Tax Cuts...Again? (Part II)

It has been a week since the Trump Administration announced its framework for tax simplification and rate cuts. A week in the Time of Trump seem like a month to a year in the past. The past week has seen the continuation of the feud with the NFL, the devastation of Puerto Rico, the feud between Trump and his supporters and the mayor of San Juan, and now the Las Vegas massacre. Still, parties on the Hill are working on this tax cut, so it seems very important to look between the covers at some numbers.

In my previous post I pointed out that these tax cuts serve to disproportionately benefit the wealthiest 1% of the country. Gary Cohn refused to answer the question of wether the tax cuts would benefit the wealthy, saying only that he thought everyone was concerned with what they would be getting. How true! And no one is able to determine if the tax cuts will benefit Trump (he says they won't) because he still hasn't released his tax returns. So let's look at some numbers and charts.

First question: Do we need more or less taxes? Looking at a chart of the Debt to GDP ratio says we do. The ratio of debt to GDP is rising to the levels that haven't been seen since WW II - debt above 100% of GDP.

Notice though that revenues have remained pretty much in the same band, between 15% and 20% of GDP (brown points). Here's a chart of Receipts as a percentage of GDP:

Outlays have tended to remain between 15% and 25% of GDP:

The difference between Outlays and Receipts is our Surplus or Deficit:

WW II was a global fight for Democracy, funded by war bonds and deficit spending. That "Greatest Generation" didn't want to pass on debt to their children and hiked marginal tax rates to payoff all that debt. And despite those high marginal rates businesses and individuals thrived and grew. Today, we argue that high tax rates are a disincentive to businesses and individuals, but history doesn't agree. And history also doesn't support the idea that tax cuts lead to economic growth.

Here's a chart of the marginal rates:

By 1988, Regan had cut the marginal rate to 28%. If you refer back to the first chart of Debt to GDP, that was the year that the debt had fallen to its lowest level after WW II. The Regan tax cuts and subsequent Bush tax cuts sent the debt levels back up again.

We can't afford any more tax cuts. Our infrastructure, our bridges and highways and water systems and electrical grid, is old and needs replacement. The effects of climate change are going to cost money as more and more superstorms hit our shores. These are new outlays, added to our existing debt. It is time to say no to Trump's tax cuts and have the rich pay their fair share by increasing marginal rates.