Paul L. Caron

Friday, January 24, 2020

NY Times: There’s No Such Thing As A Free Tax Cut

New York Times editorial, There’s No Such Thing as a Free Tax Cut:

Legend has it that the British economist John Maynard Keynes, asked why he had changed his position on a question of economic policy, responded: “When the facts change, I change my mind. What do you do, sir?”

Treasury Secretary Steven Mnuchin has embraced a different approach: ignoring the facts.

This week, Mr. Mnuchin repeated the risible fantasy that the Trump administration’s 2017 tax cuts will bolster economic growth sufficiently for the government to recoup the revenue it has lost by lowering tax rates. ...

Two years later, the results are in. The annual federal budget deficit has topped $1 trillion. And it is even more difficult to understand how anyone could make such a claim. ...

The exact mechanics will be studied for years to come. Gary Cohn,  a chief architect of the tax cuts during his time as Mr. Trump’s chief economic adviser, argues plausibly that the uncertainty created by Mr. Trump’s trade policy has worked against the tax cuts, discouraging companies from making long-term investments.

A study by the International Monetary Fund [U.S. Investment Since The Tax Cuts And Jobs Act Of 2017], by contrast, found that the supply-side effects were even smaller than the total increase in investment. The study concluded that business responded to increased demand more than they did to the lower tax rates.

The distribution of the tax cuts also has served to exacerbate economic inequality. ...

[I]t’s too much to hope facts will alter the policies of the Trump administration. Mr. Trump is touting the tax cuts as a signature triumph as he runs for re-election. It will be up to voters to hold the administration accountable for the actual results.

(Hat Tip: Michael Talbert)

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