We should cut our taxes as President Donald Trump proposes. Why? Because the Congressional Budget Office (CBO) says it’s a bad idea. Therefore, it’s really a great idea.
Congress asks the CBO to score tax proposals. To predict how much money a tax increase will raise. Or how much a tax cut will lose for Washington.
There is a small problem. The CBO is worse than your dog at this task. Its record is abominable. I think the CBO is the training ground for bad weathermen.
Here is one example of how stupid the CBO is with predictions. Remember President Obama? He increased tax rates. The CBO scored the increases and predicted they would haul in an extra $450 billion over 10 years.
After a few years, even your dog could tell the CBO goofed. So, the CBO, ahem, adjusted its predictions. New prediction: Revenues would go down by $4.2 trillion over 10 years.
Look at the last two times we raised tax rates on capital gains. The CBO predicted the higher rates would pull in more government revenue. Result: We pulled in less revenue.
Today, President Trump says we should cut tax rates on income. Predictably, the CBO forecasts that the lower rates will shrink revenue to the federal government.
Today, the president says we should cut rates on capital gains. And the CBO predicts the lower rates will cut revenue coming to Washington.
Now, you may be one of those people who thinks the president is an idiot. But, if you are in the idiot-studying business, you should include the CBO in your studies.
The president has done a lot better with his predictions than the CBO has with their calls.
Let’s be fair to the CBO. Congress tells it to predict in a “static” manner — meaning it predicts in a straight line largely without regard to how tax changes influence human behavior.
Congress should tell the CBO to predict in “dynamic” fashion. Dynamic scoring figures people and businesses behave differently at different tax rates. Tax Ralph at 60 percent, and he hides his income and pays zip. Tax him at 20 percent and he confesses and pays up. Tax Ralph, Inc. at 50 percent and the company moves overseas. Cut the company’s tax rate and it will stay here or move operations back here.
Back to why we should cut our taxes as the president proposes. Here is a good reason: Our previous president did the opposite.
The economy was in trouble and President Obama raised income taxes on high earners. He added many new taxes by way of Obamacare. Result: Not good. We suffered the most anemic economic recovery from a recession since WW II.
Today, the economy is in trouble. The last two quarters of GDP growth were not good, because of that anemic growth that has been going on for years. So, President
Trump proposes cutting tax rates. This is the opposite of what President Obama did for an economy in trouble.
In other words, let us not listen to the CBO. When it predicts on a static basis, it gets things horribly wrong. And let us not do what Obama did to a weak economy. Let us do the opposite.
The opposite has a good track record. Before Reagan, we had the Carter years. Again, anemic days for the economy.
So, Reagan cut tax rates and the economy roared. The CBO also said his tax cuts would shrink revenues for Washington. Instead, money poured in. In Reagan’s last six years, government revenues grew at double-digit rates every year. Many people complain that lower tax rates will hurt our federal budget. The Reagan years prove the opposite. (Our earlier history with tax cuts does as well.)
We have lost many companies because our taxes on them were too high. We tax companies at rates higher than all other developed countries. If we slash those rates, we will attract businesses to our shores. And we will make our companies more competitive.
If you are in the prayer business, I hope you pray Congress gets its head out of the sand and cuts our taxes.
From Tom…as in Morgan.
Tom Morgan writes about political, financial, and other subjects from his home near Oneonta. Several upstate radio stations carry his daily commentary, Tom Morgan’s Money Talk. Contact him at tomasinmorgan@yahoo.com