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President Trump’s Tax Plan: a Disaster for the Economy

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Trumps new tax plan looks a lot like Gov. Brownback’s tax plan for Kansas, which had been disastrous for the state’s economy.  It is based on Laffer’s curve which is displayed at the right.

The Laffer curve looks like a normal distribution curve. If the nation is on the high side of the curve with taxes around 80%, then the curve predicts that cutting taxes will cause a move to the left along the curve to increased tax revenue. That is likely to improve economic growth.  If the nation is on the low side of the curve with taxes around 40%, then cutting them will lead to the left along the curve, toward decreasing tax revenue. That  likely leads to a stagnating economy, and certainly greater public debt.

We are now on the low side – so cutting taxes will not lead to increased revenue or spur economic growth. Laffer should know that, but he has abandoned reason and professional ethics and now just supports tax cuts without reference to his own curve. Kansas paid Laffer $75,000 in consultation fees. Here is how it has worked out in Kansas as described by Duane Goossen, who was the Kansas budget director for 12 years prior to Brownback’s experiment:

  • “Just like the Brownback tax cuts, the Trump plan makes dramatic changes to tax policy by consolidating income tax rates and reworking deductions. Most notably, the Trump plan offers an enormous tax break to individuals who receive “business pass through income.” In Kansas this feature has become known derogatorily as the “LLC loophole”, allowing business income to be sheltered from income tax while people who earn a paycheck must pay tax.
  • Given that the same economists who advised Brownback now advise Trump, it’s unsurprising that his administration uses similar arguments to sell its plan: the tax cuts will grow the economy and create millions of jobs; the tax cuts will pay for themselves; everyone will benefit. Brownback said all that, too.
  •  But after five years of the Brownback experiment in Kansas, we know the real result. Kansas has an anemic economy and one of the lowest rates of job growth in the nation. A dramatic drop in revenue broke the state budget, wiped out reserves, significantly boosted state debt, and put public education at risk. And that part about everyone benefiting — well, it turns out that the bulk of the benefits went to the wealthiest Kansans while the tax bill to low-income Kansans went up.
  • The idea that tax cuts will “pay for themselves” or that tax cuts for the wealthy will “trickle down” to the middle class should be added to the list of discredited ideas that sound good but don’t work. The sell job was seductive, but Kansans have the raw experience to grasp that the experiment carried out on us was a failure.
  • Do you know how hard Kansas legislators must labor now to fix the financial disaster? Are you catching on that general fund revenue has fallen $1 billion below expenses? Can you see how all political energy goes into crisis management rather than building our future? Is that what you want for the entire country?”

From : http://www.kansas.com/opinion/opn-columns-blogs/article151800857.html

Note added on 11/05/2017: The Eisenhower Memorial is now being built and the Kansas state politicians are using it as a chance to praise Eisenhower for his great leadership. However, they should have learned the lessons from Eisenhower’s leadership. Eisenhower was a great General and President because he realized that it required requisite resources to get the job done. Under Eisenhower, the top tax rate was 90%. Eisenhower used the money to pay our war debts, rebuild Europe, educate returning GIs, and build the national highway system which ensured economic growth for decades to come.

Our current Republican tax plan will add trillions to the national debt and will not provide the resources needed to take care of the needs of our country and build for the future. It is being sold as a tax cut for the middle class, when most of the benefits go to those already wealthy We certainly do not need a 90% tax rate, but the tax rate we now have is already too low, and cutting taxes further will lead to economic stagnation and an increased national debt, both things which are repugnant to Republicans.

Note added on 11/09/2017:The Republican tax plan is taking shape. The big winners will be corporations and those already wealthy. Though billed as a tax cut for the middle class, the five biggest losers will be:
1. Middle class taxpayers. They receive a small rate cut but will lose many of the deductions they rely on.
2. Teachers. They will no longer be allowed to deduct school supplies paid for from their own pocket.
3. College students. The amount of deductible student debt interest has been cut from $2500 to $202 and graduate students will now be taxed on research and teaching assistantships.
4. Mortgage holders. The home mortgage interest deduction will be cut about in half and there is now a limit on how much taxpayers can deduct for state and local property taxes.
5. Charities. A higher standard deduction reduces the number of people who will itemize and claim charitable deductions.


(c) 2017 J.C. Moore

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