I need to disagree with the editors of the Wall Street Journal on this one. They write, in criticism of President Trump’s recent remarks on abolishing FICA:
Does anybody in politics understand tax policy these days? The Biden-Harris Democrats want to raise tax rates to Thomas Piketty French socialist levels. Republicans want to cut taxes, but they want to do so for specific groups to buy their votes. They’ve all lost the growth plot.
Mr. Trump’s tax fumbling is especially disappointing because his 2017 cut in tax rates was the policy foundation for the strong pre-pandemic U.S. economy. But so far in this campaign he’s proposing hugely expensive tax cuts for different voting groups that won’t do much for growth.
My specific disagreements are:
- That there was a boom at all between 2017 and the 4th quarter of 2019 and
- That cuts in the personal income tax had much to do with GDP growth
Courtesy of the St. Louis Federal Reserve here’s a graph of GDP growth:
and here’s a graph of private investment:
What I see in both of those graphs, noisy as the BI graph is, is a continuation of trend. That’s even clearer when you look at GDP in constant dollars:
It’s even more obvious when you look at real personal consumption expenditures:
Back in 2017 I argued in favor of the cut in the corporate income tax but against the cut in the personal income tax and my reasoning at the time has been completely borne out. The really interesting thing in the graphs above is that the Trump tax cuts did not produce more inflation than they did. Could that be because of the shutdowns?
If your plan is to increase GDP by injecting money into the economy (and producing inflation), why does it matter whether (from an economic standpoint) whether the money is going to the elderly or to the highest income earners?






