Speaking and Debating About Tax Cuts

Trump ran on a platform of tax cuts and was recorded at a private dinner telling the people there that he would lower their taxes.
In the US, the percentage of tax the government collects is always a big issue for a couple of reasons —
(a) Size of government. Large tax revenues enable the government to provide more social programs, such as Medicare, Social Security, Health care, and many other social services. Liberals support a large government role in such programs. Conservatives view such programs as ineffective, as discouraging work, and as (essentially) taking money from Peter to give to Paul.
(b) Economic growth. Conservatives think such programs take money way from companies and individuals who would otherwise spend the money in the economy, including purchasing more goods, hiring more workers, and making general investments. Liberals doubt the relationship between lower taxes and growth, arguing that any growth that does happen leads to the wealthy pocketing the gains. They also think that social spending can stimulate the economy.
Although Trump and the Republicans do not yet have a tax cut proposal prepared, there are a number of different elements of a proposal that you should be prepared to speak and debate about.
Corporate tax cuts. The US corporate tax rate (35%) is the highest in the world. Trump has been pushing to lower the rate to 15%. Republicans in general want to make it 20%. Conservatives argue this tax cut will stimulate the economy and investment. Liberals argue 35% tax rate is needed to fund social programs.
Middle class tax cuts. Although middle class tax rates are not especially high, middle class Americans would obviously like them lowered, though they benefit from many of the social programs that are funded by higher rates.
Basically, advocates of tax reform claim it will stimulate the economy –
Jamie Dimon is the CEO and chairman of JPMorgan Chase & Co. and the chairman of the Business Roundtable, 8-30-17, USA Today, https://www.usatoday.com/story/opinion/2017/08/30/spur-lagging-competition-industry-growth-america-needs-tackle-tax-reform/612713001/
Reforming the tax code is the single most important thing that Congress could do to jump-start our economy, create jobs, and raise wages for American workers. Our current code is uncompetitive, overly complex and loaded with special interest provisions that unfairly create winners and losers. This drives down capital investment, reduces productivity and causes wages to remain stagnant. Individuals and businesses continue to waste billions of dollars and millions of hours each year trying to figure out their tax bills — instead of spending more time with their families, or thinking about how to innovate and expand. Our corporate tax rate is the highest in the developed world. It has led to more American businesses being acquired by foreigners or struggling to keep pace with their foreign competitors. This means headquarter jobs are going to overseas cities instead of American cities. Our uncompetitive system has trapped more than $2.5 trillion overseas because American companies are penalized for bringing profits back by our high U.S. corporate tax rate, boosting other countries at the expense of our own. This isn’t about helping companies like JPMorgan Chase. Yes, tax reform will help American companies become more competitive, but the real reason to do it is to increase jobs and increase wages. Under our current corporate tax system, workers bear up to 75% of the corporate tax burden through lower wages. I believe that tax reform should go further than that to boost wages. It should also be used to do more for lower- and middle-income workers by expanding programs such as the earned income tax credit, which already lifts more than 7.3 million workers out of poverty. Policymakers have a once in a lifetime chance to fix the tax code, and there are real consequences for failure. A recent survey of Business Roundtable CEOs found 90% believed that any delay in tax reform would harm the economy by causing slower growth, hiring and investment. The other side of that coin is that 76% of CEOs would increase hiring if Congress was successful in passing tax reform.
