Thursday, September 28, 2017

A Tax Cut That Eats Itself, While We Get Squat

Talk about your fuzzy math. There's a hitch in yer giddyup in the GOP tax plan. Krugman explains.

OK, fine, I get a big tax cut. So what's your point?

Paul Krugman offers yet another reason why cutting taxes now makes no sense.
Actually, two reasons. First, tax cuts are supposed to spur growth by increasing the amount of an increment in income someone can keep for himself or herself. When you start from 70% taxation, cutting the rate 1 percent raises the take-home component by 1/30, or more than 3%. When you start from 39.6%, the same size cut raises the take-home slice by 1/60, or half as much. In other words, we’d expect the incentive effects of a given tax cut now to be only half what they were under Reagan.

And suppose for the sake of argument that you do get some extra growth. How much of this feeds back into higher revenue? That depends on the marginal tax rate — which is much lower now, only a bit more than half, than it was in 1981.
Gee, never thought of that, the part about extra growth causing higher tax revenue -- likely won't -- that is hard to capture with an marginal tax rate now too low to scoop up much new revenue. Tax cuts eating their own tail, so to speak.

As Krugman also points out, the GOP has a superpower for selling such nonsense. It's called lying.

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