I recently got into a debate on Trickle Down Economics with a good friend - Again. Let's just call this person Goodfriend to make it easier to read the below.
The debate was precipitated by a Twitter post from
Alec MacGillis
@AlecMacGillis
Deep in the post was the primary article by WSJ writer Galston here
This was mostly a memorial to the Ford exec Arjay Miller that looks at his job in the long term.
The point I wished to pursue was that trickle down will not work and therefore any tax cuts will only go to the wealthy.
My detailed reply to Goodfriend
1-The premise of the article is that because the top 15 executives did this the policy failed. But what time period is he looking at? If it is the Reagan (bi partisan) tax cut, then that was a huge success.
2- Our current Corp. tax rate is uncompetitive. Highest in the word and we tax income internationally/worldwide so if Coke makes $ in China we tax them as if that coke was sold in the US. This creates a cash horde overseas. All other countries tax in the country. This is known as a territorial taxation system. For example Samsung does not get taxed on TVs sold in the US.
3- It might take a few years to see a benefit. CEOs should be free to invest in the US or not if that works for them.
4- Even if the overseas money goes to execs, shareholders and dividends a lot of that money will find its way into the economy and produce benefits. Better than it staying offshore and doing nothing for the country.
5- Trickle Down is the Dem epithet for the free market economy where benefits flow to all when there is economic freedom.
The reply from Goodfriend to this was as follows
There’s no proof that the money goes back into the economy, while there is proof the money gets stuck overseas or in their accounts or used to buy more shares of their corp
If there is proof I’d love to see it also, I'd be curious to hear how raising taxes on lower and middle income Americans to pay for corporate taxes cuts results in more money in the economy, because lower and middle income people are the ones that would immediately spend it and put it back in the economy, likely in their own communities rather than offshore accounts or traded to other already wealthy people.
My reply to Goodfriend
http://www.heritage.org/node/18247/print-display
Rather than a discussion of the above article I got another article to read
https://www.brookings.edu/wp-content/uploads/2016/06/09_Effects_Income_Tax_Changes_Economic_Growth_Gale_Samwick.pdf
This sort of sending articles back and forth doesn't give the time to actually debate one topic. I don't like it as it puts off the actual debate.
Rather than argue how to debate I am going to respond to the article by Brookings and then refer back to the proof I was requested to provide in the Heritage piece.
Here are the points raised and my responses.
1) this seems to be a better argued and researched paper on the topic
REPLY: In the abstract and saw this section.
" if the tax cuts are not financed by immediate spending cuts they will likely also result in an increased federal budget deficit"
This follows many of the left's criticisms. I find it a bit to strict because there is no allowance for increased economic growth due to lower taxes and less regulation.
The CBO does not, by mandate, speculate on growth as a result of policy. The CBO and many on the left treats tax cuts based on a fixed income assumptions.
There are so many caveats in this article it is hard to know where to begin. For example:
" A fair assessment would conclude that well designed tax policies have the potential to raise economic growth, but there are many stumbling blocks along the way and certainly no guarantee that all tax changes will improve economic performance."
Economics is almost impossible to test due to business cycles, wars, consumer mood you name it.
What I sent you was an abstract from a speech, not a policy paper. The economic growth in jobs, GDP and (ironically) government revenues is the proof you asked for. There were three distinct periods where tax cuts for the rich did help the poor and the overall economy. The all ships rise on a incoming tide arguement. In the 1920s, the tax cuts from 70% to 25%, Kennedy tax reduction from 90% down to 70% and Reagan tax cuts in in 1981 from 70% to 50% and again in 1986 to 28%.
2) I’m in favor of tax cuts but i think that it’s disingenuous to argue that corporate tax cuts will boost the economy if it is paired with tax increases to the lower and middle class, it may be good for the stock market but that’s not the same thing as being good for the economy. GDP can go up masking long term problems of income inequality. It seems to me like this tax plan is sure way to increase the already high wealth gap in our country
REPLY: Disingenuous is a synonym for dishonest. The honesty of the intentions should be assumed until proven otherwise.
I don't think that the pairing is necessarily the main point of this tax reform. The first thing to solve is our corporate tax rate. We have the world's highest corporate tax rate and it is riddled with special carve outs and exemptions that only some industries receive. The stock market is a barometer that tells what people think may happen. Growth in the economy (profits and jobs and personal income) follows the market by a year or two. If tax reform does not pass expect a big market decline. If it passes expect a large advance.
Income inequality cannot be solved easily nor should government take radical steps to do so as unintended consequences will surely flow. The Obama administration from 2010 to 20018 sought to reduce income inequality and instead it increased greatly while giving around zero wage growth to the middle and lower income classes. The main points of the paper I provided show that government revenue actually grows with lower tax rates and also that the share paid by the wealthy increases relative to the burden on the middle class. Counter intuitive but that's what happened in each of these periods.
More recently Clinton cut the capital gains rate and, guess what, government revenue climbed. I watched an ABC debate (Hillary versus Obama) where Charlie Gibson asked the candidate if he would raise the capital gains tax on the wealthy, even if this policy resulted in lower revenue for the government. Obama answered: “I would look at raising the capital gains tax for purposes of fairness.” It was that point that I knew he was an idiot and could not be trusted. Up to that point I had been a admirer. I loved his keynote speech at the Dem convention when he made his debut; "there's not a liberal America and a conservative America - there's the United States of America". That turned out to be truly Disingenuous.
I recommend this WAPO opinion piece for background on fairness and Obamas 2008 debate position on tax fairness regardless of the cost.
Final point - I just saw a interview with Steve Mnuchin (Fox New Sunday). He spoke on corporate tax rates being lowered as well as changing the US Corporate tax system from an International basis to a territorial basis. He said these HAVE to be permanent otherwise they will have no effect on corporate behavior. Because of the Byrd rule in the senate and the politics of reconciliation (where only 51 votes are required) the personal rates have to last only until 2025 when hopefully, if the economy grows, they can become permanent which takes 60 votes. A quick search on this VERY IMPORTANT FACT does not show it at all or if it does it shows it in an exclusively negative light. After all it is the Dems lock step refusal to participate in the process that makes this a problem. More people know about his wife than about the facts surrounding tax reform. Thanks Google Search for showing what is really important.
This July Brookings article is instructive.
https://www.brookings.edu/opinions/can-republicans-thread-the-needle-on-tax-policy/
It shows how difficult this will be to do, especially with not all 52 Republicans actually Republicans. Imagine the party of lower taxes voting to NOT lower taxes.
