Virtually No Economist Believes the GOP Tax Bill Will Generate Much Growth
The $1.5 trillion growth dividends that Republicans project on their tax bill remained the same at 20% and at 21% , this shows that they are picking the figure out of the air, and it is “pretty far-fetched,” says economist Dean Baker
SHARMINI PERIES: It’s the Real News Network. I’m Sharmini Peries coming to you from Baltimore. Congressional Republicans have reached a deal on final tax legislation. President Trump was quick on his feet to say he would back a corporate tax rate of 21%. Dean Baker is joining us today to give his take. Dean, as you know, is co-director of the Center of Economic and Policy Research and is the author of the book, ‘Rigged: How Globalization and the Rules of Modern Economy Were Structured to Make the Rich Richer.’ And he’s a regular here on the Real News Network. Thanks for joining us, Dean.
DEAN BAKER: Thanks for having me on.
SHARMINI PERIES: So, Dean, the tax rate went from 20 to 21%. What’s the significance of that?
DEAN BAKER: Well, they’re trying to find the revenue that … They’re assuming that they have a $1.5 trillion growth dividend and they’re trying to work within that and in order to stay within that, they decided they could only do a 21% rate, or cut to a 21% rate, instead of the 20% rate that had originally been in the both House and Senate bill. Now, the irony of this is they came up with this $1.5 trillion growth dividend that no other economist or, I’ll just say, virtually no other economist considers serious. There could be some very modest boost to growth from lowering the corporate tax rate, but the idea that it would be large enough to give you $1.5 trillion in additional revenues is by most accounts, pretty far-fetched. Now, what’s striking here is that assumption of a $1.5 trillion growth dividend was based on a 20% tax rate. Now, they’re looking at a 21% tax rate, they’re assuming the same growth dividend. Which, kind of points out that this is a joke. This is … They just pulled a number out of the air and they said, “Okay, we’re gonna get $1.5 trillion in revenue and then we’re gonna make it otherwise fit.” And, again, that’s not the worst thing about the tax cut, but it just points out how unserious this really is as policy, it’s about giving more money to rich people. End of story.
SHARMINI PERIES: All right, now, this is the corporate tax rate and the assumption here even compensating for what you’re saying there in terms of revenue or even if it is pulled out of a hat here, the overall reason for reducing it from 35 now to 21 is to get the economy going, growing, and hopefully it’ll trickle down to some of us. Is there still that kind of argument being made and is that going to work?
DEAN BAKER: Well, it is the argument they’re making. And, again, the cynicism that they’re selling the exact same story whether it’s 21% or 20%, it’s kind of striking, but the evidence … We’ve done this before. I mean, there’s a lot of evidence on this. We lowered the corporate tax rate back in the mid ’80s. The ’86 tax cut lowered the corporate rate from 46% to 35%. That didn’t produce any investment in growth bloom, in fact, in the next two years, investment actually fell relative to the size of the economy. So, this idea that we’re gonna cut the corporate tax rate, they’ll be some big boom, there’s basically nothing to support that.
The other point to keep in mind here is you already have had a huge increase in after tax corporate profits. That’s what provides the incentive. It doesn’t matter whether you have high after tax corporate profit rates because you have a low tax rate, or because you have high before tax profits. And, in the last, you know, five, six, seven years, we’ve had a very high before tax profits basically because the weak labor market has been a big hit to workers. And that’s not much any boom in investment. So, it’s very, very hard to see that story.
Now, the one point I will make is the economy’s actually, is doing pretty good right now. We had very good growth in the third quarter. We’re looking at probably a pretty good growth in the fourth quarter, and actually, workers are seeing some wage increases. So, that’s a pretty good story, but of course, has nothing to do with their tax cut. My best guess is their tax cut probably won’t have much impact in the economy. What might have an impact is when they wanna pay for it by cutting social programs. But, the cut itself is not gonna give us a boom.
SHARMINI PERIES: Speaking of social programs, what kind of things might be on the chopping block?
DEAN BAKER: Well, pretty much everything people have depended on. So, Medicare, Medicaid, the Children’s Health Insurance Program, the food stamp program. All these things are likely to be on the block and I should point out under current roles, the current budget roles that are enforced, it’s mandatory that they do make these cutbacks. Now, they could vote to change that and some of the Republicans indicated that they will, but as the law stands now, you’re gonna see it cut somewhat to the order of $24 billion next year to Medicare and that will continue. There’d be further cuts in later years. So, you’re looking at large cuts to a lot of programs that tens of millions of people depend on.
SHARMINI PERIES: All right, Dean, talking about social programs, USDA at this time is signaling that they will give greater flexibility to the states as far as administering food stamps, for example. This means that perhaps opening a door for drug testing. And also Governor Scott Walker in Wisconsin has been talking about doing drug testing before they hand out the very minimal subsistence level food stamps to people who are poor. Now, are these the kinds of programs that are going to get a big, huge setback as a result of this new tax bill and are these the kinds of social programs and times we need to expect with this tax bill?
DEAN BAKER: Well, there’s certainly a real risk that they’ll get this through. And, you know, just to be clear, you know, they’re going about welfare like this is a huge thing in the budget. We spend 1.7% of the federal budget on food stamps, and the average beneficiary gets somewhat to the order of $140 per person, per month. So, the idea that we have this large population living high on the hog on food stamps and that’s driving up everyone’s tax bills, it’s basically nuts. And they persist in this myth, you know, they want everyone to be drug tested for their $140 a month, I guess I’d be open to do that if we also had drug testing for their tax refunds. Let’s see what they say about that. I mean, the idea you’re getting something from the government, Donald Trump and his friends get a hell of a lot more from the government every single day than most of the people on food stamps will get in their lifetime.
SHARMINI PERIES: All right, Dean, I thank you so much for joining us.
DEAN BAKER: Thanks for having me on.
SHARMINI PERIES: And thank you for joining us here on the Real News Network.