Analysis, Commentary

New Report Destroys Supply-Side Tax Cut Myths

D.C. Capitol at dawn
The Capitol is seen at dawn in Washington, D.C., on Tuesday, October 24, 2017. AP/J. Scott Applewhite

Washington, D.C. —(ENEWSPF)—October 26, 2017

By: Christian Weller

A look at the economic effects of past supply-side tax cuts, such as the ones President Donald Trump and congressional Republican leaders are now proposing under the guise of tax reform, show that such tax cuts have never led to measurable acceleration of economic growth nor clear improvements for workers, a new report from the Center for American Progress (CAP) says.

“The Trump White House, Congressional Republican leaders, and big business interests have long said that the benefits from tax cuts for top earners and big businesses would trickle down to average American workers. This is a myth. In fact, the record shows that tax cuts for millionaires, billionaires, and highly profitable corporations do not boost economic growth or raise workers’ wages,” said Christian Weller, CAP senior fellow and author of the report. “The massive tax cuts that Trump wants to ram through Congress won’t help the economy or everyday Americans, but they will explode the deficit, worsen income inequality, and provide a boon to Wall Street.”

As CAP’s report explains, the proposed Trump tax cuts would constitute a windfall for wealthy households that have already seen outsized gains in income since the early 2000s, and as corporations remain highly profitable in the current tax environment, they will simply use their earnings to boost shareholders’ returns rather than productively invest their cash. If additional money mattered as much for investments and economic growth as proponents of supply-side tax cuts claim, there would have been a massive investment boom for much of the past two decades instead of the lackluster performance that actually occurred. Instead, corporate tax cuts on domestic profits have benefited and will continue to benefit shareholders—not the broader economy.

The key to driving investment upward is more demand from consumers, but as CAP’s report explains, the richest Americans are less likely to spend the additional income from tax cuts than moderate-income taxpayers, who could use the additional income on household necessities. The massive tax cuts proposed by President Trump and congressional Republican leaders will not result in faster growth because they waste enormous public resources on those who need extra cash the least. Moreover, economic growth after the tax cuts under former Presidents Ronald Reagan in 1981 and George W. Bush in 2001 was no stronger than the economic performance after the 1993 and 2012 tax increases under former Presidents Bill Clinton and Barack Obama.

Click here to read “Supply-Side Follies: Wasteful Tax Cuts Will Not Boost the Economy” by Christian E. Weller.