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As I pointed out yesterday, the projection of an investment boom was never very plausible in any case, but for it to make any sense at all, the tax cuts have to be permanent.

"As I pointed out yesterday, the projection of an investment boom was never very plausible in any case, but for it to make any sense at all, the tax cuts have to be permanent." (Photo:  Yuri Keegstra/Flickr/cc)

Republican Tax Plan Goes for Temporary Cuts and Permanent Lies

The claim of a $1.5 trillion growth dividend can be seen for what it is: a number snatched out of the air to claim the tax cut won't increase the deficit.

The Washington Post reported that Republicans in Congress are now considering making their tax cuts temporary, so as to reduce their cost over the 10-year budget horizon. The paper neglected to mention that this change would completely undermine the basis for the claim that the tax cut will lead to boom in investment and growth.

This alleged boom is the basis for both the claim that the average family would get $4,000 from the tax cut and that additional growth would generate $1.5 trillion in revenue over the next decade. As I pointed out yesterday, the projection of an investment boom was never very plausible in any case, but for it to make any sense at all, the tax cuts have to be permanent. 

The Republicans' argument was that lower tax rates would increase the incentive for companies to invest. But if companies anticipate that the tax rate will return to its current level after a relatively short period of time, then the tax cut will provide little incentive. This means there is no basis for the assumption of a boom.

In the case of a temporary tax cut, the claim that average families will see a $4,000 dividend from higher pay makes no sense. And the claim of a $1.5 trillion growth dividend can be seen for what it is: a number snatched out of the air to claim the tax cut won't increase the deficit. 


This work is licensed under a Creative Commons Attribution 4.0 International License
Dean Baker

Dean Baker

Dean Baker is the co-founder and the senior economist of the Center for Economic and Policy Research (CEPR). He is the author of several books, including "Getting Back to Full Employment: A Better bargain for Working People,"  "The End of Loser Liberalism: Making Markets Progressive,"  "The United States Since 1980," "Social Security: The Phony Crisis" (with Mark Weisbrot), and "The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer." He also has a blog, "Beat the Press," where he discusses the media's coverage of economic issues.

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