The Transylvania Times -

Wrong Time To Cut Taxes


October 2, 2017

Everyone enjoys seeing more take home money in their paycheck, so whenever politicians say they are going to cut taxes, voters generally respond positively.

But from a sound economic perspective, there are good times and bad times to issue tax cuts, just as the types and scales of tax cuts are also crucial. Both the timing and scale of the tax cuts proposed by the Trump administration are bad.

Tax cuts are generally positive when the economy is sluggish, when unemployment is high and when the national debt is low. Putting more money back in the hands of taxpayers generally increases the demand for goods and services. This, in turn, stimulates production and the need for more employees.

That is not the case today. Lately, median pay has been slowly increasing. Unemployment is low, close to what economists refer to as “full employment.” In fact, there have been several reports that roughly 3 million jobs are going unfilled in the United States because employers cannot find qualified employees. Today’s economy does not need a great deal of stimulation. What it does need is a qualified work force to fill these technical manufacturing jobs and a reversal of the growing income inequality occurring in this nation and that requires an investment in programs, many of them public-private partnerships, to train or retrain individuals.

The Trump administration and other Republicans are arguing that by providing one of the largest tax cuts in history, the tax cuts will pay for themselves. But as conservative columnist Kevin Williamson wrote in The National Review, “There is very little evidence to support this theory.”

Williamson notes that one of the architects of the famous Reagan tax cuts in 1981, Bruce Bartlett, said they knew that the tax cuts would only generate $1 in federal revenue for every $3 in tax cuts and that in the short-term, “knew we would lose $1 of revenue for $1 tax cut.” In other words, tax cuts, particularly large broad-based ones that do not have targeted purposes, do not increase federal revenue. Americans seem to forget that there was a recession during Reagan’s presidency and that he later raised taxes. In September of 1982 the unemployment rate was 10.1 nationwide and, was in part of the “deepest post-World War II economic downturn” this country has had outside of the recent Great Recession. As for taxes, CNN Money reported, “All told, the tax increases Reagan approved ended up canceling out much of the reduction in tax revenue that resulted from his 1981 legislation.”

The other point looming large here is the federal debt, which is currently $20.203 trillion and is projected to grow to $24.2 trillion by the end of fiscal year 2018. The federal debt per person in the U.S. is $61,917.

And those figures do not include natural disasters or the massive amount of infrastructure that needs to be undertaken in this country. A conservative estimate of the damage caused by hurricanes Harvey, Irma and Maria in Texas, Florida, Puerto Rico and other U.S. territories in the Caribbean is $200 billion. The U.S. government will not pick up the tab for all of those repairs, but the costs also could be much higher. In addition, there are reports that the National Flood Insurance Program was already $24 billion in debt before those hurricanes hit.

Then there is the need to enhance our infrastructure nationwide. According to the American Society of Civil Engineers, U.S. infrastructure needs an investment of $3.6 trillion by 2020. If that figure were to be met without a commensurate increase in federal revenue, the national debt would increase to $28 trillion or more by the end of the decade.

“If you really want to eventually eliminate those deficits and pay down that debt, then you either have to raise taxes in the future, cut spending or do both,” wrote Williamson.

If a fiscally responsible family were in the same situation as the federal government, the head of the household would repair any problems with the house and pay down their debt, not give the children more money to go out and spend, thus increasing their own debt and letting the house rot away.

To cut federal taxes now is just another political ploy, a “feel good” move that will not significantly impact unemployment, could well increase inflation and borrowing costs, and will only add to the national debt. Chances are that in the long-term it will do us much more harm than good.


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