Trumponomics

For a long time Republicans (and some Democrats) have talked about tax reform. The basic idea is to lower rates by eliminating deductions. Now the focus is on tax cuts. I’m not opposed to them per se but both parties need to remember that any decrease in revenue or increase in spending means more borrowing, likely into perpetuity. Right now interest rates are low but I remember the days of 16% mortgages. We are already putting a huge burden on future generations.

It is an article of faith among many Republicans that tax cuts will actually increase revenue because of increased economic growth. Carrying that argument to its logical conclusion means that we can maximize revenue by eliminating all taxes.
Even if the theory did work, a general tax cut is a very inefficient way of spurring the economy. Struggling businesses won’t be helped since they don’t pay taxes. Many large companies have plenty of cash already (Google has over $80 billion) so the tax reduction won’t be spent. Since the vast majority of personal income taxes are paid by the higher middle and upper classes, they will get most of the reductions and will likely just put it into savings. Many poorer people will use them to pay off debt. This approach is like scattering seeds randomly. Some will end up in fields but most of it will fall on forests, lakes, highways etc.

A much better approach is to focus on the activities that directly lead to economic expansion. These could include increased deductions for business expansion or credits for new hires. There are also ways to incentivize individuals as well.
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If everyone in Washington would develop solutions rather than relying on tired old beliefs that don’t work, it’s amazing what they could accomplish.  
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