GOP bet­ting that its fix for econ­omy will defy warn­ings

The Standard Journal - - NATIONAL - By Paul Wise­man AP Eco­nom­ics Writer

WASH­ING­TON — The t ax over­haul of 2017 amounts to a high-stakes gam­ble by Republicans in Congress: That slash­ing taxes for cor­po­ra­tions and wealthy in­di­vid­u­als will ac­cel­er­ate growth and as­sure greater pros­per­ity for Amer­i­cans for years to come.

The risks are con­sid­er­able.

A wide range of econ­o­mists and non­par­ti­san an­a­lysts have warned that the bill will likely es­ca­late fed­eral debt, in­ten­sify pres­sure to cut spend­ing on so­cial pro­grams and fur­ther widen Amer­ica’s trou­bling in­come in­equal­ity.

Congress is ex­pected to vote this week on the bill, the most far-reach­ing re­write of the U.S. tax code since 1986. It would shrink cor­po­rate taxes, prod com­pa­nies to re­turn tril­lions in prof­its they’ve kept over­seas, cut taxes on wealthy es­tates and drop tax rates — but only tem­po­rar­ily — for in­di­vid­u­als.

It puts its faith in the prospect that lower taxes will make cor­po­rate Amer­ica turn more gen­er­ous and spend more ex­pan­sively.

“This is a bet on our coun­try’s en­ter­pris­ing spirit, and that is a bet I am will­ing to make,” Ten­nessee Repub­li­can Sen. Bob Corker said Fri­day af­ter drop­ping his pre­vi­ous op­po­si­tion to higher deficits and throw­ing his sup­port be­hind the bill.

In push­ing the plan through a di­vided Congress — no Demo­crat in ei­ther the House or Se­nate backs it — Republicans have in­sisted that the eco­nomic virtues they en­vi­sion from the tax-cut pack­age out­weigh the risks that many an­a­lysts are warn­ing about.

“This is go­ing to be one of the great­est gifts for the mid­dle in­come peo­ple of this coun­try that they’ve ever got­ten for Christ­mas,” Pres­i­dent Don­ald Trump said Satur­day as he pre­pared to leave the White House for the week­end. “Jobs are go­ing to come pour­ing back into this coun­try.”

The leg­is­la­tion would add at least $1 tril­lion to fed­eral deficits that were al­ready sure to swell as baby boomers re­tire and draw on So­cial Se­cu­rity and Medi­care. And the tax- cut’s gains are skewed to­ward wealthy tax­pay­ers, who his­tor­i­cally are less in­clined to spend ad­di­tional money than are house­holds of more mod­est means. One likely re­sult is that cor­po­ra­tions and rich in­di­vid­u­als will widen the eco­nomic gap be­tween them­selves and ev­ery­one else.

Even the po­lit­i­cal cal­cu­lus for the Republicans looks ques­tion­able: A Quin­nip­iac Univer­sity poll found that Amer­i­can vot­ers, con­vinced that the ben­e­fits will flow mainly to cor­po­ra­tions and the wealthy, op­pose the plan 55 per­cent to 26 per­cent.

But Republicans have char­ac­ter­ized the brew of tax cuts as an eco­nomic elixir. The job mar­ket ap­pears healthy. But the pace of eco­nomic growth, though it’s perked up the past two quar­ters, has been un­der­whelm­ing for years. From 2010 to 2016, U. S. growth av­er­aged 2.1 per­cent a year, a pit­tance com­pared with the 3.2 per­cent av­er­age an­nual growth from 1948 through 2016.

Like its coun­ter­parts in Europe and Ja­pan, the U.S. econ­omy has been slowed by a slump in worker pro­duc­tiv­ity, a vi­tal in­gre­di­ent for a ro­bust econ­omy. U.S. pro­duc­tiv­ity — worker out­put per hour — trudged ahead at an av­er­age an­nual rate of just 0.6 per­cent a year from 2011 to 2016, down sharply f rom a postWorld War II av­er­age of 2.1 per­cent.

The more pro­duc­tive that work­ers are, the more their em­ploy­ers can af­ford to pay them. And the more that work­ers are paid, the more they can pro­pel con­sumer spend­ing, the econ­omy’s pri­mary fuel.

Republicans say their cor­po­rate tax cuts of­fer a so­lu­tion to the pro­duc­tiv­ity slump. Their plan will cut the cor­po­rate tax rate from 35 per­cent to 21 per­cent. Multi­na­tional cor­po­ra­tions would re­ceive a one-time tax break on prof­its they’ve kept over­seas, thereby en­cour­ag­ing them to re­turn the money to the United States. Com­pa­nies could write off the full cost of new equip­ment.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.