In a new piece published at Project Syndicate, the conservative economist, who led President Reagan’s Council of Economic Advisers from 1982 to 1984, writes that pro-growth tax individual and corporate reform will get done — and that any resulting spike in the budget deficit will be temporary:
“Although the net tax changes may widen the budget deficit in the short term, the incentive effects of lower tax rates and the increased accumulation of capital will mean faster economic growth and higher real incomes, both of which will cause rising taxable incomes and lower long-term deficits.”
Doing tax reform through reconciliation — allowing it to be passed by a simple majority in the Senate, as long as it doesn’t add to the deficit after 10 years — is another key. “By designing the tax and spending rules accordingly and phasing in future revenue increases, the Republicans can achieve the needed long-term surpluses,” Feldstein argues.
Of course, the big questions remain whether tax and spending changes are really designed as Feldstein describes — and whether “future revenue increases” ever come to fruition. Otherwise, those “long-term surpluses” Feldstein says we need won’t ever materialize.
President Trump’s 2020 budget includes up to $1.2 trillion in “potentially phantom revenues” — money that comes from taxes the administration opposes or from tax hikes that face strong opposition from businesses, The Wall Street Journal’s Richard Rubin reports, citing data from the Committee for a Responsible Federal Budget. That total, covering 2020 through 2029, includes as much as $390 billion in taxes created under the Affordable Care Act, which the president wants to repeal.
The $1.2 trillion in questionable revenue projections is in addition to the White House budget’s projected deficits of $7.3 trillion for the 10-year period. That total is itself questionable, given that the president’s budget relies on optimistic assumptions about economic growth and some unrealistic spending cuts, meaning that the deficits could be significantly higher than projected.
Ben Ritz of the Progressive Policy Institute slams President Trump’s new budget:
“It would dismantle public investments that lay the foundation for economic growth, resulting in less innovation. It would shred the social safety net, resulting in more poverty. It would rip away access to affordable health care, resulting in more disease. It would cut taxes for the rich, resulting in more income inequality. It would bloat the defense budget, resulting in more wasteful spending. And all this would add up to a higher national debt than the policies in President Obama’s final budget proposal.”
Here’s Ritz’s breakdown of Trump’s proposed spending cuts to public investment in areas such as infrastructure, education and scientific research:
Since roughly the end of World War Two, individual income taxes in the U.S. have equaled about 8 percent of GDP. By contrast, the Tax Policy Center says, “corporate income tax revenues declined from 6% of GDP in 1950s to under 2% in the 1980s through the Great Recession, and have averaged 1.4% of GDP since then.”
Smaller refunds in the first few weeks of the current tax season were shaping up to be a political problem for Republicans, but new data from the IRS shows that the value of refund checks has snapped back and is now running 1.3 percent higher than last year. The average refund through February 23 last year was $3,103, while the average refund through February 22 of 2019 was $3,143 – a difference of $40. The chart below from J.P. Morgan shows how refunds performed over the last 3 years.