Opponents disagree —
Sarah Anderson, director of the Global Economy Project at the Institute for Policy Studies, 8-30-17, New York Times, It’s a myth that corporate tax cuts mean more jobs, https://www.nytimes.com/2017/08/30/opinion/corporate-tax-cuts-jobs.html
According to the Institute on Taxation and Economic Policy, AT&T enjoyed an effective tax rate of just 8 percent between 2008 and 2015, despite recording a profit in the United States each year, by exploiting tax breaks and loopholes. (The company argues that it pays significant taxes, at a rate close to 34 percent in recent years, but that includes deferred taxes and state and local levies.) Despite the enormous savings AT&T has realized, the company has been downsizing. Although it hires thousands of people a year, the company, by our analysis at the Institute for Policy Studies, reduced its total work force by nearly 80,000 jobs between 2008 and 2016, accounting for acquisitions and spinoffs each involving more than 2,000 workers. The company has also spent $34 billion repurchasing its own stock since 2008, according to our institute report, a maneuver that artificially inflates the value of a company’s shares. This is money that could have gone toward research and development or hiring. Companies buy back their stock for various reasons — to take advantage of undervaluation, to reward stockholders by increasing the value of their shares or to make the company look more attractive to investors. And there is another reason. Because most executive compensation these days is based on stock value, higher share prices can raise the compensation of chief executives and other top company officials. Since 2008, Mr. Stephenson has cashed in $124 million in stock options and grants. Many other large American corporations have also been playing the tax break and loophole game. Their huge tax savings have enriched executives but not created significant numbers of new jobs. Our report analyzes the 92 publicly held American corporations that reported a profit in the United States every year from 2008 through 2015 and paid less than 20 percent of their earnings in federal income tax. We chose this particular tax threshold because, as Mr. Stephenson mentioned, House Republicans are proposing to reduce the federal statutory corporate tax rate to 20 percent, down from the current 35 percent. President Trump wants an even deeper cut, down to 15 percent. If claims about the job-creation benefits of lower tax rates had any validity, these 92 consistently profitable firms would be among the nation’s strongest job creators. Instead, we found just the opposite. The companies we reviewed had a median job-growth rate over the past nine years of nearly negative 1 percent, compared with 6 percent for the private sector as a whole. Of those 92 companies, 48 got rid of a combined total of 483,000 jobs. At the companies that cut jobs, chief executives’ pay last year averaged nearly $15 million, compared with the $13 million average for S&P 500 companies. Instead of tax-rate cuts for these big corporations, the coming tax debate in Congress should focus on making wealthy individuals and big corporations pay their fair share. American multinationals hold $2.6 trillion in profits “offshore,” on which they would owe $750 billion in federal taxes if the money was repatriated. In most cases, these foreign profit stashes are merely an accounting fiction. Companies retain full access to these funds for use in the United States and could, if their executives so chose, use them to create jobs here. Ordinary Americans have to pay all the taxes they owe each and every year. Offshore corporations should be required to do the same. Beyond closing loopholes, we need to explore new ways to raise revenue fairly, including a tax on Wall Street speculation. Most of us already pay a sales tax on gasoline, clothes and other basics. Why should hedge fund investors and other Wall Street traders pay no tax at all when they engage in short-term buying and selling of millions of dollars’ worth of stocks and derivatives? A fee of just a small fraction of 1 percent on each Wall Street trade would encourage longer-term investment while generating huge revenue for real job creation.
One problem with tax cuts is that they could increase the deficit —
Jennifer Rubin, 9-2-17, Rubin writes the Right Turn blog for The Washington Post, offering reported opinion from a conservative perspective, Central Mine. Commentary: Go Conservative on Tax Cuts, https://www.centralmaine.com/2017/09/02/go-conservative-on-tax-cuts/
First, the damage from skyrocketing debt should deter debt-adding tax cuts. As a share of the economy, debt held by the public is currently 77 percent of Gross Domestic Product (GDP), which is higher than it’s been since the end of World War II and nearly twice the average of the last half-century. On its current path, debt will exceed the size of the economy by 2033 and exceed 150 percent of GDP by 2047. High and rising debt threatens economic and wage growth, the government’s ability to respond to new challenges, and the nation’s fiscal sustainability. Policymakers need to reduce the debt, not add to it.
The cuts are unlikely to stimulate growth to reduce the deficit
Jennifer Rubin, 9-2-17, Rubin writes the Right Turn blog for The Washington Post, offering reported opinion from a conservative perspective, Central Mine. Commentary: Go Conservative on Tax Cuts, https://www.centralmaine.com/2017/09/02/go-conservative-on-tax-cuts/
Third, whatever you hear from the administration, remember that tax cuts do not pay for themselves:
While well-designed tax cuts can promote economic growth that leads to more revenue, there is no realistic scenario that this “dynamic revenue” will be as large as the initial tax cut. In order for a tax cut to pay for itself, it would need to grow the economy about $4 to $6 for every dollar of revenue loss. There is no historical case of a tax cut achieving this goal. Economic analysis has shown that tax cuts can only pay for themselves when the top federal rate is much higher than it is today — many economists believe the top rate would need to be above 60 percent. At best, the dynamic revenues from growth could pay for a fraction of the tax cut’s cost. Given our fiscal situation, tax cuts should be fully paid for without dynamic revenue so that the gains from economic growth can be used to address our mounting debt.
And since the economy is fine now, there is really no economic grain to be had from a tax cut –
Jennifer Rubin, 9-2-17, Rubin writes the Right Turn blog for The Washington Post, offering reported opinion from a conservative perspective, Central Mine. Commentary: Go Conservative on Tax Cuts, https://www.centralmaine.com/2017/09/02/go-conservative-on-tax-cuts/
Moreover, since the economy is humming along and unemployment is low, we’d argue that the harm from the debt increased by unpaid-for tax cuts outweighs any benefit we’d derive from the cuts. Given that this administration has no desire to produce entitlement reform and that we will need to pay for Harvey rebuilding, there’s no reason to ladle on even more debt.
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