Just to go on the record, I don’t believe that cuts in the personal income tax will of themselves boost economic growth. Let’s be clear: nobody is proposing simply to cut the marginal rates in the personal income tax. They’re proposing to trim the marginal rates and borrow to fill the hole in the budget the loss of revenue the reduction in tax rates will cause. There’s no way they can cut spending to fit the loss of revenue without doing just about the opposite of what the incoming administration has been saying.
The idea that cutting the personal income tax will cause a substantial increase in domestic investment hasn’t been thought out. It will probably produce a small increase in domestic investment but it will also produce additional consumption (mostly of imported goods and possibly real estate) and overseas investment. How much of each? Nobody knows.
If the plan is to expand the private economy, more will need to be done than cuts in the personal income tax. We’ll need incentives for domestic investment and disincentives for overseas investment, too.
Further, there’s no particularly good reason that increasing federal borrowing to pay for a tax cut will have much more effect than increasing federal borrowing without a tax cut. Keep all of this in mind when you listen to the incoming administration and Congress’s plans for the future.
What do I think should be done? I think that we should bring the business income tax into line with the business taxes in other OECD countries and pay for the reduction in revenue that would produce by adding a new, higher bracket above the present top bracket. I also think we should replace the personal income tax with a VAT but that’s a subject for another time.
If the incoming administration wants to cut personal taxes they should do so by advocating a reduction in the payroll tax, replacing the lost revenue from the tax with general revenues. Heck, I think we should abandon the present fund accounting but that, too, is a subject for another time.
More money for working people rather than more money for rich people? What do you figure is the chance of that happening? Greater or less than 1%?
Never tell me the odds!
I think it’s pretty darned unlikely. You’ve got to admit that I’m consistent. I wish more people understood this:
Increasingly relying on the payroll tax for revenue is an outrage.
I agree, especially since it barely touches high income people. In a good year the percentage of our income subject to payroll taxes is about a tenth of our gross. In a bad year it’s 20%. Which makes it largely irrelevant to me while it is a burden for a working stiff. It’s really incredibly regressive, one more huge tax break for the well-off.
I don’t favor personal income tax increases, though I do favor the elimination of any deductions that are politically possible, “paid for” by reduction in rates. I believe the House Republican plan purports to eliminate everything except the home mortgage and charitable giving deductions, so that is probably what is politically doable, though the rate cuts go beyond paying for deductions.
I strongly support reducing corporate tax rates, and generally support what I’ve seen of the House Republican plan with qualifications. I think the expensing rules are too rigorous, but I’m not sure what the implications might be if there are no limits. I also don’t know why flow-through entities should be treated as corporations; this looks to me like a huge tax break for professional and financial services workers making six-figures or more.
It may be that as a political matter, cutting corporate taxes requires personal income tax relief as well, and given Republican focus on marginal tax rates, the political outcome is tax cuts all around. I don’t even know if payroll tax cuts are politically feasible given their presumed importance to its acceptance as something “paid for.”
Guess I should support this since the flow-through cuts would be huge for me. Just not sure why people in my income group or profession deserve special treatment. To be sure, my best guess is that this will somehow be reduced so that it only applies to financial people and those in real estate.
Get rid of the corporate income tax. Institute a VAT.
Steve