharton Budget Model (PWBM), a non-partisan research organization. Still, it would also inject a short-term boost and steady economic gains over the long run, they said.

One trigger for the debate on the issue was a Washington Post report last week, which said the Trump administration is looking into a possible middle-class tax rate cut to 15%. A day earlier, Larry Kudlow, the National Economic Council Director, had told CNBC that “the president has asked me to pursue something called Tax Cuts 2.0.” The proposal is in its preliminary stages, he noted. “This thing will not be completed for many months … it will be released as a strategic pro-growth document for the [2020 presidential election] campaign. We want to see middle-income taxpayers get the lowest possible rates.” ...

“It’s easy to say we’d just like to cut rates for the middle class, but there have been virtually no details about how that might work,” said Wharton accounting professor Jennifer Blouin in an interview on the Wharton Business Daily radio show on SiriusXM. (Listen to the podcast at the top of this page.) “So, [it] clearly sounds like an election play.” Talk of “tax cuts 2.0” is gaining ground even as the earlier round of tax cuts delivered much lower GDP growth rates than were projected, a decline in business investment and an increase in bankruptcies in the coal and farm sectors, according to an opinion piece in the Washington Post.

Blouin highlighted several difficulties in rolling out a tax cut for the middle class.

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