04-26-2017, 07:14 PM
Expect a lot of "dynamic scoring" (arguing that the tax cuts boost growth so much that they're budget neutral, or close to that). In fact, Mnuchin already said as much. This isn't likely, for a host of reasons:
- Business investment, which is the main mechanism through which this accelerated growth is supposed to arrive, isn't very sensitive to interest rates so it isn't very sensitive to tax rates either
- Anyway, businesses aren't exactly lacking funds to invest. Profits are at record highs, interest rates still near record lows, companies sitting on records amount of cash. Unlikely a tax cut will make a big difference. Companies prefer to return cash to shareholders.
- The economy is nearing supply constraints, the growth of the labor force is much less compared to a decade ago, and much more dependent on immigrants (for up to half that growth). Productivity growth is sluggish and can only be revived after years of sustained increase in investments.
- The tax cuts are likely to be highly regressive (abolishing the estate tax, the drastic reduction in corporate tax, the pass-through tax, etc.) which is likely to shift income from low savers to high savers. This could turn out to be deflationary.