Ferrara “Why the Republicans’ Tax Reform Plan Will Lead to Economic Boom”

Why the Republicans’ Tax Reform Plan Will Lead to Economic Boom


Originally published in  TheObserver 

For the eight years Barack Obama was president, annual economic growth averaged less than 2 percent, which is the growth rate of a stagnant third world country. But in less than a year, President Donald Trump has the economy booming with 50 percent more economic growth. Unemployment last month fell to a negligible 4.1 percent—the lowest in 17 years.

That is primarily due to Trump’s aggressive deregulation, mostly reversing Obama era overregulation. When the lower tax rates of tax reform become effective, that will kick start growth even more, closer to 4 percent for the long term.

Moreover, because Obama’s recovery from the 2008-09 recession was the worst recovery from a recession Since the Great Depression, there is still a rebound effect within the economy that will push annual growth above 4 percent for the short term. The economy is capable of growing 5 or even 6 percent for a couple of years, until it catches up to the long term trendline of where it should be.

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And this is what tax reform is all about: restoring the advantage of that lost American economic growth. It’s not  about the deficit. Any currently projected deficits are irrelevant. Because under tax reform, we will enjoy a different economy than we have suffered from over the last 10 years.

Yes, deficits, correctly understood, are relevant. But if the economy is growing, deficits will be shrinking, regardless of tax rates. And if the economy is declining, deficits will be rising, regardless of tax rates.

That is why even the score of the Republican tax reform bill by Congress’s Joint Committee on Taxation (JCT) as adding $1.4 trillion to the deficit over the next 10 years is actually good news for Republicans. Because that means that the bill now before Ways and Means is officially scored as fitting into the budget allowance ($1.5 trillion) Republicans provided for tax reform in adopting their budget just a few weeks ago.

But we know from experience with tax reform under both Presidents Kennedy and Reagan that nothing like that deficit increase is going to happen. Reagan cut the top income tax rate from 70 percent when he entered office to 28 percent, with tax cuts of 25 percent in rates for everyone else.

But federal revenues nevertheless doubled while Reagan was president. And the economy took off on a generation long economic boom. Kennedy cut the top income tax rate from 91 percent when he entered office, along with a roughly 23 percent cut in rates for everyone else. That rate cut was revenue positive from the start, and the economy boomed for the rest of the decade.

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