History belies theory that tax cuts magically pay for themselves
WASHINGTON -- President Trump is promising "massive tax cuts," "historic tax cuts," the "largest tax cut in our country's history." So this might be a good time to point out: The country doesn't need a tax cut.
Of course, we should have a saner tax system, one less riddled with needless complexities. Most immediately, we should have a saner corporate tax system, one that achieves lower tax rates without losing tax revenue, by broadening the base and eliminating loopholes.
But tax cuts -- not to mention tax cuts of the magnitude that Trump and fellow Republicans contemplate -- are worse than unwarranted. They are dangerous. They would add trillions to the national debt at a point when it is already dangerously large as a share of the economy.
Consider: When Ronald Reagan cut taxes in 1981, the top individual rate was 70 percent; that was reduced to 50 percent. (The current top rate stands at 39.6 percent.) The national debt then amounted to 25 percent of the economy.
Flash-forward to 2001. Implausible as this now sounds, the initial argument for a tax cut then was that massive projected surpluses counseled giving the American people a refund on the taxes they had paid. The worry among Serious People was that the debt would be paid off too quickly. It stood at 31 percent of the economy.
Of course, those surpluses proved illusory, and as the economy faltered, the argument for lowering taxes shifted to economic stimulus, in 2001 and again in 2003.
Where are we now? The Congressional Budget Office reports that in 2013, the most recent analysis available, average federal tax rates were below the 35-year average for all households, except those in the top 1 percent.
So if Americans aren't staggering under an intolerable tax burden, do economic circumstances justify a tax cut? Trump himself keeps crowing about how magnificently the economy is performing under his supervision, with a stock market at record highs, unemployment low, and economic growth strong.
Meanwhile, the national debt is 77 percent of the economy, the highest since the end of World War II. It is on track to exceed the entire gross domestic product by 2033. That is even without a $1.5 trillion tax cut, the amount envisioned in the just-passed budget resolutions.
Don't think this is a problem? Trump himself has disagreed. Accepting the GOP nomination, he lambasted President Obama for overseeing a doubling of the national debt. Issuing his first budget blueprint in May, Trump warned against "passing unsustainable levels of debt on to our children and grandchildren and causing serious economic damage."