Michigan won’t benefit from GOP tax cut: expert

Very few things are certain, except for the fact that we are all mortal — and that every new Republican president will have a tax “reform” plan.

But what would the current one, which House Republicans call the Tax Cuts and Jobs bill, mean for Michigan?

According to one leading expert on the state’s economy, nothing good. “The first thing to say is that we shouldn’t even be talking about a tax cut now, with the economy at or near full employment,” said Charles Ballard, professor of economics at Michigan State University.

Ballard, a past chair of the department and the author of the book Michigan’s Economic Future: A New Look, isn’t against stimulating the economy when needed.

But now, he says, with unemployment in the state barely above four per cent, “there is very little room for a fiscal stimulus to speed up the growth rate. There just isn’t a big reservoir of unemployed workers,” to put back to work.

What he fears cutting taxes might actually do instead is speed up the next recession. That could happen, he explained, if an overstimulated economy started raising worries about rising inflation. That “could lead to the Federal Reserve to step on the brakes more than they otherwise would have” by raising interest rates.

“From a macroeconomic perspective, I think this is just bad policy,” Ballard said. He conceded, however, that predicting long-term economic trends is difficult.

But he felt much more comfortable about predicting its effects on individuals. Naturally, the tax plan’s features are not set in stone. There are differences between the House and Senate versions.

Amendments are almost certain as the legislative process carries forward. But Republicans do have firm control of all branches of government, and the proposal’s broad outlines are clear and unlikely to change much.

“The tax plan has lots of bells and whistles, but the central organizing principal is to tilt tax policy in favour of those with high incomes — especially if the incomes come from ownership of businesses — and/or high wealth,” the economist said.

Asked for an example, he said “compare the effect on two married couples, both of which get all their income from wages and salaries.” Married couple A has taxable income of a million dollars a year. Married couple B makes $40,000 between them.”

How would they fare under the Trumpendorsed tax plan? The millionaire couple would get an annual tax cut of $29,000.

The poorer couple would see their taxes rise by about $800. The tax plan does call for an increase in some things that would help the poorer couple, including the standard deduction and the child tax credit.

As a result, Ballard admitted that “many families of average means would not see a tax increase” at all. But, he added, “The notion that this is tilted towards average incomes is ridiculous. We should also remember that this would do even less for the poor.”

The way to dramatically help those folks is clear, he said: increase the earned income tax credit, which has been proven to help the working poor. Unfortunately, there’s nothing in either version of the tax bill to beef it up, or expand those eligible.

There is, however, lots of evidence that the GOP plan would drastically increase the national debt — and that is a matter of concern for economist Ballard.

The national debt is US$20.4 trillion, and rising. “The official budget documents estimate that the gross federal debt will reach $23.6 billion by 2022,” Ballard said. The Trumpfavoured tax bill “is estimated to add on another $1.5 trillion.

“I am concerned about the amount of debt we are leaving to our children and grandchildren,” the economist said.

The debt increase, however, could spell serious trouble for the GOP tax plan. Under the rules of the U.S. Senate, bills which the Congressional Budget Office analysts believe would increase the deficit in the long term need at least 60 votes to pass.

But there are only 52 Republican senators — and it is inconceivable that any Democrats would support this tax plan as it stands. Unless the Senate suspends its rules — or makes major changes to this bill, it is hard to imagine it ever reaching the president’s desk.