I post expanded notes from my weekly radio show at Autos and Economics on blogspot.com. This week I was asked to comment on Trump’s tax proposals. That’s a moving target, so I shifted my focus to another theme of the Republican candidates: tax cuts will pay for themselves.
- Can you add graphs on what has happened to our structural budget deficit after previous tax cuts? – for example, those under Reagan, Bush Jr and Obama (yes, he passed a big cut as part of the ARRA, the American Recovery and Reinvestment Act of 2009).
- Similarly, can you set up a spreadsheet of base GDP growth versus a hypothetical tax-accelerated GDP growth rate [pick a non-trivial increment, say a bump from 2.5% to 3.0%, a 20 percent boost, greater in magnitude than the tax cut]. Do a net present value calculation of taxes!
- under the base plan (at say 20%) and
- those under the revised level (say 18%, or a 10 percent cut)?
- Now that faster growth won’t be immediate, if it’s a supply-side effect, right? So put in a delay, maybe a phase-in over 4 years.
- How long does it take for the combination of faster growth and lower taxes to generate more revenue than under the base case?
- How robust are those results to modest changes?
- if we add a demand-side effect, 3% growth from the start, how does it change our results?
- what growth is needed for net present value to be equal (at say a 3% discount rate to reflect the low rates anticipated in current long-term bond yields)
So far I’ve not tried doing this, so I suspect what we’ll find, but don’t know the result.
Table in association with comments: