'Truly Dumb': Why $2.4 Trillion Corporate Tax Cut Will Not Magically Pay for Itself

"Not to put too fine a point on it, this is false" writes Jared Bernstein in response to claims by Trump's Treasury Secretary claims that $2.4 trillion corporate tax cut will magically pay for itself. (Photo: Timothy Krause/cc/flickr)

'Truly Dumb': Why $2.4 Trillion Corporate Tax Cut Will Not Magically Pay for Itself

Economists and tax experts push back against White House reported plan to slash corporate rate by 60 percent

With reports that President Donald Trump wants to slash the corporate tax rate by 60 percent and Treasury Secretary Steven Mnuchin claiming widespread cuts for the nation's wealthy and powerful will magically pay for themselves, progressive economists and tax experts are issuing early warnings that this is simply the latest attempt by Republicans to pull the wool over the eyes of average American taxpayers.

With more details expected during an offical White House announcement on Wednesday, numerous outlets have already reported that Trump will tout cutting the corporate tax rate from its current 35 percent down to an even more paltry 15 percent. As is well known and repeatedly documented, even the 35 percent official rate is largely a mythical number that few U.S. corporations actually pay.

Asked over the weekend how Trump's tax giveaways for the corporations and high-income individuals would not lead to a rapid increase in the nation's annual budget shortfall, Mnuchin on Monday said that economic growth spurred by the cuts would be enough to stave off an increase in the deficit.

But as noted by Jared Bernstein, economist with the Center on Budget and Policy Priorities (CBPP), Mnuchin's claim that a massive corporate tax cut by Trump would "pay for itself" is just the latest peddling of a myth long ago disproved. "Not to put too fine a point on it," Bernstein wrote, "this is false."

Specifically, Bernstein attacked the practice known as "dynamic scoring," by which lofty economic projections are made about the impact of tax cuts on spending, growth, etc. But these kind of optimistic projections--the promotion of which he characterizes as "dynamic scoring abuse"--proved nonexistent after similar tax cuts were pushed through by the Reagan administration in the 1980s. Promises of outsized growth were equally absent following the massive tax cuts to the rich delivered under former president George W. Bush.

Former Labor Secretary and economist Robert Reich, meanwhile, characterized a 15 percent corporate tax cut as "truly dumb."

According to estimates by the Urban-Brookings Tax Policy Center, a 15 percent corporate tax rate would blow a $2.4 trillion hole in generated revenue over 10 years. Roberton Williams, an expert with the Tax Policy Center, told Bloomberg that's a "big number" and a massive deficit generator unless you raise taxes elsewhere or enact massive spending cuts on key social programs. As a report from the CBPP last week noted:

To deal with [the nation's] budgetary pressures, any plan to reform the federal tax system should aim to increase revenues -- as virtually all bipartisan deficit-reduction commissions of recent years, and the Senate's Gang of Six in 2011, have called for. Otherwise, the entire burden of reducing the deficit to prevent unsustainable debt levels will fall on federal programs, including Social Security and Medicare. Programs for low- and middle-income households shouldn't be cut to pay for tax cuts favoring those at the top of the income scale.

Williams pushed back against claims that economic growth alone would make up the massive revenue shortfall created by cutting the corporate rate. "History belies that," he told Bloomberg. "We haven't seen tax cuts that actually pay for themselves."

While acknowledging he has not even seen the administration's full set of tax proposals, Bernstrein said, "I can assure that it will not pay for itself.... no tax cuts do that."

And while Josh Bivens at the Economic Policy Institute recently warned people to be wary of "fear-mongering about deficits," he argued that opposition to cutting tax rates for wealthy households and corporations should remain a focus of progressives. Whatever the details of the Trump/GOP tax proposal might be, Bivens urged people to keep these two principles in mind:

  • Stand firm against any plan that includes net tax cuts for high-income households and corporations. This means rejecting plans that include net tax cuts for high-income households and corporations but also offer crumbs to progressives, either in the form of "middle-class tax cuts" or infrastructure spending.
  • Resist the urge to base opposition to tax cuts for high-income households on concerns about increasing the federal budget deficit.

"Some Democrats in Congress," warned Bivens, "might seek to avoid being labeled the 'party of no' by trying to strike a deal on taxes." But, he added, "It is almost inconceivable that any deal driven by the Republican majority will not include large tax cuts for the richest households and/or corporations. Given this, hopes for an acceptable deal should be very low."

Finally, noted Bivens, nobody should be fooled that offering a modest middle-class tax cut would be a worthy exchange for a massive corporate giveaway such as the 15 percent rate. Noting that it is stagnant wages and other factors--not an oversized tax burden--that is most harming U.S. workers and families, Bivens wrote that, "At some point, policymakers genuinely concerned about boosting incomes for middle-class families will have to realize that middle-class tax rates are a pathetically weak lever to pull, and they should move on to other policies that will actually help these families."

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