The House and Senate tax bills are founded on the theory of trickle-down economics, i.e., if you reduce the tax burden on businesses they will have more cash to use to stimulate economic growth, which should ultimately result in more jobs and a spreading of the wealth (Mailbox, Dec. 7). One means proposed by both bills to encourage this is to reduce the top corporate tax rate from 35 percent to 20 percent.
However, I see two indicators that portend the trickle-down effect won't occur. Last month, top economic advisor Gary Cohn met with a large group of CEOs and executives. They were asked to raise their hands if they planned to invest more money in their companies should the corporate tax cut pass. So few hands were raised that Cohn asked, "Why aren't the other hands up?" It is assumed the CEOs would instead use the new cash for share buy-backs or increased dividends, actions which do not stimulate the economy but rather benefit shareholders.
The other negative indicator can be seen in the state of Kansas. In 2012, its GOP-controlled legislature greatly reduced tax rates overall, eliminating them in some cases. To balance this, they also reduced many government services. Well services did shrink, but so did the revenues leading to over a half-billion-dollar deficit in 2016 accompanied by average job growth at best. This spring, the GOP-led legislature overrode the governor's veto and raised state tax rates instead. Trickle-down was a failure.
Most analyses of the two tax bills project a 10-year deficit increase of around $1.5 trillion before accounting for economic growth, $1 trillion after. The former deficit hawks, the GOP, are claiming trickle-down will close the gap but I have my doubts. More likely, the GOP will become deficit acceptors, or perhaps even, advocates.
Sherman Schapiro, Blue Lake