Trend Lines

Conservative orthodoxy says that tax cuts always pay for themselves. Unfortunately, there is little empirical evidence to support that. Other than ideologues, few economists believe that recent U.S. tax cuts will pay for themselves. Solid, empirical research suggests that perhaps 35%-40% of the revenue lost from rate cuts could be offset by growth effects. Again, as I have said in prior posts, the best that can be said is that corporate tax cuts lose less money over time.

There are good reasons for cutting taxes and the U.S. corporate rate needed to be cut. But the case for setting tax rates at their lowest possible levels to maximize economic growth, while not increasing public debt, and still providing needed tax funded services is weakened, I believe, when ideologues argue that tax cuts always increase revenues or pay for themselves. Ideologues argued that the recent federal corporate rate cut would pay for itself and incentives to “repatriate” overseas profits would offset the rate drop. Six months into the rate cut corporate tax revenues are down 20% to 30% depending on the metric used, with no signs of improving, and with the U.S. deficit hurtling toward $1 trillion faster than expected.

This entry was posted on July 31, 2018 at 12:15 pm and is filed under Federal Deficit, Fiscal Policy, tax cuts, Tax Revenue, Uncategorized. You can subscribe via RSS 2.0 feed to this post's comments.

Tags: corporate tax cut, corporate tax rates, federal debt, federal deficit