President Donald Trump and his economic team insist that slashing taxes will boost growth and jobs. But empirical data suggest otherwise.
For almost a decade now, the growth in real (inflation-adjusted) Gross Domestic Product has averaged about 2 percent per year.
The president, along with Treasury Secretary Steve Mnuchin, insists that large tax cuts will have highly stimulative effects on the economy causing GDP growth in excess of 3 percent (Trump claims 4 percent), more jobs and increases in economic activity (and taxes) sufficient to cover expected deficits.
Former Presidents Ronald Reagan and George W. Bush implemented large tax cuts early in their presidencies. Kansas Gov. Sam Brownback did the same — pushing through the largest tax cuts in the state’s history — during his first year in office.
In all three cases, large deficits followed, unemployment increased and productivity fell after first increasing in the case of Bush.
Reagan was forced to raise taxes 11 times after his early tax cut. Bush’s tax cuts turned a budget surplus, inherited from President Bill Clinton, into large deficits. Brownback was forced to make huge cuts in public services, with the biggest coming in education.
There is another consideration: The global economy has changed since Reagan was president.
Bush apparently did not recognize the impacts of the changes taking place during his terms in office.
With the globalization of business and industry, the improvements and cost reductions in telecommunications and transport and the increasing mobility of capital, global competition has dramatically intensified.
This intensely competitive environment is resulting in lower rates of real growth, particularly in the developed world.
Beware of offers of a “free lunch.”
Joseph Steinman, Ponte Vedra Beach