When a tax cut is not?
In order to have a perspective on this you need to view our country like you would your family. Admittedly the country is a quite large “family”. You are wanting to have more disposable income available but you can’t figure out where you can cut back on your current expenses. You hope that your income will increase over time, but you really do not have any guarantees. You decide to borrow money to fund this desire and you count it as extra disposable “income”. Is it really? Remember that you will eventually be required to pay back loan and to make matters worse you will have to pay interest on this “income”. You also decide that since you are the primary earner in your family that most of this extra income should be at your disposal and you will only share a small portion of this windfall with your remaining family members. This is exactly how the tax reduction measure of 2017 worked for our larger family. We decided to reduce our taxes by approximately $140 Billion a year, but we did not address reducing any of our expenses. The theory was that this money would be used by investors and consumers in a way that would boost the economy and offset this “loan” through new taxes on “incremental” income (resulting from a vibrant economy). Initially it appeared that this theory might hold water (it did not when President Reagan made a similar effort). The GDP rate picked up during 2018 and actually reached 4% during one quarter. However, that appears to have been a very short-term reaction and 2018 should end up at 3%. This is a very good rate and at the top end of what most economists believe is sustainable. The 2 – 3% range is considered “healthy”. Higher rates have not been sustainable without fueling higher rates of inflation. The trick is to maintain a moderate, sustainable (2 – 3%) rate of growth. The projection for 2019 is 2.5% and 2.0% for 2020. While this is good is would be inaccurate to assume that it is the result of the tax rate adjustment. “President Trump promised to increase economic growth to 4-5 percent. That’s faster than is healthy. Growth at that pace leads to an overconfident irrational exuberance. That creates a boom that leads to a damaging bust. The factors that cause these changes in the business cycle are supply, demand, capital availability, and the market’s perception of the economic future.” The average rate from 2000 to 2017 has been 2.25%, despite the 2008 disaster which was the result of prior loose banking regulations fueling a glut of unreasonable loans. One other noteworthy item regarding the tax cut is the distribution of the approximate $140 billon of annual savings (actually borrowings). Who got the money? Middle & lower class tax payers (incomes under the $183,000) only received 1/3 of the total with the remainder going to the wealthy. Like my small family example, the wealthy have received the same benefit as my head of household! 010