It seems as if the Senate GOP has made a rather sensible decision concerning tax reform. The Republicans decided to accept a net tax cut of $1.5 trillion dollars over ten years in order to boost economic growth. That, at least, is how the NY Times describes it. According to the Times, the Republicans are ignoring our huge national debt and accepting that it will grow by 1.5 trillion bucks due to their "risky" tax cuts. Of course, that's a highly partisan view of the decision by a Democrat paper that is doing its best to put the decision in a bad light.
Let's look at reality. The tax cuts will only total $1.5 trillion if they get scored by the CBO using static methods. The point of the tax cuts is to grow the economy more rapidly, but the CBO method assumes that there will be NO increase in growth due to these cuts. That's like turning on the oven to 450 degrees and then assuming that the inside of the oven will remain cold. The reality should be quite different. In fact, if the tax cuts lead to an additional 1% in the annual growth rate over the next decade, federal tax receipts should be about $350 billion higher in year ten than projected by the CBO. In fact, over the ten year period, the extra growth will be sufficient to pay for the tax cuts.
The problem, it seems, is the outmoded methodology of the CBO rather than the scope of the tax cuts. Most likely, however, the Senate will be stuck with the CBO's method when it comes to scoring. That will lead to the tax cuts being only "temporary". In other words, they can only be put into effect for ten years. Of course, ten years is like a lifetime in the world of taxation. Businesses usually use a shorter time from when analyzing investments, so ten years is the same as forever in that regard. Even real estate developers, who have perhaps the longest time horizon of any business use a ten year span for valuations. Even more important, most businesses understand that it would be foolish to assume that taxes will stay the same over the next ten years. They change all the time. There have been significant changes in tax rates, deductions and the like periodically over the last 40 years. Ten year limitations on new tax rates, etc. really won't make much of a difference in that regard.
Let's look at reality. The tax cuts will only total $1.5 trillion if they get scored by the CBO using static methods. The point of the tax cuts is to grow the economy more rapidly, but the CBO method assumes that there will be NO increase in growth due to these cuts. That's like turning on the oven to 450 degrees and then assuming that the inside of the oven will remain cold. The reality should be quite different. In fact, if the tax cuts lead to an additional 1% in the annual growth rate over the next decade, federal tax receipts should be about $350 billion higher in year ten than projected by the CBO. In fact, over the ten year period, the extra growth will be sufficient to pay for the tax cuts.
The problem, it seems, is the outmoded methodology of the CBO rather than the scope of the tax cuts. Most likely, however, the Senate will be stuck with the CBO's method when it comes to scoring. That will lead to the tax cuts being only "temporary". In other words, they can only be put into effect for ten years. Of course, ten years is like a lifetime in the world of taxation. Businesses usually use a shorter time from when analyzing investments, so ten years is the same as forever in that regard. Even real estate developers, who have perhaps the longest time horizon of any business use a ten year span for valuations. Even more important, most businesses understand that it would be foolish to assume that taxes will stay the same over the next ten years. They change all the time. There have been significant changes in tax rates, deductions and the like periodically over the last 40 years. Ten year limitations on new tax rates, etc. really won't make much of a difference in that regard.
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