Democratic plan to scuttle tax cuts would have big consequences

  • 13 September 2018
  • NormanL

It's no secret Democrats plan to scuttle the tax cuts Congress passed at the beginning of the year should they regain control of Congress. They are particularly eager to raises the corporate tax rate, believing it's both politically easy and potentially lucrative.

But as the Tax Foundation notes, raising the rate even one percentage point could have devastating effects on the economy:

Raising the corporate tax rate increases the cost of making investments in the United States. Under a higher tax rate, some investments wouldn’t be made, which leads to less capital formation and fewer jobs, with lower wages.

For example, permanently raising the corporate rate by 1 percentage point to 22 percent would reduce long-run GDP by over $56 billion; the smaller economy would result in a 0.5 percent decrease in capital stock, 0.18 percent decrease in wages, and 44,500 fewer full-time equivalent jobs. Raising the rate to 25 percent would reduce GDP by more than $220 billion and result in 175,700 fewer jobs.

Recent data have shown quite conclusively how the tax cuts have helped the economy, creating jobs, boosting wages, and even putting a bit more money into Uncle Sam's coffers. 

Bringing all of that to a halt in order to shore up the welfare state makes no economic sense. But if the Democrats' aim is to toss the economy into recession, and force more folks onto the federal dole, then it's genius. 

Worse, though, is there are plenty of Democratic voters who not only believe higher taxes are necessary, but want them to be higher than their candidates have already proposed. This is a sure-fire path to fiscal ruin. The way to stop it? 

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