The Wall Street Journal reports:
“The U.S. economy posted its best six-month stretch of growth in three years, rebounding quickly from two hurricanes and showing momentum heading into the year’s final months.
“Gross domestic product — the broadest measure of goods and services made in the U.S. — expanded at a 3% annual rate in the third quarter, the Commerce Department said Friday. Output grew at a 3.1% rate in the second quarter.”
“The last time the economy strung together two quarters of at least 3% growth was mid-2014. It is too early to tell whether the latest performance can be sustained.”
Once again, economic data underscores the specious argument for a giant tax cut for the rich. As we have discussed, tax cuts’ connection to growth has been widely questioned. In any event, if we are growing at 3 percent already and unemployment remains below 5 percent, the grow-the-economy-by-giving-the-rich-tax-cuts argument makes less and less sense. If we want continued economic growth, doing nothing about the total level of taxation seems reasonable.
How we distribute the tax burden, however, is another matter. Democrats are going to town on the Republicans’ plan to make the rich even richer. Senate Minority Leader Charles E. Schumer, D-N.Y., writes in USA Today:
“Reagan-era tax reform wasn’t designed to completely favor big corporations and the wealthy over the middle class. While the 1986 law lowered the top rate on individuals and businesses, it also expanded the personal exemption and the earned income tax credit. It eliminated corporate tax breaks and actually raised the tax on capital gains.
”[President] Trump’s plan, by contrast, would slash taxes for the top tax bracket, repeal the estate tax, and create a huge new loophole by reducing the rate on pass-through entities, allowing wealthy law firms and hedge fund managers to circumvent higher tax rates. The Tax Policy Center estimates that the top 1% will enjoy 80% of the benefits from Trump’s plan - while a third of middle-class taxpayers will be paying more in taxes by 2027.”
The 1986 model that Schumer speaks approvingly of aims to “simplify the tax code by bringing down rates while at the same time closing loopholes in the tax code. It did those two things in precise unison so that while the tax code got fairer and simpler, it would not add a penny to the deficit.”
We have a widening divide in income distribution — which in turn creates a wide divide in income, health, education, longevity and many other measures of a happy and healthy life. Rather than widen the divide, why not use tax reform to narrow it? That’s what poverty fighters both on the left and the right advocate. Dylan Matthews on Vox writes that the Senate Democrats are working on a plan to vastly expand the child tax credit:
“The benefits would be distributed monthly, in advance, so that families can pace out their spending and smooth their incomes. Because the CTC, like the earned income tax credit, is currently paid out through tax refunds, it sometimes leads to a perverse situation in which families use it to pay down debt they never would’ve had to incur if they’d gotten the money earlier.
“The value of the new credits would be indexed to inflation, unlike the current $1,000 credit, which loses value every year.
“The credits would phase out for high-income individuals, just like the child tax credit today does, with phaseout beginning at $75,000 a year in income for single parents and $110,000 for married couples.
“For middle-class families earning $40,000 to $100,000 a year, the plan would result in a huge increase in monthly income, especially when kids are young and need diapers, cribs, strollers, and new clothes to replace quickly outgrown old ones.”
Such a plan would cut the child poverty rate in half, according to some analyses. In real terms, this means that the change would “lift 5.3 million children out of poverty and 1.9 million out of deep poverty. ... Another 4.2 million adults would be lifted out of poverty and 1.2 million out of deep poverty. ... The overall poverty rate would be 20 percent lower.”
Treasury Secretary Steven Mnuchin says it is hard to cut taxes without benefiting the rich. That’s hooey. He’s looking in the wrong place. We should not be cutting the marginal rate for those at the top, eliminating the estate tax or creating a 25 percent rate for pass-throughs. Instead, conservatives who have pushed for an expanded child tax credit, as Sen. Marco Rubio, R-Fla., did in the presidential campaign, should rule out a Goldman Sachs-devised tax plan and instead seek to benefit the middle class and poor. And if Ivanka Trump is serious about helping children and assisting with child care, she should join the effort.